Drawing on research and global experience, Munro O’Dwyer explains why the creation of a sustainable State pension system is a knotty – but not insurmountable – challenge. The Pensions Commission was established in November 2020 to “examine sustainability and eligibility issues… and outline options for the Government to address issues including qualifying age, contribution rates, total contributions and eligibility requirements”. One of the terms of reference was to examine how private sector employment contracts specifying retirement ages below the State pension age may impact on the State’s finances and pension system. While the report is yet to be published, it is of interest to look at the retirement ages and policies of other countries to put Ireland’s approach into context. Many countries have adopted policies that seek to tap into the social and economic benefits of longer working lives. The United States abolished mandatory retirement in 1986 while, with some exceptions, New Zealand followed in 1999 and Australia in 2004. The UK followed suit in 2011, although a compulsory retirement age remains. This can apply if a job requires certain physical abilities or has an age limit set by law. The PwC Golden Age Index helps to explain the rationale for these policies. The Index is a weighted average of seven indicators, which reflect the labour market impact of workers aged over 55 in OECD countries, including employment, earnings, and training. The most recent report identifies that the OECD could achieve a $3.5 trillion boost to GDP in the long-term if countries raise the employment rates of those aged over 55 to match New Zealand levels (with New Zealand having the greatest level of employment market participation across older workers). For Ireland, the potential gain was estimated to be around 9% of GDP, or roughly €25 billion. The Index identified key drivers of employment for older workers – successful policy measures include increasing the retirement age, supporting flexible working, improving the flexibility of pensions, and further training and support for older workers to become ‘digital adopters’. So, what influences the age to which we work? Many factors influence workforce participation at older ages, from marital status to gender participation gaps and public expenditure on family benefits, among others. It is interesting to step through a few of the factors in more detail in the context of the debate in Ireland. It is reasonably intuitive that life expectancy generally has a positive impact on employment patterns for older workers as the longer people are expected to live, the more likely they are to spend more of their life working. Life expectancy also captures other factors that may influence the employment rate for older workers – the level of health, for example, which could be impacted by healthcare policies, medical advances, and technological developments. Repeated studies have shown that health influences the age at which a worker retires. Greater expenditure on pensions is expected to reduce the incentive for older workers to participate in work, as increases in State pension wealth are associated with a lower retirement age. Interestingly, studies across several countries on the effect of general employment protection laws and age discrimination laws have been mixed. Some studies argue that these laws negatively affect employment among older workers, as employers see older workers as a greater burden if they have greater protection, even though the intended effect is to help improve employment prospects for older workers. This highlights the complexity involved in setting retirement ages and supporting older workers to participate in the workforce. What burden will fall on younger generations? Much has been written about the potential for significant changes in Ireland’s demographics, with the dependency ratio (the number of persons in employment relative to those in receipt of pension benefits) projected to fall over the coming decades. This will potentially create strains around the financing of the system into the future and may create a perceived intergenerational inequity. The Pensions Commission is tasked with identifying measures to review the projected changes in demographics, earnings, and the labour market, and the associated costs of these changes. Aside from potential pension financing cost arguments, will longer working lives limit opportunities for younger workers? The argument is often made that the amount of work in an economy is fixed, so one more job for an older person means one less job for a younger person (the ‘lump of labour’ theory). Research has repeatedly shown that this theory is not observable in practice, and instead identifies that the number of jobs in an economy is elastic – labour markets are dynamic, and economies adapt to labour force changes. Simply put, an economy can and will create more employment opportunities to reflect extra participants entering the labour force. Policies enforcing mandatory retirement ages do not help create jobs for younger members of the workforce. In fact, they reduce the ability of older workers to contribute – both directly and in terms of the experience they bring. What other perspectives exist? In a recent Ibec survey, 67% of respondents believed that abolishing an employer’s right to fix a retirement age would have a negative impact on their business, although 73% of those surveyed also consider retaining staff beyond their fixed retirement age, with most of those surveyed using the option of a post-retirement fixed-term contract. Arguably, these responses are somewhat in conflict with each other, highlighting the complexity of the issues in question. A key concern of employers is that the current legislative framework presents many difficulties, particularly where an employer seeks to facilitate employee requests to work longer. Similar concerns were identified in terms of employers’ ability to conduct effective workforce planning. In contrast, the Citizens’ Assembly has called for an end to mandatory retirement ages. Allied to the introduction of pension auto-enrolment, these were seen as the most appropriate means of responding to the challenges created by the State’s ageing population. An Interdepartmental Group on Fuller Working Lives reported that retirement at the age of 65 was impractical given the potential for a gap to emerge between that age and the State pension age. To the extent that there is common ground, it is arguably around setting the retirement age at a level consistent with the State pension age. This would address the gap that would otherwise emerge for employees leaving the workforce, but who are ineligible for State pension benefits. What model should Ireland adopt? Looking at experience globally, the State pension age is simply a single aspect of a complex system. Contribution and coverage levels across the private pension system, mandatory retirement ages, the role of the State in providing social insurance benefits, employment levels more generally – the range of factors goes on and on. There is greater consensus around what “good” might look like. Where people live longer and healthier lives, the wish is that employees will want to, and will be supported to, remain in the workforce for longer, which in turn enables increases to the State pension age. Increases to the State pension age in turn allow the payment amount to keep pace with the expectations of retirees. This virtuous circle then supports greater sustainability across the social protection system. The Pension Commission report will offer several proposals for consideration. It is to be hoped that decisions made will set the course for a sustainable pension system that appropriately supports generations of retirees into the future. Munro O’Dwyer is a Partner at PwC Ireland.

Each year, the Irish Auditing and Accounting Supervisory Authority (IAASA) publishes a paper outlining areas to which entities should give extra attention when preparing their annual financial statements. Maurice Barrett explains the most recent findings. In September, IAASA published its most recent Observations paper, Observations on Selected Financial Reporting Issues – Years Ending On or After 31 December 2021. While directed primarily at the comparatively small number of issuers falling within IAASA’s accounting enforcement remit, the topics covered in the paper are relevant to a wide population of entities. The Observations paper is written primarily from an IFRS perspective. However, most of the topics covered apply equally to entities applying FRSs. To that extent, IAASA encourages the broadest distribution and application of the topics referenced in the Observations paper. Recurring themes There are recurring themes that appear in the Observations paper year after year, the more common of these being: Tailoring of disclosures to the specific circumstances of the entity and avoiding boilerplate disclosures; and Disclosing the significant judgements and sources of estimation uncertainty and changes in the key assumptions underpinning assets, liabilities, income, expenses and cash flows. The objective of financial statements is to provide financial information about the reporting entity that is useful to users of the reports in deciding to provide resources to the entity. That objective is achieved, at least in part, by ensuring that disclosures are tailored to the specific circumstances applying to the entity in the reporting period. The provision of boilerplate information by, for example, repeating large tracts of IFRSs in the accounting policies section of financial statements is unlikely to be seen by users as useful information. Similarly, devoting time to crafting the disclosures around the significant judgements and sources of estimation uncertainty and changes in the key assumptions should result in user-relevant information being given. Judgements and uncertainty vary from entity to entity and over time, sometimes with speed (the COVID-19 pandemic illustrated just how quickly the economic landscape can change and just how flexible and adaptable business models can be). Financial statement disclosures need to be continually examined and adapted to the business environment as circumstances evolve. The disclosures that were appropriate last year may no longer provide users with decision-useful information this year. COVID-19 COVID-19 and the public health measures put in place to contain its spread had different impacts on different sectors of the economy. Similarly, the speed and duration of any recovery are expected to impact various sectors differently. It is important for issuers to clearly explain in the management report both the impact COVID-19 has had on the development and performance of its business and the position of the issuer, and management’s views as to the path to recovery. Depending on the specific circumstances of the issuer, some of the COVID-19 matters that IAASA expects issuers might disclose in their financial statements are: A discussion of the impact of COVID-19 restrictions on the economies or markets in which the issuer operates; The continued impact of COVID-19 restrictions on the entity’s broader financial performance such as raw material price increases, margin reduction, or supply chain constraints; and How financial performance, financial position, and cash flows will likely be impacted by the pandemic and/or the economic recovery. These disclosures should reflect the impact of the pandemic on the recognition, measurement, presentation and disclosures in the financial statements, including impairments (IAS 36), expected credit losses (IFRS 9), going concern (IAS 1) and provisions (IAS 37). Climate change The IASB published Effects of Climate-Related Matters on Financial Statements, highlighting how IFRS require entities to consider climate-related matters when the impact is material to their financial statements. This educational material complements an article that IASB member, Nick Anderson, wrote on this subject in 2019. The IASB paper and the related educational material are available on the IASB website. The educational material contains a non-exhaustive list of examples of when entities may need to consider climate-related matters in their financial reporting. It aims to support the consistent application of IFRS, but it does not add to or change the requirements in the standards. The list of examples provides guidance on how issuers might consider the effects of climate-related matters when applying IFRS, including IAS 1, IAS 2, IAS 12, IAS 16, IAS 38, IAS 36, IAS 37, IFRS 7, IFRS 9, IFRS 13 and IFRS 17. Entities, recognising that investors are increasingly demanding ESG (environmental, social and governance) information, should consider this educational material when assessing the impacts of climate change and risks in their financial statements. This is particularly relevant in the areas of judgements, provisions and measurement of assets (asset lives and recoverable amounts). Impairment Impairment continues to be an area of focus in IAASA’s financial statement examinations and is a recurring theme in our annual Observations paper. IAASA challenged issuers where no impairment testing was performed, yet impairment indicators in the context of COVID-19 restrictions (travel restrictions, non-essential activities closed) were in place; the decline in certain issuers’ revenues, profits and operational activities; and issuers operating at less than normal capacity. IAASA concluded that these happenings were indicators of impairment, and these issuers should have carried out an impairment review. Accordingly, IAASA required such issuers to perform an impairment review in accordance with IAS 36. Management, directors and audit committees must ensure that impairment reviews are performed when indicators of impairment are identified to ensure that an asset or cash-generating unit (CGU) is carried at not more than its recoverable amount. IAASA will continue to challenge issuers on IAS 36-related topics, including: Whether or not CGUs have been tested for impairment at an appropriate level; The discount rate used to measure the recoverable amount and whether or not that rate has been appropriately set; The determination of the key assumptions used, the long-term growth rates used and the disclosure of sensitivities; and Whether or not all key assumptions are realistic and consistent with other information in the financial statements. While the depth and duration of the impact of COVID-19 restrictions and the trajectory of any recovery remain uncertain, there are signs that restrictions are being eased and the Irish vaccination programme is enabling a re-opening of society. Consequently, relief and supports will be unwound over time and the longer-term impacts on expected credit losses will become apparent. IAASA reminds entities to continue to consider ESMA’s public statement Accounting Implications of the COVID-19 Outbreak on the Calculation of Expected Credit Losses in Accordance with IFRS 9. IAASA expects financial institutions to distinguish between measures and reliefs that impact the credit risk of financial instruments over the expected life of financial assets and those that address the temporary liquidity constraints of borrowers and apply IFRS 9 accordingly in preparing their financial statements. Fair values COVID-19 restrictions continue to pose challenges to fair valuation measurement (including the fair valuation of non-financial assets and liabilities) for many entities. The impacts of the pandemic are likely to result in changes to the valuation methodologies used, as well as to fair valuation assumptions. Entities should continue to consider: Changes in valuation techniques; Independent valuation reports and pre- or post-COVID-19 fair value assumptions and transactions; and COVID-19 expanded fair value disclosures – sensitivity. IAASA has noted certain issuers recognising deferred contingent liabilities arising from past acquisitions. It observes that volatility in the expected future EBITDA, forecast cash flows, and/or risk-adjusted discount rate(s) due to COVID-19, Brexit and economic disruption may result in volatility in the fair value measurement of deferred contingent liabilities. IAASA expects issuers to ensure deferred contingent liabilities are measured in accordance with the requirements of IFRS 13 and disclosed in line with the requirements of IFRS 13.93(d). Alternative performance measures ESMA’s Guidelines on Alternative Performance Measures (APM) have been in force since 2016. These APM guidelines are supplemented by a series of questions and answers, which provide guidance on the practical application of the APM guidelines. IAASA continues to examine issuers’ use of APMs and continues to identify shortcomings in the application of, and non-compliance with, the requirements of the APM guidelines, including instances where issuers: Present APMs with more prominence and emphasis or authority than measures directly stemming from the IFRS-based financial statements; Fail to provide reconciliations for all APMs presented; Use incorrect labels to describe APMs (e.g. the expression ‘EBITDA’ is used rather than ‘Adjusted EBITDA’); Fail to define an APM or fail to set out the basis of the calculation applied, including details of any material hypotheses or assumptions used; Fail to explain the use of APMs; and Fail to present prior period comparative amounts for APMs. Conclusion I believe that, to use a saying of our times, “we’re all in this together” and that preparers, management, audit committees, directors, auditors and regulators all can, and generally do, work together to achieve high-quality financial reports. IAASA’s assessment is that the quality of the financial reports it examines is generally high and compares favourably with European issuers. It is hoped that our Observations paper will in some way contribute to that continued high quality. Maurice Barrett FCA is Senior Financial Reporting Manager at the Irish Auditing & Accounting Supervisory Authority. IAASA’s Observations paper is available at www.iaasa.ie.

Prof. Ciaran Connolly FCA and Dr Elaine Stewart draw on their recent research for an Institute report to examine the public sector’s proposed accruals-based accounting framework, which represents a significant shift for the Irish Government. Under the current system of Irish central government financial reporting, budget documents and financial reports are typically prepared on a traditional cash-accounting basis, with their institutional coverage mainly limited to central government. However, Ireland is one of the few remaining OECD countries to account and budget in government on a cash basis. While considered robust and reliable, it is argued that cash accounting alone does not enable the planning and asset management that an accruals-based system allows. Motivated by the 2008 global financial crisis and the OECD’s 2019 recommendations following its evaluation of Ireland’s fiscal reporting, forecasting and budgeting systems, the Irish Government sought to modernise its public sector accounting practices. On 27 May 2021, Michael McGrath TD, Minister for Public Expenditure and Reform launched Chartered Accountants Ireland’s position paper on plans by the Irish Government to reform public sector accounting in Ireland. Researched by the authors of this article and drawing on the views of key stakeholders in the process, The Reform of Ireland’s Public Sector Accounting examines the proposed new accruals-based accounting framework, which represents a significant change to the way the Irish Government accounts. Recommendations to modernise public accounting systems are not confined to Ireland. Over the last 25 years, there has been a global shift towards accrual accounting in the public sector. While several governments (e.g. Australia, Switzerland and the UK) have adopted full accrual accounting, others (e.g. Italy, Philippines, South Africa and Spain) use a modified form. Some, such as Germany, have no immediate plans to do either. Regardless, the use of accruals in the public sector is growing. Of the 165 countries included in the International Public Sector Financial Accountability Index 2021 Status Report, published by IFAC and CIPFA, 49 (30%) use accrual accounting, with approximately half of these applying International Public Sector Accounting Standards (IPSAS) either directly or as a reference point. By 2025, it is estimated that 83 (50%) of the 165 countries will operate accrual accounting, with around 73% using IPSAS to some extent. Governments across the globe, including those in Latin America, the Caribbean, the Middle East and Africa, are instigating IPSAS implementation projects. Meanwhile, in Europe, the European Commission is working with member states to develop European Public Sector Accounting Standards, with IPSAS used as the baseline. Moreover, a small number of countries have implemented consolidated accounts (e.g. Australia, New Zealand and the UK), something that is also included as part of the Irish Government’s proposed reforms (see Figure 1 above). The proposed reforms While acknowledging that cash accounting provides strong control over departmental expenditure, a number of reports, including the OECD’s 2019 report, have advocated significant reform to the current process of financial reporting in Ireland on the basis that: cash-based information alone is insufficient for understanding the public sector financial position; as audited Appropriation Accounts are required to be published within nine months after the period to which they relate, Ireland is among the slowest of OECD countries in making such reports available; and reports from central government, commercial and non-commercial state bodies are not consolidated. This presents difficulties, particularly where reports are prepared for EU bodies such as Eurostat. On 15 October 2019, the Irish Government announced a series of reforms to Ireland’s public sector accounting which, while retaining core elements of the existing cash-based system, include: introducing accrual accounting in central government departments and offices, applying IPSAS as the underlying framework; preparing central government consolidated financial statements; and harmonising accounting practices and standards across the wider public sector to enable the consolidation of all public sector entities into a ‘whole of government’ account. When implemented, it is expected that the reforms will underpin confidence in Ireland’s public finances and unlock value from the State’s assets while realising the benefits of professional financial management, timelier financial reporting, and a general improvement in economic and fiscal performance. Large-scale reforms, like those proposed, are rarely introduced in a single stage but are typically rolled out over many years, often in conjunction with new IT systems. The Department of Public Expenditure and Reform (DPER) is leading the reform process and has developed an action plan to introduce the reforms with a phased approach (see Figure 1). This begins with the application of IPSAS as the underlying framework to introduce accrual accounting in central government departments and offices (Part 1, 2019–2025). Next, the intention is to prepare central government consolidated financial statements (Part 2, 2025–2027), followed by the harmonisation of accounting practices and standards across the wider public sector (Part 3, 2027–2029), and finally, the consolidation of all public sector entities into a ‘whole of government’ account (Part 4, from 2030). The feasibility of this latter part depends on the degree of integration of accounting systems, especially outside central government, where many entities currently use different accounting standards (e.g. FRS 102) and operate separate IT systems. While factors such as the COVID-19 pandemic and complications in developing the Financial Management Shared Services (FMSS) system have impacted the original timelines, progress has accelerated more recently. Purpose, approach and stakeholders’ views Drawing on the experience, progress and lessons learned from other countries and governments that have introduced similar reforms, together with the views of representatives from government departments, agencies and advisory organisations/individuals, the Institute’s position paper examines the driving forces, benefits, challenges and appropriateness of the reforms. The views expressed by interviewees are summarised in Figure 2. The consensus was that the reforms have been mainly driven externally by the OECD, as Ireland is one of the few OECD countries that continue to report on a cash basis. Internal motivations included the potential benefits arising from access to better information on public sector assets and liabilities, including pension obligations. Interviewees highlighted potential staffing, training and IT-related challenges associated with reform implementation, acknowledging that while the process has been slow to start, there is evidence that its pace is growing. However, despite this positivity, it was recognised that the timetable had slipped in a similar manner to that for the FMSS, with the successful introduction of the new system being considered integrally linked with the reform of Ireland’s public sector accounting (e.g. to facilitate the preparation of IPSAS-based departmental and ultimately ‘whole of government’ consolidated accounts). Other anticipated challenges included implementing the necessary legislative changes, with some questioning the logic of introducing accruals-based accounting while maintaining a cash-based budgeting system. While accepting the challenges, the vast majority of interviewees viewed the reforms positively. The consensus was that they could standardise how departments present their financial information, making them more professional and user-friendly. They could also facilitate the closing of accounts in a timelier manner so that the information is more relevant and provides better information for departments’ public representatives. The way forward Experience indicates that political support and leadership at the highest levels is critical if public sector accounting reforms are to succeed. Furthermore, research suggests that their success (however this is defined) is influenced by the extent to which they are shaped by private sector ideas, with the excessive use of private sector consultants often impacting negatively on the receptiveness to change. Thus, while the public sector is entwined with the private sector through outsourcing and privatisation, it remains distinct in terms of its stakeholders, objectives and outcome measures. Therefore, while the reforms have clear implications for departmental accounting functions, their success depends upon input and support from key stakeholders across the public sector so that they fit ‘the Irish public sector context’. Hence, engaging with, for example, departmental managers, statisticians, ministers and public representatives will help to identify the risks, gain political support, and secure buy-in. Relatedly, good project management and governance arrangements are critical to ensure the timely implementation of the accounting reforms (and FMSS) and that the delivery of government services is not unduly disrupted. This might involve piloting aspects of the reforms in some departments or agencies, including having dry-run or dummy years before the changes ‘go live’ to help identify needs and potential pitfalls. For example, training and developing the knowledge of preparers and users of the systems and information is essential. Knowledge transfer is also important to avoid ‘consultant dependency’ while capacity building (e.g. recruitment and training) is critical to project success. As noted above, DPER has developed a plan to implement the reforms in a phased manner over the next decade. Not unexpectedly, a number of issues will need to be considered further, if not resolved, during this period. For example, Ireland’s current constitutional arrangements require the preparation of cash-based Appropriation Accounts. However, there is evidence that ‘full’ accruals-based accounts can be advantageous, including the better management of assets and a greater awareness of obligations, which can facilitate more accurate planning and effective risk management. In addition, although few countries have adopted full accrual budgeting, with many applying a modified version, continuing to operate cash budgeting in tandem with accruals-based notes to the cash-based Appropriation Accounts may cause confusion and limit the potential benefits of the reforms. Although, evidence from the Northern Ireland experience suggests that accrual budgeting creates its own problems. Conclusion Ireland’s planned public sector accounting reforms are ambitious but appropriate and timely. They represent a significant statement of intent by the Irish Government to modernise the State’s public sector accounting practices and must remain a priority. While obstacles and redirections can be expected along the implementation journey, these should be viewed as opportunities to design a system that is fit for purpose and appropriate for the Irish context. For example, while the FMSS system implementation has been delayed, this presents an opportunity to ensure that it will support the preparation of IPSAS-based accounts and assist with the preparation of consolidated accounts, together with the information needed for the EU and Eurostat. Prof. Ciaran Connolly FCA and Dr Elaine Stewart, Queen’s University Belfast, are authors of The Reform of Ireland’s Public Sector Accounting, published by Chartered Accountants Ireland.

In response to requests from charities and their lead bodies, Benefacts produced a special report on Irish charities last May. Patricia Quinn explains the findings. In Ireland’s charity sector, just as across the rest of the economy, the COVID-19 pandemic cast a long shadow. A sector of predominantly small and micro entities, charities experienced the full gamut of disruption to their not-for-profit businesses in 2020, ranging from temporary closure to rapid adaptation to digital working and developing new solutions to meet the needs of vulnerable people in local communities. For some – especially providers of hospital, hospice, residential care, and homelessness charities – the impact for their staff and served communities was a matter of life and death. Other charities – especially in emergency relief, mental health, local development, and social care – experienced increased demand for their services. In some sectors such as the arts, heritage, and museums, charities without the capacity to move to digital working methods could not operate, or only to a minimal degree. They report staff cutbacks and other cost-saving measures, but most have limited reserves and cannot avoid fixed costs. Fundraised income, which is a significant proportion of the revenues of some Irish charities, was expected to take a severe hit. In some sectors that rely predominantly on traditional fundraising, including door-to-door or church gate collections, charity shops, fun runs and other event-based approaches, this has been the case. Where charities were already geared up to appeal to donors and collect gifts digitally, or transitioned successfully to online giving, some reported an increase in income from this source. What do we know about charities? Charities form a subset of all non-profits in Ireland, which number more than 32,000 if you drill down to the level of local clubs, societies, and associations. The 11,405 charities on the Register of Charities today include just under 3,600 primary and secondary schools. For practical purposes, they are regulated elsewhere. The Register also includes about 2,700 unincorporated associations, trusts, and non-incorporated bodies that file accounts to the Charities Regulator which – for various reasons – are not published on the Regulator’s website. Anybody wanting to study the financial and governance profile of the charity sector therefore relies mainly on the CRO (Companies Registration Office) filings of incorporated charities, of which there are about 5,000. These form the basis for a new benchmark report on the charity sector in Ireland released by Benefacts last month. Benchmarking the state of the sector There has never been a time when current, reliable data was more relevant to charities. In boardrooms around the country, trustee directors have been grappling with tough choices. Even the best risk register was unlikely to include a worldwide pandemic involving the near-total shut-down of whole sectors of the economy. And most charities are particularly ill-equipped to cope with financial adversity; by definition, they have no equity, no investors, and limited capacity to trade their way out of financial trouble. Few charities entered 2020 with significant financial reserves. Although the aggregate reported value of reserves in the sectors under review in the Benefacts report was €3.73 billion based on available data for 3,628 incorporated charities, most of these reserves (€2.5 billion) are held by just 80 larger charities – in particular, voluntary hospitals and social housing providers. The remaining €1.2 billion in reserves is distributed across smaller charities, primarily in local development, social housing, health, and services for people with a disability. Moreover, charities’ assets – unlike most commercial organisations – typically cannot readily be liquidated as they are essential for delivering services or may be of a heritage or highly specialised nature. When reserves are converted to the number of weeks of average weekly expenditure (using data from full accounts), our analysis found that more than one-third of charities have fewer than ten weeks’ reserves, with arts charities particularly heavily exposed. Not all bleak In preparing its report, Benefacts reviewed more than a dozen surveys and other reports prepared by sector lead bodies, policy-makers, and regulators. Many positive effects have been reported. These include heightened public awareness of the value of charities’ work, better engagement across geographic divides, cost and time savings, a better quality of life for staff, and the adoption of more diversified fundraising solutions – especially digital ones. In fact, it appears that a small percentage of charities that were already well-geared for digital fundraising will be reporting 2020 as a better year than usual. Philanthropists stepped up in response, especially to pandemic-related causes, and social enterprises were encouraged to bid for new additional funding. The State permitted some charity employees to avail of pandemic unemployment benefits and allocated additional funding to address areas of acute need. Using financial reporting data shared with us in advance of the publication of their own financial statements by the nine State bodies that are the principal funders of charities, we were able to identify a 10.7% year-on-year uplift in funding for charities – mainly in health, social care, arts, and culture. But in 2020, there were nearly ten pandemic-free weeks at the start of the year and lockdowns were partially lifted mid-year. Additional State support will undoubtedly have sustained some charities that might otherwise have gone under. But there’s already a recognition that 2021 – with the exit from full lockdowns only starting in the middle of the second quarter – will be a tougher year, and 2022 probably tougher again. Planning for better The last 30 years have seen considerable professionalisation in the charity sector. The 5,000 charities whose financial statements form the basis for this new report employ more than 101,000 people. Fundraising, a critical discipline in the 273 charities that rely on this as their principal source of income, has become highly specialised. The larger charities now have professional staff to manage their volunteer supporters. Even the voluntary directors of charities themselves are increasingly recruited using the kind of competency framework approach that would have been unheard of in this sector 20 years ago. And perhaps it’s as well, since understanding the drivers of charity business success is a crucial function of charity boards. Contingency planning will surely come to the fore, as well as a searching review of some of the fundamental assumptions about funding. Benefacts has already received queries from charities trying to understand their position relative to their peer organisations in a given sub-sector, anticipating perhaps an even more competitive environment in the future. Audited financial statements are a hugely valuable source of granular data that makes up the picture of any sector and its component entities. Like analysts in commercial sectors, Benefacts relies on charity company disclosures as the bedrock on which we build a profile of the charity sector and its sub-sectors. Common financial reporting standards bring consistency and reliability to the data that can be used to create a picture of the whole sector and track changes year-on-year at the level of individual charities and sectors such as hospice care, addiction support, or animal welfare. Thanks to its database, augmented each year with more than three million new data items harvested from non-profit company disclosures, Benefacts has been able to provide charities, funders, policy-makers and other stakeholders with a powerful knowledge asset to help them navigate uncertain times. The impact of regulation The range of data underpinning our analysis of this multi-billion euro sector suffered a setback with the new Companies Act reform in 2014. For the first time, small non-profit (limited by guarantee) companies could avail of the same exemptions from filing full accounts as commercial companies. While this is only fair and equitable on the face of it, it has diminished the public disclosures of thousands of charities that rely on public donations, state funding, or both to support their operations. Unfortunately, the Charities Act 2009 did not foresee this change and exempts charity companies from filing their accounts to the Charities Regulator to avoid the burden of double regulation. Again, fair and equitable – except for the unintended side effect of making the financial disclosures of thousands of charities less transparent to the very people on whom they rely for income and something more precious – trust. Here are the numbers: of the 3,628 charities that have already filed their 2019 accounts, 36% have filed abridged accounts and 26% have filed unaudited accounts. 106 of these charities receive funding from the State. This means that their unaudited accounts breach the reporting standards for any body receiving State funding set by the Department of Public Expenditure & Reform (Circular 13, 2014). Rules are there to be obeyed, and over time, the compliance authorities will surely iron out these wrinkles in the provisions of the various legal and regulatory frameworks. But charities are not like other small businesses. The principle rather than the letter of the legislation regulating them is one of transparency. To that, I would add informed self-interest. Sector lead bodies preparing a brief for their board or a presentation for an Oireachtas Committee hearing are often disappointed to discover that Benefacts analysis of their members is missing some critical dimension – especially an analysis of their income. That is because so many of the source documents lack an important few pages: the income and expenditure account. This is all the more galling as funders require the full accounts to be provided to them. We therefore experience a double standard – full accounts to go in the State filing cabinet, abridged ones for the rest of us.

Daniel O’Donovan and Siobhan Orsi summarise the main changes in the Ethical Standard (Ireland) for Auditors, the International Standards on Auditing (Ireland), and the International Standard on Quality Control (Ireland) 1. In November 2020, the Irish Auditing and Accounting Supervisory Authority (IAASA) issued revised ethical and auditing standards in a bid to support the delivery of high-quality audit and strengthen confidence in audit in Ireland. The revisions build on changes made to the standards in 2017, which implemented the requirements of the EU Audit Regulation and Directive. These new amendments, which were the subject of a formal consultation earlier in 2020, are effective for audits of financial statements for periods beginning on or after 15 July 2021, with early adoption permitted. This article summarises the main changes in the Ethical Standard (Ireland) for Auditors, the International Standards on Auditing (Ireland), and the International Standard on Quality Control (Ireland) 1. Revisions to the ethical standard IAASA’s aim in amending the ethical standard was to simplify and restructure the standard to ensure a better understanding of the ethical requirements. It also introduces more prohibitive requirements, including removing the exemption for SME-listed entities that were not subject to many of the prohibitions applied to listed entities. These concessions, offered in the 2017 IAASA Ethical Standard to entities of this nature, have been removed. Other key changes to the ethical standards include, but are not limited to, the following: Third-party test: the new standard sets out a clearer and stronger definition of the “objective reasonable and informed third-party test”, which is a core element of the ethical standard. It requires audit firms to consider whether a proposed action would affect their independence from the perspective of public interest stakeholders rather than another auditor. Additional guidance has been inserted to assist in application. Internal audit services: firms will no longer be able to provide internal audit services to audited entities or their significant affiliates. IAASA’s view was that the provision of internal audit services to audit clients created a risk, both real and perceived, to independence that needed to be addressed. Recruitment and remuneration services: the standard incorporates amendments that now prohibit auditors from providing recruitment and remuneration services or playing any part in management decision-making. Gifts and hospitality: the requirement to establish policies on the nature and value of gifts, favours, and hospitality that may be accepted from and offered to other entities has been extended to apply to those entities that are likely to subsequently become audit clients. Enhancements to the ethics partner’s authority: new provisions incorporated into Section 1 of the ethical standard highlight the increased importance placed on the ethics partner. Enhancements include a requirement for reporting to those charged with governance where an audit firm does not follow the ethics partner’s advice. Partner rotation: the cooling-off period for engagement partners on public interest entity audits has been relaxed and amended from five years to three years, as was the requirement in the EU Audit Regulation in 2014. The change has also been applied to listed entities. Clarification has been added that when the engagement partners rotate off an audit, they cannot have significant or frequent interaction with senior management or those charged with governance during the cooling-off period. A new requirement has been introduced so that, where audits and those providing audits move from one firm to another, any rotation “on periods” for partners and staff include any time before they and the audit changed audit firms. Reporting breaches of the ethical standard The extant Ethical Standard for Auditors (Ireland) 2017 requires auditors to respond to all possible or actual breaches of the standard and keep records of any contraventions. A requirement has been introduced in the new ethical standard for auditors to report breaches of the ethical standard on an annual basis to IAASA, the relevant recognised accountancy body for auditors of public interest entities, and the relevant recognised accountancy body for non-public interest entity auditors. Such reports are to be submitted at least annually. IAASA indicated in its feedback paper on the consultation that it will issue guidance to auditors regarding the format of reports to be submitted. It also stated that any action taken by IAASA or the relevant recognised accountancy body in response to such reports will vary on a case-by-case basis depending on factors such as the nature of the breach, the appropriateness of the firm’s response, and the firm’s regulatory history. The new ethical standard permits firms to complete non-audit service engagements that were previously permissible provided they were entered into before 15 July 2021 and for which the firm has commenced work, while applying appropriate safeguards. IAASA did not introduce prohibitions on contingent fees for non-audit services, loan staff assignments, and tax advocacy services – all of which were proposed in the consultation paper. In addition, IAASA made changes to specific auditing standards: ISQC (Ireland) 1 and ISAs (Ireland) 210, 220, 250, 260, 600, 620, 700, 701 and 720. Hereafter, we will briefly discuss the most significant changes auditors and entities should be aware of for audits of financial statements with periods beginning on or after 15 July 2021. Revisions to ISAs IAASA has revised ISA (Ireland) 700, Forming an Opinion and Reporting on Financial Statements to extend the requirement for auditors of public interest entities to explain the extent to which the audit is capable of detecting irregularities and fraud to audits of listed entities also. There has been a significant expansion of the application guidance to the standard in relation to this requirement, which guides auditors to provide more detailed and granular explanations tailored to the entity being audited. IAASA acknowledged in the feedback statement that, in some situations, legislation (e.g. ‘tipping-off legislation’) would prohibit auditors from disclosing certain information in the audit report. ISA (Ireland) 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) has been revised to clarify that the work of component auditors used for the purpose of a group audit must be evaluated and reviewed by the group engagement team. Application guidance has been added to the standard to assist group engagement teams in determining whether the nature and extent of such evaluations and reviews of component auditor work are appropriate in their professional judgement. ISA (Ireland) 220, Quality Control for an Audit of Financial Statements now requires the engagement quality control reviewer (EQCR) for audits of group financial statements of public interest entities to perform their quality control review over each component for which work has been performed for the purpose of the group audit, and to discuss the results of the review with the relevant key audit partner. This is a significant enhancement of the quality control review required for such entities. ISA (Ireland) 701, Communicating Key Audit Matters in the Independent Auditor’s Report has been revised to require that the auditor’s report specify the threshold for performance materiality and explain the judgements made in determining performance materiality tailored to the circumstances of the audit.  This package of revisions to the standards is designed to enhance audit quality and public confidence in audit in Ireland. However, for group audits of public interest entities in particular, there is likely to be significant incremental associated effort and cost in complying with the new requirements. Chartered Accountants should familiarise themselves with all changes to the standards, which are available on IAASA’s website. Daniel O’Donovan is Principal in the Department of Professional Practice at KPMG Ireland and Chair of the Institute’s Audit & Assurance Committee. Siobhan Orsi is Associate Partner at EY Ireland and a member of the Institute’s Audit & Assurance Committee.

Neil Hughes outlines the survival options for small- and medium-sized businesses as the ‘next normal’ approaches. In general, 2018 and 2019 were good years for Irish business. Many companies entered 2020 with stronger balance sheets, relatively low debt levels, aggressive growth targets, and optimism – particularly in the small- and medium-sized enterprise (SME) sector. By Q2 2020, however, firefighting due to COVID-19 restrictions quickly soaked up all available management time and resources. Growth strategies were shelved, and survival was prioritised. Government supports were immediately made available to companies severely affected by the pandemic. Figures released by Revenue in February 2021 show that the State paid out a total of €9.3 billion in 2020 between the Pandemic Unemployment Payment (€5.1 billion), Temporary Wage Subsidy Scheme (€2.8 billion) and the Employment Wage Subsidy Scheme (€1.4 billion). Seventy thousand companies have availed of the Revenue Commissioners’ Debt Warehousing Scheme, at a total cost of around €1.9 billion. These supports, along with the forbearance provided by financial institutions in Ireland, have helped prevent a tsunami of corporate insolvencies. The concern, however, is if post-pandemic those companies that ultimately need help the most will not reach out and avail of the supports and processes available. Overcoming the stigma It is regrettable that, historically at least, the use of formal corporate insolvency mechanisms to restructure struggling businesses has been viewed quite negatively by the Irish business community. The inference is that such businesses were somehow mismanaged when, in reality, this was often not the case. Companies can fall into financial difficulty for various reasons. Factors outside the control of company directors can necessitate a formal restructure rather than the terminal alternative of liquidation. Now, in the middle of a pandemic, a previously successful business operator, through no fault of their own, can find themselves saddled with an unsustainable level of debt and risk becoming insolvent. While government support measures were necessary to prevent widespread corporate failures and potential social unrest, for many companies, these actions may have simply delayed the inevitable and kicked the can further down the road. In most corporate insolvencies, there is an expected level of pressure for money that the company does not have, which precipitates a formal restructure. This pressure has been temporarily released, but the creditor strain will inevitably build again when trading resumes. ‘Zombie’ companies Low insolvency numbers for 2020 are therefore misleading. There is anecdotal evidence to suggest that several companies have ceased trading, have no intention of reopening and, in some instances, have handed the keys of their premises back to landlords. However, these ‘zombie’ companies are not included in the insolvency statistics, as they continue to avail of government supports and will be wound up whenever the supports end. While helpful, the subsidies and supports do not cover the entire running costs of a business, and many companies continue to rack up debt as their doors remain closed. These debts may seem insurmountable, but there is hope. The Great Recession vs the COVID-19 crisis This current recession is in stark contrast to the ‘Great Recession’ that resulted from the banking crisis of 2008. Back then, there was a systemic lack of liquidity in the market due to the collapse of Ireland’s banking sector, which left SMEs with little or no access to funding. This time, there are several re-capitalisation options with banks (including the new challenger banks) in a position to provide funding, especially through the Strategic Banking Corporation of Ireland (SBCI) Loan Scheme. Many private equity funds are also willing and ready to invest in Irish businesses. After the pandemic All the while, the Government can borrow at negative interest rates to stimulate growth and recovery. With the vaccine roll-out, we are starting to see the light at the end of the tunnel. This begs the question: what will happen when the pandemic is over? There are several key points to note: Consumer behaviour: it is reasonable to assume that a large portion of the population will revert to normal. This could generate a domestic economy similar to the rejuvenation that followed the Spanish Flu pandemic of 1918 and the end of the First World War. There is certainly pent-up demand and savings (deposits held in Irish financial institutions were at an all-time high of €124 billion in late 2020). Unfortunately, a portion of society will change their consumer habits forever due to COVID-19, which will have a detrimental effect on businesses that find themselves on the wrong side of history and unable to survive the recovery. Government action: how the Government reacts will have lasting repercussions. Difficult and unpopular decisions are likely required to pay for the ever-rising cost of the pandemic and its restrictions. Such choices may result in an increase in direct and/or indirect taxes, with less disposable income circulating in the economy. The UK Government has already made moves in this direction with its 2021 budget. The Revenue Commissioners: Revenue’s intended course of action is currently unclear in relation to clawing back the €1.9 billion of tax that has been warehoused or how aggressively it will pursue Irish companies for current tax debt after the pandemic is over. Early indicators are that Revenue will revert to a business-as-usual strategy sooner rather than later. Banks and other financial lenders: the attitude of Irish banks and financial institutions to non-performing loans remains to be seen. Banks have been accommodating to date and worked with, rather than against, borrowers – a criticism levelled against them in the wake of the 2008 banking collapse. Personal guarantees provided by directors to financial institutions to acquire corporate debt, particularly in the SME sector, will have a significant bearing on successful corporate restructuring options. The attitude of landlords: landlords in Ireland are a broad church, ranging from those with small, family-operated single units to large, multi-unit institutional landlords or pension funds. Landlord-tenant collaboration is essential for stable retail and hospitality sectors, and in the main, rent deferrals were a foregone conclusion during the various lockdown stages of the pandemic. However, these rent deferrals still have to be dealt with. The attitude of general trade creditors: in certain instances, smaller trade creditors in terms of value have been the most aggressive in debt collection and putting pressure on businesses to repay debts as soon as their doors reopen. Companies with healthy balance sheets and those that managed their cash flow prudently will be the ones to come out the other side of this pandemic when the government supports subside. Businesses will need time to: Assess the post-pandemic consumer demand for their products and services;  Assess their reasonable future cash flow projections; Agree on payment arrangements for old and new debt; and Make an honest assessment of whether they will be able to trade their way through the recovery phase. For those who have been worst hit, however, all is not lost. Ireland has some of the most robust restructuring mechanisms in the world, with low barriers to entry and very high success rates. The fallout can be mitigated if company directors take appropriate steps. Restructuring options When it comes to successful restructuring, being proactive remains the key advice from insolvency professionals. Too often, businesses sleepwalk into a crisis. Options narrow if there has been a consistent and pronounced erosion of the balance sheet. Those who act fast and engage with experts have the best chance of survival. 1. Examinership There are various restructuring options available, but examinership is currently most suitable for rescuing insolvent SMEs. The overarching purpose of examinership is to save otherwise viable enterprises from closure, thereby saving employees’ jobs. In 2019, liquidations accounted for 70% of the total number of corporate insolvencies in Ireland, and examinership only accounted for 2% of the total. It is plain that a higher portion of those liquidations could have been prevented, jobs saved, and value preserved if an alternative restructuring option like examinership had been taken. There are only two statutory criteria for a company to be suitable for examinership: 1. It must be either balance sheet insolvent or cash flow insolvent. It cannot pay debts as and when they fall due; and It must have a reasonable prospect of survival.  The rationale for examinership in a post-pandemic environment is therefore clear. Companies saddled with debt will likely meet the insolvency requirement, and historically profitable companies that have become insolvent due to the closures associated with the pandemic will pass the ‘reasonable prospect of survival’ test. Once appointed, the examiner must formulate a scheme of arrangement, which is typically facilitated by new investment or fresh borrowings. The scheme will usually lead to creditors being compromised and the company emerging from the process solvent and trading as normal. 2. The Summary Rescue Process One of the main criticisms levelled at examinership is the perceived high level of legal costs required to bring a company successfully through the process. To address this perceived issue, in July 2020, An Tánaiste, Leo Varadkar TD, wrote to the Company Law Review Group (CLRG) requesting that it examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The CLRG’s reports in October 2020 recommended the ‘Summary Rescue Process’. It would utilise the key aspects of the examinership process and be tailor-made for restructuring small and micro companies (fulfilling two of the following three criteria: annual turnover of up to €12 million, a balance sheet of up to €6 million, and less than 50 employees). Such companies constitute 98% of Ireland’s corporates and employ in the region of 788,000 people. A public consultation process is now underway to finetune the legislation. Here is what we know so far about the Summary Rescue Process: It will be commenced by director resolution rather than court application. It will be shorter than examinership (50-70 days has been suggested). A registered insolvency practitioner will oversee the process. Cross-class cramdown of debts will be possible, which binds creditors to a restructuring plan once it is considered fair and equitable. It will not be necessary to approach the court for approval unless there are specific creditor objections. Safeguards will be put in place to guard against irresponsible and dishonest director behaviour. A proposed rescue plan and scheme will be presented to the company’s creditors, who will vote on the resolutions. A simple majority will be required to approve the scheme. The Summary Rescue Process will be a huge step forward. The process of court liquidation has been systematically removed from the court system in recent years in favour of voluntary liquidations. This new rescue process will bring a similar approach to formal restructuring, allowing SMEs greater access to a low-cost restructuring option akin to a voluntary examinership. It will give more hope to companies adversely affected financially by the pandemic that options exist for their survival. Neil Hughes FCA is Managing Partner at Baker Tilly in Ireland and author of A Practical Guide to Examinership, published by Chartered Accountants Ireland.

Dee Moran and Lilian Halpin explain entities’ existing obligations regarding beneficial ownership and look ahead to future developments, focusing on trusts in particular. Most entities have a legitimate role to play in the global economy, but they also have the potential for criminals to use the structure for money laundering, terrorist financing and other financial misconduct. To identify and increase the transparency of those that seek to hide their ownership and control of these entities, many countries have introduced a register of beneficial ownership. Having a register ensures that the ultimate owners/controllers are identified, and that accurate and up-to-date information on a beneficial owner is readily accessible to authorised officers and other competent authorities that are entitled to the information under money laundering legislation. In Ireland, entities must maintain a register to comply with obligations under the 4th EU Anti-Money Laundering Directive (4AMLD), which was passed in May 2015 and subsequently amended by the 5th EU Anti-Money Laundering Directive (5AMLD), which was passed in May 2018. Who is a beneficial owner? A beneficial owner is defined in the directives and Irish legislation by reference to the entity type (e.g. trust, corporate entity, investment limited partnership). The different pieces of legislation should be consulted depending on the entity. Common threads in the definitions are ownership and control, whether direct or indirect, and a holding of more than 25% of the entity. Are there two registers? There are two separate registers in Ireland. While companies were required since 2016 to gather information and maintain an internal register of beneficial ownership, the 2019 beneficial ownership of corporate entities regulations (one of two sets of regulations passed in 2019 relevant to beneficial ownership) required relevant entities to file information in a central register. The Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies, which falls under the remit of the registrar of the Companies Registration Office, was opened for filings in July 2019. Any companies/societies in existence on 22 June 2019 had until 22 November 2019 to file their beneficial ownership details, and the five-month timeline to register relevant entities remains. Similarly, certain other financial vehicles described below must maintain an internal beneficial ownership register. There are also legislative requirements to file information on the central register, the Beneficial Ownership Register for Certain Financial Vehicles. Under specific legislation, the Central Bank of Ireland is designated as the registrar responsible for maintaining this central register. Under EU anti-money laundering (AML) regulations that came into effect in 2020, Irish Collective Asset Management Vehicles (ICAVs), unit trusts and credit unions that were in existence when the AML regulations came into force were required to register by 25 December 2020. Under the Investment Limited Partnerships (Amendment) Act 2020, which was commenced recently, existing investment limited partnerships (ILPs) and common contractual funds (CCFs) have until 1 September 2021 to register. Under both pieces of legislation, new financial vehicles that come into existence following the legislation’s implementation have six months from the date of coming into existence to register. What details must be registered? The information that must be delivered to each registrar concerning each beneficial owner includes name, date of birth, nationality, residential address, and a statement of the nature and extent of the interest held or control exercised by each beneficial owner. For Central Bank registration, it must be stated if the person is currently a pre-approval controlled function (PCF) holder in the entity or at any other regulated financial services provider. For companies and industrial and provident societies, the 2019 regulations require a PPS number to be furnished for verification purposes. The 2020 Act also requires PPS numbers to verify the information delivered in the case of ILPs and CCFs. In the case of both registers, the registrar is not permitted to disclose PPS numbers and must store them securely. Relevant entities must keep the beneficial ownership register up-to-date, and this information must align with the information filed on the Central Register. Where change(s) occur, the entity has 14 days to deliver the information so that the relevant amendments are made to the Central Register. Who is entitled to access the information in the Central Register? There are two tiers of access to data in the Central Register: Unrestricted access to the information in the Central Register will be afforded to authorised officers within specific organisations (i.e. An Garda Síochána, the Financial Intelligence Unit of An Garda Síochána, the Revenue Commissioners, the Criminal Assets Bureau, the Central Bank of Ireland, and other Irish competent authorities engaged in the prevention, detection, or investigation of possible money laundering or terrorist financing. Restricted access to information in the Central Register will be made available to the general public and designated persons (e.g. a bank carrying out customer due diligence, save where the beneficial owner is a minor). Those with restricted access will be able to access the name, month and year of birth, nationality, country of residence, and the statement about the nature and extent of the beneficial interest held. The beneficial owner’s date of birth and address will not be available to those with restricted access. Data protection law Any information exchange and sharing mandated by the legislation must comply with data protection law. Personal data is defined in Section 69 of the Data Protection Act 2018, and information to be collected and held on the central registers can include personal data. The data protection obligations are expressly recognised in the 2019 Regulations and 2020 Act, both of which provide that the Data Protection Act 2018 shall apply to the access the registrar affords to a designated person and any member of the public in respect of the information in the central register. Sanctions Sanctions include a fine of up to €5,000 for a trustee and a fine not exceeding €500,000 or up to 12 months imprisonment in respect of corporate entities. Future developments It is expected that a separate central register in respect of the beneficial ownership of trusts will be implemented in due course, as required under the Directives. This is expected to materialise sooner rather than later – trust regulations published in 2019 already impose obligations on trustees to seek and obtain information from beneficial owners of trusts and establish internal registers of beneficial ownership. The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2020 was signed into Irish law recently, and contains provisions in relation to trusts. It defines a “beneficial owner” and lists certain trusts that would be excluded from a future requirement to register. These provisions are being introduced in anticipation of the Minister for Finance introducing further regulation in the area and to address part of the overall transposition of 5AMLD into Irish law. In Dáil discussions on the provisions, the Minister made specific reference to the requirements in 5AMLD that all member states establish a central register of beneficial ownership of express trusts. On the international front, the Financial Action Task Force (FATF), an intergovernmental organisation that promotes policies to combat money laundering and terrorist financing and of which Ireland is a member, announced in February that it would review the global rules around beneficial ownership. The European Commission recently stated that it would closely monitor the setting up of the central bank account mechanisms and the beneficial ownership registers by member states to ensure that they are populated with high-quality data. The Directives require interconnection of member state registers, and work to interconnect the beneficial ownership registers has already started. The interconnection will be operational in 2021. Meanwhile, related EU regulation dealing with the EU Central Register’s technical specifications is expected to come into force soon. The requirement to keep and maintain a register for beneficial ownership is here to stay, and a central register for trusts will soon be a legal requirement. An understanding of the requirements is important if sanctions are to be avoided. An EU central register is imminent. This will put further pressure on individual countries to maintain registers with high-quality information, so expect the spotlight to continue to shine brightly when this comes into existence. Dee Moran is Professional Accountancy Leader at Chartered Accountants Ireland. Lilian Halpin is a Consultant at Chartered Accountants Ireland.

Patricia Barker outlines red flags for audit and risk committees as they continue to navigate the coronavirus pandemic and the fallout from Brexit. It’s hard to imagine audit and risk committee members as frontline workers in the face of the COVID-19 pandemic. However, time will undoubtedly show that the guidance of a good, active audit and risk committee was a pivotal oxygen tank for companies as they stumbled through these difficult times. In providing effective oversight, the audit and risk committee’s contribution must be responsive to the additional risks and uncertainties arising from COVID-19 and Brexit. The radar is picking up new bleeps, which include the following. New risks on the risk register It is vital to identify new risks, the appetite for those risks, and mitigations that can be put in place. These risks include, but are not limited to, failure of suppliers or customers due to economic pressures; invocation of force majeure clauses to avoid performance of contracts; reputational damage caused by a failure of staff to comply with Government guidance; a cluster outbreak of COVID-19 among staff; insufficient funding; and health and safety failure on the premises. Going concern All audit and risk committees will have to conduct a deep dive into the appropriateness of using the going concern concept for the 2020 financial statements. This work must be completed in advance of the arrival of the external auditors. Business continuity plan Audit committees should be very familiar with the robustness of the business continuity plan. They should also be satisfied that it has been rigorously tested to cope with the potential crashes that may result from the black swan event that is the COVID-19 pandemic. Procurement There are high risks associated with rushed procurement practices, which were necessary due to the emergency nature of the pandemic. Audit and risk committees should create a schedule of any instances where management had to speed up or bypass procurement practices due to the need to procure for the pandemic. They will need to be satisfied that all material exemptions from procurement regulations have been appropriately applied and authorised. The exemptions provided for in legislation include situations of extreme urgency, where there is a genuine emergency due to events that could not have been foreseen in situations that were not controlled by the company. It would seem that the pandemic (although not Brexit) complies with these conditions, which would permit the procurement of goods or services in a fast-tracked way outside the standard procurement policy. However, the current question for audit and risk committees is how long it can reasonably be assumed that COVID-19 is an emergency that could not have been foreseen. Control of government supports There are high risks associated with the very rapid deployment of government resources to a vast range of beneficiaries. To the extent that such resources have been claimed by the company or on behalf of staff, the audit and risk committee should be happy that appropriate controls were put in place to ensure that the claim was made in accordance with the terms of issue, that the funding was applied as stipulated, and that anti-fraud measures were appropriately applied. The external auditors will likely examine the transparency and governance associated with benefits drawn down, such as: Grants; Subsidies; Liquidity loans; Credit guarantees; Short-term compensations; Payroll support; Tax alleviation; Additional human resources deployed; and Tax losses carried back. Economic fraud and cybersecurity robustness There have been significant incidences of cybersecurity and IT failures due to opportunistic frauds arising from COVID-19 such as email compromise, investment scams, and phishing scams. In an Economic Crimes Survey conducted by PwC in 2020, 18% of organisations surveyed reported that they had incurred losses due to fraud in excess of €800,000 and 13% said they had incurred losses in excess of €5 million. These costs do not account for the losses arising from remediation, fines, brand damage and reputational damage. Economic crime dealt with by the European Commission Crime Bureau includes the following: Cybercrime; Customer fraud; Asset misappropriation; Money laundering; HR/employee fraud; Deceptive business practice; Intellectual property theft; and Accounting fraud. Audit and risk committees must seek evidence that economic risks were explicitly addressed and closed off by the company, including assurance that such risks are adequately insured. Third-party risks Focusing on internal risks is only part of the challenge; the risks associated with outsourced goods and services also need attention. These risks are elevated as our direct controls change due to virtual working. The risk attack field related to external service providers is as varied as stationery, security, catering and HR, resulting in additional risks of fraud and cyberattack. According to PwC’s Global Economic Crime and Fraud Survey 2020, one in five respondents identified vendors and suppliers as the source of their most disruptive external fraud. Half of the respondents lacked a mature third-party risk management programme, and 21% had none at all. Audit and risk committees should address this issue with the leadership team to ascertain the extent of the vulnerability and the potential need to seek professional assistance. Remote working Audit and risk committees must be proactive in implementing robust health and safety and human resource protection policies to safeguard employees working from home and safeguard the company’s assets. Issues raised should include health and safety mechanisms to ensure that staff have suitable stress management supports; good ergonomic working conditions; and reasonable boundary control over working hours. Furthermore, where company assets such as docking stations, laptops and other equipment have been taken home, mechanisms should be in place to control those assets and to appraise valuations and impairments. Appropriate protocols should also be in place to ensure that employees are fulfilling their contracts. GDPR policies will need to be stress-tested to assure the audit and risk committee that there have been no breaches of the regulations. The audit and risk committee will also need to confirm that the company’s insurance policies cover the changed working theatre. Risk of redundancies If it seems likely that squeezed resources will lead to redundancies, the audit and risk committee will want to see an assessment of this risk, the mitigations in terms of spreading the load, the policy on the redundancy payment matrix, and budgetary planning. Provision of ad hoc board support During the emergency, the audit and risk committee should be willing to convene to conduct deep dives, specific investigations, or advisory analysis as may arise due to unforeseen issues relating to the COVID-19 pandemic or Brexit. All in all, this is a busy time for audit and risk committees, and we will likely look back on this period and determine that committee members provided a highly professional, emotionally intelligent, and effective service to boards. It is unlikely that citizens will stand on their doorsteps and applaud them, but at least they will know that they did a good job.   Patricia Barker chairs the audit committees of the Marine Institute and Tallaght Hospital and is a member of the Ethics and Governance Committee at Chartered Accountants Ireland.

Despite the challenging business environment, Prof. Anne Marie Ward and Nadine O’Kane have identified several competitive advantages that credit unions in Northern Ireland could and should promote as they seek to bolster the sustainability of their business models. There are 146 credit unions (CUs) in Northern Ireland, with 592,171 adult member accounts and 104,906 juvenile deposit accounts, according to the Bank of England’s Q2 2019 Credit Union Quarterly Statistics. In some communities, CUs are large, are open six days a week, and provide a range of sophisticated products and services. In others, CUs are small and offer simple products and services to a small number of members, sometimes opening for only a few hours each week. Irrespective of their size or sophistication, CUs have become increasingly important over the past decade, which has seen the flight of bank branches from small towns, for nurturing sustainable, healthy societies. Financial exclusion is a continuing problem and CUs are a solution. In January 2020, Grant Thornton Northern Ireland and Ulster University hosted a workshop in Grant Thornton’s Belfast office to facilitate the exchange of knowledge between various stakeholders in the CU sector in Northern Ireland. The day focused on the themes of sustainability, corporate governance, diversity and regulation. The first of these themes, the sustainability of the credit union movement, is the focus of this article. The workshop included short presentations by experts, round-table discussions, and question and answer sessions. The experts were: Patrick Darcy and Sinead O’Neill, Grant Thornton; Gordon Smyth, Ulster Federation of Credit Unions; Matthew Howse and Damien McElholm, Eversheds; Martin Fisher and Marianne Cushley, Irish League of Credit Unions (ILCU); and Nadine O’Kane and Prof. Anne Marie Ward, Ulster University. Marianne Cushley from the ILCU’s Communications Department (Northern Ireland) began the workshop with a presentation on sustainability. Marianne works with individual CUs to develop marketing strategies and campaigns to help with their sustainability and growth. She explained how CUs are concerned about ageing memberships, a highly competitive lending market, reduced loan demand, high savings levels but with restricted investment opportunities, increased regulation and compliance, lack of electronic services, low returns on investments, and difficulties in attracting volunteers. In concluding her presentation, Marianne asked attendees to focus on challenges in three areas: accessibility, relevance, and competition. It was clear from the discussions that the challenges were not homogeneous across CUs. Accessibility challenges Loan application processes and policies A major concern of attendees was that their loan application processes and policies needed to be quicker to meet the demands of today’s networked society. While representatives from the larger CUs explained that they have automated lending software systems enabling same-day and next-day lending, several of the smaller CUs do not. Their loan application processes need to be streamlined and made available and easily accessible online. Another stumbling block noted by some CU representatives was the prerequisite 13-week saving period that some smaller CUs still enforce before allowing a new member to borrow. It was generally agreed that loans should be provided based on ability to repay, and not savings records. Finally, some CUs noted that staff were reluctant to authorise loans. Therefore, loan requests had to go to the credit committee, which increased the time between a member making a loan inquiry and receiving the funds. It was advised that loan officers be appointed, trained, and delegated powers to lend money up to a certain threshold. This would allow the credit committee to focus on larger loans and problem accounts. Opening hours and location Most participants in the workshop concurred that the location of CU premises can be a challenge; the ideal scenario is where the CU is located within its community and where footfall is plentiful. In addition, free on-site car parking would improve access and be popular with members. Finally, all agreed that accessibility is improved with flexible opening hours, including Saturdays and evenings, though this may not be possible due to resource implications. Digitalisation It was generally felt that online services are important to each CU’s future sustainability, though cost is an issue. The larger CUs have sophisticated IT support systems and are more concerned with keeping up-to-date with the latest digital technology and applications. The smaller CUs, on the other hand, are concerned about their inability to provide even basic digital services. It was advised that CUs should work with their trade associations, IT providers, or with a neighbouring CU to obtain cost-effective solutions. Several representatives from larger CUs flagged big data and data analytics as a challenge. In particular, they focused on how to use member information and publicly available data to drive strategy, operational activity, and marketing. Readers should note that this workshop took place a few months before the onset of the COVID-19 pandemic, which accentuated the importance of online services and systems to cater for members’ needs when physical access is not possible. Most CUs provided phone support when premises closed due to pandemic restrictions. Relevance challenges Attracting new members As well as increasing accessibility, it was agreed that engaging with online services and providing new services, such as debit cards, will increase the relevance of CUs. However, participants also felt that emphasising the unique characteristics of CUs was the best means of attracting new members. In that context, CUs: Specialise in non-business customers, although some are beginning to explore business lending to corporate members; Have a presence in many towns; Are community-based and provide social benefits for their communities; and Focus on member wellbeing. The promotion of these attributes will differentiate CUs from other financial services providers. Engaging with current members In general, participants agreed that a formally structured survey of members every two or three years would enable the board of the CU to prioritise the development of certain products or services, knowing they are responding to members’ needs. Several CUs had undertaken surveys and argued that it demonstrates a willingness to engage with members, provides evidence for the regulators that the board is responding to members’ needs, and can also inform the business plan. However, it was noted that a survey should only ask about services that the CU can realistically deliver and that it is important to report to members on survey findings as it shows that the CU is listening. Competitive challenges CUs operate in a fiercely competitive lending market where they must compete with high street banks, challenger and online banks, doorstep lenders, and alternative lenders such as supermarkets, as well as each other. Two competitive challenges were discussed at the workshop: reaching non-members with their message, and differentiation from other lenders. Reaching non-members Participants shared their experience of the challenges in communicating the CU message to potential members and the comparative competitive advantage of other lenders with large marketing budgets. Suggestions for extending the reach to non-members included widening the ‘common bond’ (i.e. the range of people eligible for membership) and building on current relationships with primary schools to attract younger members. CUs should also engage with local groups and organisations, communicating the benefits of CUs and what they can do for people. In doing so, they could use several promotional activities and channels. Options include direct marketing, targeted outdoor advertising, social media and digital marketing, visits to local secondary schools and colleges, running personal financial management classes, raising funds for community events, and sponsorship of local initiatives, which would meet social objectives while gaining publicity. Differentiation It was noted that competitors can provide a wider range of products and services. Updating the specific legislation governing CUs would allow them to better compete in the marketplace. Examples of new services suggested to attract members and potential members include: An overdraft with a revolving credit facility; and Increasing loan interest rates to 3% per annum so that CUs can provide differentiated higher-risk, higher-return loans to people with poor credit ratings – for example, students with mobile phone debt (though this suggestion was controversial). Conclusion CUs face many challenges. It was generally agreed that trade associations and the wider CU family should focus more on CUs’ comparative advantages over other financial institutions and not try to label themselves as banks. They should focus on and communicate their unique attributes and offerings. CUs in Northern Ireland currently enjoy strong member loyalty and are seen as trustworthy. They have a skilled workforce and, due to high levels of savings, have readily available funds for lending. CUs focus on the welfare and sustainability of their members and respective communities. For example, capital retentions are used to improve a CU and ensure that it has strong capital and solvency ratios; office supplies and maintenance technicians are sourced locally; and excess surpluses are returned to members. This is a competitive advantage that should be exploited when promoting CU products and services. Prof. Anne Marie Ward is Professor of Accounting at Ulster University, and Nadine O’Kane is a PhD Researcher at the Department of Accountancy, Finance and Economics at Ulster University.  

As the global accountancy profession began adapting to the COVID-19 pandemic and its consequences, the International Federation of Accountants convened a series of round-table discussions to understand the implications of the pandemic for professional accountants and leaders. Kevin Dancey and Alta Prinsloo outline the findings. Crises inevitably demand that difficult decisions be made. Yet, the preferred conditions for making such decisions – time to deliberate or a clear sense of focus, for example – are in short supply. Countless small business owners, CEOs, government leaders and more confronted this reality in 2020. For many of them, professional accountants were there as trusted advisors when there was no semblance of certainty. Like every profession, accountancy will emerge from COVID-19 changed. We will be accustomed to digital processes we once thought impossible. Our change management abilities will be sharper than ever. How we anticipate the future will be informed by an experience many of us never imagined would happen. Right now, the profession has the opportunity to transform for the benefit of business, government, and society. It is also a critical moment to nurture existing talent and attract new talent. We must achieve this progress collectively, with clear and measurable goals. Through it all, the pandemic highlighted the importance of future-proofed skills that can anticipate challenges and opportunities, and are agile in a new world where professional accountants are established as strategic leaders. A shock to the system In the Netherlands, virtual work has been commonplace for more than a decade. When COVID-19 forced lockdowns, professional accountants were ready. In other regions, the transformations were not as simple. In South Africa, workers embraced change very quickly, but the more remote areas of the country found it difficult to find immediate solutions. In China, meanwhile, the shift to remote work was rapid. In the US and many other countries, new systems took root overnight, but with them came new-found concerns about security and the availability of technology. 94% of the global workforce live in areas where workplaces closed in 2020 due to lockdowns, according to the International Labour Organisation. These challenges impacted governments, businesses, and employees. In our new hybridised workplaces, preserving the tenets of trust and integrity while also embracing opportunities that virtual environments introduce is key. For example, when firms are not bound to a physical office, hiring more diverse talent from different geographies is possible. Educators and students were also disrupted and had to manage through a wide range of trials. On the one hand, universities and professors moved faster than ever to online instruction and, in some jurisdictions, had to overcome legal limitations in administering examinations online. On the other, students had not only to navigate internet bandwidth challenges, but also the mental health toll, personal economic hardships, and more, which the pandemic inflicted. One silver lining of remote learning is that classes not bound to a physical classroom can capitalise on the connective power of technology. In academia, as in the workforce, it has become clear that much of the accountancy profession’s infrastructure needed to transform – not just for the immediate future, but also the long-term. While the core skills of the professional accountant have not drastically changed due to COVID-19, the profession is changing. This crisis cast a spotlight on anticipation and agility, making it clear that the profession must take the opportunity now to rethink our curricula, our business models, and how professional accountants maintain their competency and relevancy so that they are ready for anything. Evolving technology, regulations and standards In early 2020, digital transformation was either in progress or identified as a strategic growth driver across businesses, accounting firms, governments, and beyond. Through the crisis, however, technology and data have been imperative not only to stay operational, but also to inform new and evolving strategies and ways of working. In a Deloitte survey, more than one-third of financial services industry firms in the US said technology upgrades were the top priority emerging from COVID-19. Meanwhile, more than half cited digitising client interactions as the first imperative. Across all industries, according to PwC, more than 60% of global CEOs acknowledge that they need a more digital business model for the future and that working outside of an office is here to stay. The way businesses everywhere operate is altered forever, and that reality has shifted how professional accountants engage with stakeholders. Professional accountants are the custodians of information that drives long-term strategy and, as businesses transform to stay relevant, professional accountants must be at the centre of that transformation. With change comes uncertainty, both for professional accountants and our stakeholders – especially the public. In this moment, the profession must align around clear goals for our members so we can collectively meet the changing demand around us. This is critical as we aim to leverage technology in new ways, and as we continue to champion trust and transparency in businesses and governments worldwide. As a profession, we cannot passively accept change; we must seize the opportunities change creates while also anticipating and mitigating risks. We have the guiding principles to do this and international standards for financial reporting, audit and assurance, ethics, public sector, and, hopefully soon, sustainability, will continue to help the profession evolve. Even regulators are being challenged to adapt to how accountancy work has changed, especially in light of 2020. In round-table sessions, we discussed how accounting firms should consider advocating for a way forward by partnering with regulators on the latest approach to financial reporting and auditing in a digital-first world. This will also serve us well as we align ourselves with a shared vision of the role sustainability reporting, focused on environmental, social, and governance (ESG)-related matters, will play in the future of the accountancy profession and our stakeholders. Accountancy is directly tied to prosperity, and a more holistic view of how people and planet fit into our profession is imperative. According to many stakeholders, sustainability is now an indisputable necessity. A long-term strategy rooted in sustainability helps guarantee any organisation’s place in the future. Indeed, two-thirds of global respondents in a recent BCG study on how the pandemic heightened awareness of environmental challenges agreed that economic recovery plans should prioritise environmental concerns. To that end, we must evolve our mindsets and reporting, and perhaps most importantly, our curricula for future talent. In particular, the students we spoke with were passionate about a much larger focus on ESG in the accountancy profession. As one student from Hong Kong said, “We are not prepared to handle ESG because there are no strict standards to hold us accountable”. For the future of the profession, transparency and accountability concerning ESG and long-term sustainability must be ingrained in high-quality reporting and assurance practices globally. IFAC is committed to advocating for new sustainability standards that would offer a reliable and assurable framework relevant to enterprise value creation, sustainable development, and evolving expectations. This is an opportunity for accountancy to evolve and to offer the next generation of professional accountants, many of whom identify as global citizens and environmental advocates, a strong foundation to make a difference. The important marriage of technical and professional skills Change management and sharp communications: From every region, discipline, and position, one skill was referred to more often than any other in every round-table we convened in the past three months: change management. We were in a rapid state of evolution before COVID-19. At the start of 2020, McKinsey & Co. noted that nine in ten business managers said skills gaps existed in their organisations or soon would. That reality has only become more evident. Accountancy is not a profession operating in a static world, and the skills learned have to reflect an equal measure of agility. There is a clear need for well-rounded skillsets that combine technical skills and professional skills that are rooted in relationship-building and communication. Doing so means placing more emphasis on stronger, trust-based relationships with key partners. This requires a focus on interdisciplinary skills when engaging with colleagues and in our strategic discussions with clients. Stronger communication skills will help professional accountants manage risks and garner buy-in for solutions. Scenario planning and storytelling: Professional accountants are dynamic thinkers with an aptitude for proactive planning. We are trusted partners in times of change and uncertainty, and we must be prepared for that demand to continue. We have to maintain the momentum 2020 created and the renewed trust imparted on our profession. Many round-table discussions spent significant time on the importance of accountants continuing to build in the areas of professional skills and focusing on new techniques for analysing and interpreting data in differing circumstances, and aptitudes for strategising on increasing priorities such as ESG. Our stakeholders agreed that the profession must become better storytellers, able to effectively show how all the pieces fit together and how the finance function bolsters resiliency and growth. The basics of this can be taught in classrooms, but this skill will largely be shaped on the job. Upskilling: How we compete in the learning and development space – with dynamic curricula, more agile credentialing and continuous learning models that are suited to a hybrid world – will be a differentiator moving forward. “Professions that invest [in education] now are going to come out of this with a competitive advantage,” said one academic leader. We have to show aspiring accountants and those who might be upskilling during their career that the profession is anticipating, adapting with agility, and remaining a step ahead. Affirming the need for agile, future-proofed skills, one professional accountancy organisation CEO said, “I’ve worked through three pretty major crises in my career, and the common theme through all of them is that you must use it as an opportunity for change. A crisis gives you license to adapt”. Defining the accountant of the future Professional accountants are, and will continue to be, strategic partners in any setting, be it in the private or public sector. The pandemic tested our capacity as business drivers, and we rose to the occasion. This is a pivotal moment for the accountancy profession, one where we will change old paradigms and embrace new skills for the digital and rapidly evolving world in which we live. How we act in this moment will define the future of the profession, and the opportunity for positive change is immense. Right now, societies and economies around the world are trying to find a way to move forward from a crisis-laden year. Professional accountants are the highly strategic and collaborative problem solvers who will help businesses and governments, large and small, move forward. In the round-tables IFAC conducted in recent months, CEOs, auditors, academics, students and more from around the world shared a clear vision: we, as a profession, must accelerate new ways of working, embrace technology, align our work to new and evolving societal demands and, above all, ensure we are investing in the right balance of skills that will fortify the profession for whatever the future holds.   Kevin Dancey is Chief Executive at IFAC, and Alta Prinsloo is Chief Executive at the  Pan African Federation of Accountants and former Executive Director at IFAC. The research process The International Federation of Accountants (IFAC) spent the past three months engaging with dozens of people associated with the accountancy profession across more than 20 countries with a range of perspectives. They included chief executives of professional accountancy organisations, chief executives in business, chief financial officers, audit committee members, auditors general, accounting firm leaders, academics and students.  By convening these various stakeholders, IFAC set out to understand the implications of the pandemic for professional accountants and leaders, and how their experiences will affect the future of accountancy and, more specifically, accountancy skills. The global COVID-19 pandemic has accelerated change and forced us to reconsider the role of professional accountants. We heard from our stakeholders about the transformation of organisations, the agility of business, and the resilience of professional accountants managing through unanticipated change.

Leigh Harrison outlines the practical issues, for both the auditor and management, that may arise when applying the revised going concern standard. As auditors rapidly approach the start of ‘busy season’ and management near the end of the financial year, one of the biggest challenges that will impact on both the auditor and management are the changes to the going concern auditing standard. The revised standard, applicable for periods beginning on or after 15 December 2019, increases the auditor’s work effort, which includes expanded risk assessment procedures over going concern, increased scrutiny over management’s going concern assessment and enhanced reporting requirements in the auditor’s report. The directors’ responsibility for going concern is seated in company law, with the duty to prepare financial statements that give a true and fair view, in accordance with the applicable financial reporting framework. The accounting standards require the preparation of a going concern assessment, taking into account all available information about the future, for a period of at least 12 months. The financial statements are prepared on a going concern basis unless management determines that they intend to liquidate the entity, cease trading, or have no realistic alternative but to do so. Complexities in the current year The world is now a very different place than it was at the start of 2020. In a matter of months, COVID-19 swept across the globe. The pandemic subsequently led to travel restrictions, business closures, cancelled events, and lockdowns. Governments responded with a range of financial supports in an attempt to support jobs and businesses. During this time, management will have had to revisit their business plans, forecasts and cash flows in response to the ever-changing economic environment. Meanwhile, calls for better climate change reporting and the end to the Brexit transition period compound the complexity. Practical issues for management Although the directors are ultimately responsible for the assessment of going concern, in many cases, they may delegate the preparation of the assessment to management. The directors will need to possess the skills and knowledge to understand and challenge the assessment prepared by management and have a robust governance, oversight and approval process to challenge and validate management’s assessment. For management in smaller businesses, where an assessment of going concern may not have been formally prepared and documented in previous years, the requirement in the current year is likely to be a step-change. In some ways, the continually changing economic environment in which businesses currently operate will have prepared management for the preparation of their going concern assessment as they continuously re-assess the impact of change on their business. Ahead of year-end, management should engage with their auditor to agree on the expected audit deliverables and ensure that they have the processes in place and resources required to perform the assessment. Remote working may add further complications as inputs required for the assessment are likely to be prepared across the finance function, and team members may be on furlough. Management will need to factor in additional time for scenarios where, for example, additional funding is required or waivers of covenants must be negotiated and agreed, as credit approval may be delayed due to the impact of bank staff working remotely. Management will need to have specific processes in place, including a risk assessment process to identify, assess and address risks facing the business relating to going concern. Management will also need to explain to the auditor how they measure and review financial performance, use their information systems to identify and capture events or conditions that may impact the going concern assessment, and how management identified the relevant method, data and assumptions used within their going concern assessment. The assessment must be prepared and documented by management in all cases and should be tailored and right-sized for the business. For some non-complex businesses with high levels of cash reserves, management’s assessment may not require detailed cash flow forecasts. A memorandum detailing management’s analysis and considerations may suffice. In contrast, more complex entities will require a thorough assessment of current and future risks, forecasted cash flows, consideration of current funding available, and the identification and assessment of plans to address identified risks. The area management must consider when preparing their assessment is wide-ranging and includes risks facing the business (both internal and external, current and future), the business environment, developments in the industry, and future prospective plans. The purpose of the assessment is to determine whether certain events or conditions may cast significant doubt on going concern and whether those events result in a material uncertainty to exist. In preparing and documenting their assessment of going concern, the auditor might expect to see the following: Analysis of the core operations of the business as they relate to going concern, including the business model, types of investments or disposals planned, how the business is financed and so on. Analysis of the current financial position compared to the prior year, considering key metrics such as net current assets/liabilities, operating cash inflow/outflow for the year-to-date, funding arrangements in place and related covenants, and so on. Analysis of the results post-year-end compared to the prior year, including revenue, profits, and status of funding. Details of events or conditions identified by management that may cast significant doubt on going concern and may affect the future performance of the business. For example, changes in demand for products or liquidity challenges. Where events or conditions are identified by management, management should document their plans to address those events. When management consider that a detailed assessment is required, they should document the model, assumptions and source of data used in their assessment. Management may find it useful to prepare a sensitivity analysis, where there are several potential assumptions or actions. The assumptions and data used in the assessment of going concern must be consistent with those used elsewhere in the business – when considering the valuation of goodwill, for example. Practical issues for the auditor In the planning phase, the auditor will need to ensure that the team has the resources and experience necessary to perform the required procedures. Where the new requirements present a step-change for clients, it will be particularly important for the auditor to engage early. Doing so will help clients better understand the extent of audit evidence expected, and the level of input that will be required from management throughout the audit process to assist the auditor in their enquiries and procedures. There is no prescribed methodology for management to use when preparing their assessment of going concern. In scenarios where management has determined that detailed forecasts and cash flows are not required, the auditor will need to use their professional judgement to determine whether they consider the assessment to be appropriately detailed. This may lead to difficult conversations. At the other end of the scale, management’s assessment may include, for example, detailed forecasted cash flows that are built on complex models with multiple assumptions and sources of data. In these situations, the auditor will need to obtain a detailed understanding of the model, and careful consideration will be required to determine which assumptions and sources of data are critical to the assessment. Professional judgement will be needed when designing the required audit procedures, which may include evaluating the design, implementation, and testing management’s controls over the process for preparing the assessment. For 2020 year-ends, more entities will likely face liquidity issues given the continuing impact of COVID-19 on business. As such, management’s plans may include seeking reliance on group support. Auditors of components within groups will need to get a ‘big picture’ view of the group’s ability to provide the support required. More than ever, there is a greater need for the auditor to maintain their professional scepticism, challenge management throughout the audit process, and evidence that on the audit file. Conclusion For some businesses, the implementation of the revised going concern standard will be a step-change that will result in changes to processes, controls, oversight arrangements and increased management input to prepare management’s assessment of going concern. For the auditor, greater audit effort will be required, resulting in additional time input throughout the audit process. The auditor will need to exercise their professional judgement when evaluating management’s assessment, identifying the critical assumptions and data, considering whether sufficient appropriate audit evidence has been obtained, and concluding on going concern in the audit report.  Leigh Harrison is Director at KPMG’s Department of Professional Practice.

Taking the time to carry out a corporate simplification project during COVID-19 could help sustain your business while safeguarding employees’ motivation and focus, writes Claire Lord.The effects of COVID-19 are severely impacting the global economy. To ensure long-term protection and sustainability, organisations are likely considering ways to reduce costs and improve business efficiencies. Simplifying your corporate structure by removing dormant or unnecessary companies is one way to achieve both objectives.It is not uncommon for organisations to have complicated corporate structures. While many companies within these structures serve a particular purpose that brings value to the business, other companies may be inactive and costing the organisation money to maintain. A lack of time and resources often results in organisations putting off any review of the efficacy of their corporate structures.Perhaps now, a time when employee capacity could be higher and long-term sustainability is a crucial focus, is time for your organisation to examine whether your current structure meets the changing needs of your business? The sooner the steps in a corporate simplification project are taken, the sooner your organisation can enjoy the many benefits.Cost savingsThe cost of maintaining a dormant or inactive company is usually understated. The actual cost can exceed €8,000 per year when compliance and audit costs are taken into account. This does not include the hidden costs of administration and employees’ and management’s time spent coordinating this compliance.Employee productivityMany employees are worried about job security as a result of COVID-19. A project demonstrating that your business is focused on long-term sustainability may help improve employee motivation and focus, consequently enhancing productivity and alleviating fears of job security. Workloads may also be lighter due to the impact of COVID-19 on the economy, and utilising employee time to assist with a simplification project can ensure that their time is spent productively to help sustain the business.Business efficiencyManagement, legal and compliance teams must focus their time, now more than ever, on the core companies required to sustain and grow a business. Eliminating unnecessary companies allows these teams the time to do that. A less complicated structure can also simplify the repatriation of cash from trading subsidiaries and other intra-group financing arrangements.Mitigate riskThe existence of a company can expose a business to risk, including error, fraud, or a failure to meet regulatory or compliance requirements. These risks arguably increase with dormant and inactive companies, given the likely reduction in monitoring as management focuses on the core companies required to run the business. There is also the risk that, over time, corporate memory will disappear, making it more difficult to assess whether a company needs to be retained.Governance standards and transparencyWith ever-changing legal and corporate governance requirements for companies, including new anti-bribery and data protection laws, ensuring that companies meet the required standards is a constant challenge. It is easier to maintain these standards with a less complicated structure. Improved transparency through a simplified structure is likely to be welcomed by investors, finance providers, and other stakeholders.Tax benefitsComplicated structures can sometimes lead to tax inefficiencies, such as tax leakage or additional tax compliance burdens when repatriating cash through the business. Simplifying the complexity of a structure may resolve these inefficiencies and allow for improved tax planning for the business.ConclusionAt a time when organisations must reduce costs and increase business efficiencies to ensure long-term sustainability, considering a corporate simplification project may be a simple step that delivers meaningful results.Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Although the relentless adoption of technology is not without risk, the audit – and the profession as a whole – stand to be net beneficiaries in the long-run, writes Lynn Abbott.The COVID-19 pandemic will undoubtedly usher in a new era for business. There have already been significant changes, with some businesses creating their first online store or introducing contactless payments. Others, however, have realised that they must introduce more sweeping changes, such as offering staff the ability to work remotely. We have yet to see the impact of these changes, but the world will be a different place to the one we knew previously.The Oxford English Dictionary defines a revolution as “a great change in conditions, ways of working, beliefs, etc. that affects large numbers of people”. This accurately describes the transformation that was already underway in audit before the COVID-19 crisis. With advancements in technology, the use of data analytics, artificial intelligence and machine learning are fundamentally changing how business works. Resistance is not only futile but seems to put companies at a competitive disadvantage. The COVID-19 crisis will only serve to accelerate this process, and professional services firms are no exception.Drivers of the revolutionWhen we hear buzzwords like 'data analytics', 'artificial intelligence' and 'machine learning', it can be intimidating. Many people don’t fully understand such concepts, but in truth, you don’t need to. You just need to get comfortable with them. And you probably already are: familiar services like Netflix or Spotify use artificial intelligence to understand your preferences and make subsequent suggestions based on that knowledge. The level of consumers’ expectations is continually increasing, and the successful companies are those that are advancing with technology. The same is true for businesses and their expectations. In audit, the revolution is underway and the sections that follow highlight the key drivers for this change.Improve the audit experienceThe volume of data available to auditors is astounding, but in most cases, this data is simply not being used. If this were happening in any other industry, there would be questions to answer. Data analytics can improve the audit experience in several ways, for both the audit team and for the client.Improve audit qualityDuring the planning phase of the audit, audit teams must shift their focus away from the old mindset of “what could go wrong?” Through analytics, we can turn our attention from what could go wrong to what has gone wrong. Auditors have access to the client’s complete financial data for the period under audit – if they focus on analysing and understanding the data, they could identify an unexpected transaction or trend in the process. During the execution phase, auditors should also build on the knowledge gained in planning to truly understand the business in question and focus their attention on higher risk transactions. Finally, auditors should move away from a ‘random sample’ approach and, instead, focus on the transactions that appear unusual based on their knowledge of the client, business or industry. These are just a few areas where improvements in audit quality can be achieved using data analytics.Improve efficiencyIn the examples above, the use of data analytics in planning will identify what has gone wrong and any associated unusual transactions. In execution, these transactions will be tested as part of the audit sample. It could also cover some requirements under auditing standards concerning journal entry testing, as the journal entries will likely be the data that highlighted what went wrong in the first place. Again, this is just one example of efficiencies gained without even considering the hours saved by automating processes like creation of lead schedules and population of work papers.Post-pandemic worldThe world will be a very different place in years to come. Firms with the ability to perform in-depth analysis using data analytics undoubtedly have a significant advantage over those that do not, given the efficiencies they can gain and the potential reduction of physical evidence required from clients, among other things. Due to the changes we have all had to endure, auditors may also have additional procedures to perform (e.g. roll-back procedures where they were unable to attend stock counts at year-end due to the COVID-19 closures of businesses). Such procedures have the potential to be automated, saving even more time and effort for audit teams.Improve engagementRather than spend time performing mundane tasks such as testing large randomised samples, data analytics allows audit teams to jump into the unusual transactions. This will make the job more interesting to auditors and cultivate a curious and questioning mindset, which will, in turn, lead to improved scepticism and audit quality.Improve client experienceThis might happen in two ways. First, the time saved by the client’s staff (who, in theory, will have fewer samples for which to provide support) and second, through the value the audit adds to the business. As an example, consider an audit team performing data analysis on the payroll for their client. As payroll is a standardised process, the audit team has an expectation around the number of debits and credits they would see posted to the respective payroll accounts each month. As part of their analysis, however, they find an inconsistent pattern. This can be queried as part of the audit and the client will be better able to understand a payroll problem, which they were previously oblivious to.Client expectationsGiven the level of data analysis that occurs daily in the life of anyone using a smartphone, a consistent, high quality is understandably expected in people’s professional lives, too. Audit clients, like all consumers, want more. They want a better and faster audit. They want an audit that requires minimal interference with the day-to-day running of their business, without compromising the quality of the auditor’s work. With troves of data now available to auditors, such expectations are not entirely unreasonable. Audit firms have access to vast amounts of financial and related data – in some instances, millions of lines of information – that, if analysed robustly and adequately, would improve their processes, their clients’ experience, and the quality of their audit files.Aspirations of professionalsAudit professionals can often struggle with work-life balance. Though most firms are getting on top of remote working, the hours in busy season are long. In a time of continuous connectivity, the time frame around ‘busy season’ is also becoming blurred. Through the use of technology, we will one day make auditing a 'nine to five' job. Many will scoff at that idea and, although I do not expect this to happen in the next five years, or even ten years, it is possible. By automating mundane tasks and continuously upskilling our graduates, we can transform how an audit team completes work. There will be more scope to complete work before clients’ financial year-ends, thus moving much of the audit out of the traditional ‘busy season’. Machines can complete specific tasks overnight so that auditors could arrive at their desk, ready to work on a pre-populated work paper that needs to be analysed by a person with the right knowledge. With appropriate engagement by all parties (i.e. audit teams, senior management, and audit clients), we could significantly reduce the hours spent on audit engagements and give this time back to auditors. Along with attracting high-calibre graduates, we will retain high-quality auditors in the industry while also avoiding mental fatigue and burnout, which will again lead to better quality audits.Graduate recruitmentGraduates joining firms in recent years have particular expectations of the working world. They want job satisfaction, flexible hours, remote working, and an engaging role that will challenge them. Professional services firms have to compete for the very best graduates, and no longer just against each other – a host of technology-enabled businesses are attracting talent on an unprecedented scale by meeting the needs listed above. Technology, and data analytics, in particular, can offer the solution to the graduate recruitment challenge – by making the work more efficient and automating mundane and repetitive tasks, graduates can instead focus on analysis. When people find their work challenging and interesting, they will feel more engaged.ChallengesThis move towards technology is not without its risks to the profession. Automating basic tasks removes the opportunity for graduates to form a deep understanding of these sections of the audit file. The onus is therefore on the current cohort of Chartered Accountants to take the reins, both to drive technology advancement forward and also provide practical, on-the-job coaching to ensure that this knowledge is not lost for the generations that follow.Lynn Abbott ACA is an Audit Inspector and Audit Analytics Expert in the Audit Quality Unit at IAASA.

The new auditing standard on estimates will have a significant impact on management as well as auditors. Brian MacSweeney reports.The revisions to ISA (Ireland) 540 (Revised) will have important implications for chief financial officers, financial controllers and management responsible for financial statement preparation and the determination of accounting estimates. Its impact may be felt outside finance functions where others contribute to the calculation of estimates – for example, valuation specialists, taxation teams or pension specialists. It will also give rise to additional considerations for audit committees recommending financial statements for approval.What are the implications?The new standard requires the auditor to perform additional understanding and risk assessment procedures over estimates, along with other new requirements. This means that:more time is needed from management to help the auditor perform these procedures;management will need to articulate their processes and controls around estimates better;there will be more dialogue between auditors, management, and those approving financial statements about the critical aspects of estimates; andthere will be a better and more robust audit approach to auditing accounting estimates in the forthcoming financial reporting cycle.Why was the standard revised?The preparation of financial statements involves many different elements, but the preparation of estimates is perhaps more complex than others. Estimates are monetary amounts (recognised or disclosed), which are a fundamental part of entities’ financial statements. They are subject to estimation uncertainty due to inherent limitations in knowledge or data, and as a result, there may be a wide range of measurement outcomes for any estimate. In forming estimates, management apply methods or models where they make assumptions and use data. They exercise judgement involving complexity and subjectivity when measuring the estimate. Due to the nature of this process, estimation is susceptible to material misstatement, and for the users of financial statements, they are the main focus.Over time, accounting estimates have become more prominent and visible in financial statements, garnering additional scrutiny from readers. This is caused by increasingly complex business environments (now made more complicated due to the COVID-19 pandemic) and the introduction of new accounting standards over the last number of years. The previous version of the ISA 540 standard was written before these changes and they, along with challenging audit inspection findings, meant that a new framework was needed for auditors to robustly audit estimates. In response to these challenges, the Irish Auditing and Accounting Supervisory Authority (IAASA) issued ISA (Ireland) 540 (Revised).What is the aim of the new standard?The new standard aims to:address changes in financial reporting standards and business environments that make estimation more difficult;enhance auditors’ professional scepticism, considering recurring audit inspection findings criticising the quality of audits of accounting estimates; andRealise public interest benefits through better two-way dialogue between the auditor and management concerning estimates.What is new?Enhancements contained in the new standard include:Enhanced risk assessment: the standard requires a robust risk assessment of estimates. The aim is to heighten auditors’ understanding of processes and controls around the identification of estimates and the determination of the related monetary amounts. This risk assessment is performed at a granular level and focuses on the models, assumptions, and data used to determine the estimate. The assessment is made with reference to inherent risk factors, including the complexity of the estimate, its subjectivity, and estimation uncertainty.Scalability of testing approach: the testing approach options in the old ISA 540 are maintained. These include testing management’s calculations of the estimate, developing an independent estimate, or using events after the year-end as audit evidence for the estimate. However, the new standard focuses on aligning the level of procedures performed to the assessed risk. This gives the standard scalability, where the level of audit effort is dictated by the complexity and risk associated with the estimate.Professional scepticism: ISA (Ireland) 540 (Revised) has several provisions designed to enhance the application of professional scepticism. These include:o A requirement to design and perform further audit procedures in a manner that gives more focus to evidence that may be contradictory.o A requirement to evaluate the audit evidence obtained regarding the accounting estimates, including both corroborative and contradictory audit evidence.o Changing the language in the standard to use purposeful words like 'challenge', 'question', and 'reconsider', thus reinforcing the importance of exercising professional scepticism.Disclosures: there are enhanced requirements to assess whether the estimate disclosures are “reasonable”.Communication and representations: there are new requirements to consider when communicating with those charged with governance. There is a requirement to request written representations regarding the reasonableness of methods, significant assumptions, and the data used.What is the impact on management?Table 1 sets out the key changes required by ISA (Ireland) 540 Revised and their impact on auditors and management. This summary was prepared by Chartered Professional Accountants Canada and was adopted by the IAASB (International Auditing and Assurance Standards Board) for its client briefing document dated November 2019.What happens after implementation? The standard-setters intend to undertake a post-implementation review after the effective date of ISA (Ireland) 540 (Revised) to see if the revised standard has achieved its intended objective. They will focus on whether the standard is sufficiently scalable and whether it enhances the exercise of professional scepticism.First impressionsHaving read the new standard and prepared illustrative audit work papers to see it in practice, it is clear that this is a significant change to how auditors will approach the audit of estimates. The key message is that auditors will need to prepare early to perform a detailed understanding and risk assessments procedures. Management will have more to do to help the auditor in their risk assessments, but early communication and engagement between the auditor and management will ensure successful adoption.In addition to the above, due to the COVID-19 pandemic, developing estimates for expected credit losses, going concern analysis, and related disclosures, in particular, is more challenging. A focus on the audit of estimates is therefore paramount. Overall, in a financial reporting environment that is evolving due to changing business environments and accounting frameworks, ISA (Ireland) 540 (Revised) provides audit practitioners with a good basis to audit estimates and to serve the public interest by fostering audit quality.  Brian MacSweeney ACA is a Director at KPMG Ireland.

The General Court of the European Union’s ruling in the Apple tax case affirms Ireland’s reputation as a suitable location for global establishment, argues Claire Lord.In 2016, the EU Commission decided that two tax rulings issued by the Revenue Commissioners in 1991 and 2007 in favour of Apple Sales International (ASI) and Apple Operations Europe (AOE) constituted unlawful state aid under EU law.ASI and AOE were companies incorporated in Ireland, but not tax-resident in Ireland. The contested tax rulings endorsed the methods used by ASI and AOE to determine the taxable profits in Ireland attributable to the trading activity of their respective Irish branches. The Commission calculated that, through these tax rulings, Ireland had granted Apple €13 billion in unlawful tax benefits, which therefore constituted unlawful state aid.The decision of the Commission was appealed to the General Court of the European Union by both Apple and Ireland.General Court’s decisionThe General Court annulled the Commission’s decision on the basis that the Commission did not succeed in proving that ASI and AOE had been granted a selective economic advantage and, by extension, unlawful state aid.The General Court agreed with the Commission’s approach on some fundamental legal issues such as how the principles of advantage and selectivity are to be assessed, the reference framework of Irish tax law and, in broad terms, the application of the ‘arm’s length’ principle. However, it also held against the Commission on several points of law and fact. In particular, it rejected the Commission’s primary argument that the Revenue Commissioners had granted ASI and AOE an advantage by not allocating the Apple group’s intellectual property licences held by ASI and AOE, and the associated sales income, to the Irish branches of ASI and AOE.The Commission had made this argument by effectively contending that such an allocation must be the case because ASI and AOE had no employees anywhere else, despite their boards conducting business outside of Ireland. The General Court found that approach to be wrong in law and fact. It held that as a matter of law, the Commission had to show that, in fact, the Irish branches of AOE and ASI carried out the taxable activity; it was not enough to contend that the Commission had not found such activity elsewhere.In addition, the General Court held that the evidence given by ASI and AOE demonstrated that the relevant taxable activities were not in fact carried out by the Irish branches.The General Court also held that the Commission did not demonstrate that methodological errors (which the Court accepted had occurred in the contested tax rulings) resulted in an advantage for AOE and ASI. While the General Court regretted the incomplete and sometimes inconsistent nature of the contested Irish tax rulings, those infirmities did not, in themselves, prove the existence of a selective advantage. Therefore, such errors did not constitute unlawful state aid.Lastly, the Court also found that the Commission did not prove that the contested tax rulings were the result of discretion exercised by the Revenue Commissioners, which had granted a selective advantage to ASI and AOE. Instead, it found that the correct analysis of 11 other rulings by the Revenue Commissioners was that the approach depended on the facts and this was not objectionable.The Commission may appeal the decision to the EU’s Court of Justice before 26 September. However, an appeal is only on points of law and not on findings of fact.The impact of the decisionThe General Court’s decision is a victory for the position argued by Apple and Ireland. Because it holds against the Commission on several points of law and fact, it will be a difficult decision to appeal successfully should the Commission decide to do so. Also, the points won by the Commission are points of law. They, therefore, may themselves be challenged in any cross-appeal and an adverse decision on any of those points could have systemic effects, which the Commission would not welcome.The decision is obviously newsworthy because of the parties involved, the value at stake and the current global focus on international tax, particularly in relation to multinationals and the digital economy. However, it is noteworthy that many of the points at issue are no longer of relevance for companies doing business in Ireland as the structures and approaches at the heart of the case have not been widely used here in recent years.It does, however, clarify that Ireland did not apply any selective treatment to Apple. It underscores Ireland’s reputation as a straightforward and rules-based jurisdiction which remains an eminently suitable location for global companies to establish significant operations.Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Gender equality is something many organisations speak about, but gender pay gap reporting will be the first real test of the effectiveness of those policies, writes Sonya Boyce.2020 has certainly been an interesting and unprecedented year for us all. We entered the new year in a position of relative economic prosperity with strong economic growth. Ireland was enjoying the lowest unemployment numbers in recent years, and gender balance was evident in many areas of the labour market. This was all threatened by the uncertainty, upheaval and challenges brought to our lives in March as the State sought to minimise the impact of COVID-19 on society.It is therefore welcome that the programme for our new Government, which was published in June 2020, contains a clear and renewed commitment to legislating for the mandatory reporting and publication of the gender pay gap for companies. This requirement is long overdue in Ireland and one our previous government failed to enact legislation for – notwithstanding the advancements in drafting the legislation.A quick recapThe gender pay gap is defined as the difference between what is earned on average by women and men based on the average gross hourly earnings of all paid employees – not just men and women doing the same job or with the same experience or working patterns. Gender pay gap reporting isn’t just about equal pay; it is part of a broader initiative to address female participation and employment gaps between genders. Gender pay gap reporting is seen as the first step in addressing parity in the employment market in terms of gender, particularly at the management level.The previous government’s Gender Pay Information Bill 2018 aimed to introduce mandatory gender pay gap reporting for public and private sector organisations in Ireland. This Bill was very much in line with similar legislation already introduced across several European countries, including Germany, France and Spain. Such legislative developments arose in response to the fact that women in the EU are currently paid, on average, over 16% less per hour than men. In Ireland, the average gender pay gap is 13.9% and COVID-19 stands to have a disproportionate impact on women in the labour market because of the higher proportion of women working in specific sectors of our economy, such as retail and hospitality. It is therefore vital that we maintain momentum in our efforts to introduce mandatory reporting for organisations and continue to focus on closing the gender pay gap.The path aheadIt is hoped that the introduction of gender pay gap reporting will provide organisations with an incentive to develop more focused strategies and initiatives to foster greater representation in their workforce – not only from a gender perspective but across the broader spectrum of diversity and inclusion.While there have been significant strides in gender equality, this has yet to become apparent at the senior levels of many organisations. To address this issue, organisations must review and assess their gender pay gap statistics regularly. Gender equality is something many organisations speak about and write policies on, but gender pay gap reporting will be the first real test of the effectiveness of those policies.ConclusionDiversity, equality and inclusion have a positive impact on organisations’ bottom line. Gender pay gap reporting provides a tangible metric that management can rely on to ensure women are paid fairly, are being considered for promotion, and are being promoted and attaining senior-level management positions.All organisations must commit to transparency around pay and progression for all employees. We urge our newly formed Government to introduce mandatory gender pay gap reporting without delay to ensure gender parity and fairness for all.Sonya Boyce is Director of Human Resources Consulting at Mazars Ireland.

Sinead Moore and Paul McGarry share insights from a recent study by Deloitte’s Young Audit Professionals Group on how the next generation of audit leaders perceive their role and purpose.The role of auditors will rightly be in the spotlight during this challenging time for our economy. Auditors are expected to challenge directors and management as they assess the impact of COVID-19 on their business and make key judgements on critical areas, such as going concern and viability, to support shareholders and the capital markets.This vital role will be performed against a backdrop of intense focus on the audit profession in several countries, notably the UK, following high-profile corporate failures. While the debate covers lots of ground including competition, conflicts of interest and the growth of non-audit services by audit firms, a critical element of the debate centres on the fundamental question: what is the purpose of an audit?Consistently defining the purpose of the audit has always been difficult. The profession has often been accused of hiding behind the expectation gap (i.e. while legislation and regulation have a narrow definition of what an audit is, the public has a broader expectation). If you ask a practitioner to define an audit, you will typically get the standard definition: ‘to provide an opinion on whether a set of financial statements present a true and fair view’. In embarking on this study, we therefore approached the question from a different perspective – what do young professionals perceive their role to be? What is their purpose, and how do they see themselves?The responses tell us that practitioners have a more nuanced and more in-depth view of their role as an auditor, in contrast to the narrower definition of an audit. The findings indicate that practitioners have a common view that, in addition to providing assurance over the financial statements, it is their role to:understand the business models of the entities they audit;understand the organisation’s internal controls and provide challenge and insight to improve those controls;provide expertise on financial reporting matters;use technology to increase the assurance the auditor is providing; andlook to the future, understand the risks facing the business, and provide relevant insights.Practitioners believe that they are completing the tasks above in their day-to-day activities, though not necessarily in a consistent fashion. There is a clear appetite to fulfil these roles more comprehensively going forward and in doing so, bridge the expectation gap. But much more importantly in the eyes of the young professionals is ensuring that the role of the auditor is meaningful, valued by stakeholders, and attractive as a career.Internal controlsLet’s explore some of the themes that emerged in more detail – first, internal controls. Young auditors firmly believe that understanding the control environment is a key part of their purpose. Furthermore, they view the provision of insight and opinion on those controls as an essential part of their job and believe that they provide this insight to the management of their audited entities in their current role. However, they perceive an inconsistency in how this role is fulfilled across different types of entities given their size, their industry or their ownership structure.The study also pointed to a perception that the more structured framework for internal control reporting for entities subject to the requirements of the US Sarbanes-Oxley Act is effective. This contrasts with the legislative framework in Ireland, where there is no formal reporting on internal controls. Indeed, participants in the study highlighted the following shortcomings:a lack of detail in audit reports on which procedures were performed to obtain an understanding of the control environment; andthe areas where the auditor was unable to obtain assurance over the internal control environment and therefore conducted substantive, detailed testing.A key conclusion, therefore, is that a formal testing and reporting framework, including the specifics of the procedures performed and results obtained, should be reported not just to management and those charged with governance, but also publicly to the users of the financial statements.TechnologyEven before COVID-19, the use of technology in the audit was increasing. Respondents were unanimous in their view that increased use of technology can improve audit quality, improve the efficiency of the audit process, and enhance the insight auditors offer to management and those charged with governance.However, the study highlighted several challenges. First, obtaining data in a usable format to enable technologies is a fundamental issue in facilitating the more widespread use of tools and technology. Privacy and security concerns have made it difficult to get large datasets or continuous access to entities’ systems and have slowed the adoption of many audit tools.Second, the competencies required to use innovative technologies, including enhanced analytics, are different from the current core skills of many practitioners. To reap the full benefit, auditors therefore need to develop new skills and firms must continue to invest in embedding technology into internal training and methodology. Also, third-level institutions and professional bodies have a responsibility to integrate technology and analytics into course curricula, as Chartered Accountants Ireland has done with the introduction of data analytics, artificial intelligence and emerging technologies as part of the FAE Core syllabus.Business model and future risksArguably the most interesting findings of the study were related to understanding the business model and the future risks faced by the audited entities. At its most basic, this was what defined auditor purpose in the eyes of the young audit professionals – the job of the auditor is to understand the business, the risks it faces, and ensure that the financial statements present that reality. This aspect of the role gave them the most satisfaction: understanding the business, challenging management on their judgements, assumptions and outlook; and ensuring that the disclosure in the annual report reflected this in a fair and balanced way.In their day-to-day work, the young professionals felt that, while the audit process frequently resulted in entities making changes to their reported numbers and improving disclosures in the financial statements, this was mostly unseen by the broader users of financial statements. The participants highlighted that the pass/fail nature of the audit report did not adequately reflect the challenge and output of the audit and that, to date, the expanded audit reports had not improved this significantly.According to the study, the critical barrier to disclosing more tailored information in audit reports was the ingrained concept of a ‘clean’ audit opinion – auditors and preparers alike found it difficult to move to a less binary conclusion. A variety of themes emerged around this, including developing different forms of assurance over elements of the annual report and in particular, how audit reports may evolve to include more detail on audit judgements without creating the risk of a perception of a qualified audit. The young professionals concluded that audit reporting must evolve to accommodate more information for users on judgements.ConclusionOverall, the study provided some powerful perspectives on how our young auditors see themselves. It demonstrated that the next generation of audit leaders are passionate about their profession and are not satisfied to hide behind the expectation gap to defend the role of the auditor. Indeed, they have a strong desire to develop the role of the auditor to meet the expectations of the public and believe that this is achievable.We also concluded that as a profession, we must focus on further developing the theme of ‘auditor purpose’ to curate some simple messages and language that aligns with this deeper purpose and value of audit. In particular, we should encourage a proactive discussion and debate on auditor purpose to ensure the role of audit is understood, continues to have public interest value, and is an attractive profession.Sinead Moore is an Audit Partner in Deloitte and chairs the Young Audit Professionals Group.Paul McGarry is an Audit Senior Manager in Deloitte and a member of the Young Audit Professionals Group.

The UK Government has recently made urgent and radical changes to insolvency laws, which may help companies survive the COVID-19 crisis, write Michael Drumm and Sean Cavanagh.The Corporate Insolvency and Governance Act 2020 represents the most significant reform of insolvency legislation in over 20 years. It was fast-tracked through Parliament and became law on 26 June. The laws apply to the whole of the UK, and specific clauses relating to Northern Ireland have been included.Some of the new changes are permanent, and some are temporary. The permanent changes focus on reforms in three key areas:A moratorium;A ban on termination provisions; andA new restructuring plan.The temporary measures relate to the suspension of the wrongful trading regime, the suspension of statutory demands and winding-up petitions where financial difficulties arise directly from the effects of the COVID-19 pandemic, and some temporary extensions concerning company filing requirements.This article is necessarily high-level, and readers are encouraged to speak to their advisors to explore the detail.Permanent changesA new ‘free-standing’ moratoriumThis mechanism differs from existing moratoria in that it is a standalone procedure and does not necessarily need to be a gateway to any formal insolvency process.The application In most cases, the moratorium can be initiated by merely filing the application with the court (a court order is not required). The application must contain:• a statement by the directors that, in their view, the company is, or is likely to become, unable to pay its debts; and• a statement from the proposed monitor (who must be an insolvency practitioner) that the company is an ‘eligible’ company and that, in their view, the moratorium would likely result in the rescue of the company as a going concern.Length of the moratoriumIt will last for an initial period of 20 business days, which can be extended to 40 business days by the directors (no creditor approval required). This 40-day period can be extended for up to one year, but only with creditor or court approval. A further extension beyond one year is also possible by applying to the court.Each application for an extension must be accompanied by a statement from the directors and the monitor.Effect of the moratoriumIt will prevent the enforcement of security, the crystallisation of a floating charge, the commencement of insolvency proceedings or forfeiture of a lease.The company will not be obliged to pay most pre-moratorium debts during the moratorium, but there are some exceptions (e.g. wages and salaries, finance loans and leases). However, debts falling due during the moratorium must be paid so access to cash or funding will be vital.The monitorDuring the moratorium, the directors remain in control of the business and a monitor oversees the process. The monitor is an officer of the court and as part of their role, they must protect creditors’ interests while also ensuring compliance with the conditions of the moratorium.For the period of the COVID-19 crisis (at present, up to 30 September 2020), the monitor can disregard any worsening of the company’s financial position that is attributable to the pandemic, providing a going concern rescue is still likely.How will it end?The moratorium can come to an end via:an agreement/restructuring with its creditors, possibly via a company voluntary arrangement (CVA);a scheme of arrangement;a court order;termination by the monitor if he/she determines that the conditions have not been fulfilled; orautomatically, on expiry of the time limit.The hope is that the company will emerge from the moratorium having achieved a rescue, but if this is not the case, a winding up or administration might happen. Where this insolvency procedure happens within 12 weeks of the end of the moratorium, certain unpaid debts in the moratorium and certain other debts have ‘super priority’ for payment ahead of other debts.A new restructuring planThis new procedure will closely resemble the existing scheme of arrangement, which is a statutory legal process that allows a company to restructure its debt. It is not an insolvency procedure but must be approved by the court.The restructuring plan will require two court hearings, is likely to be technically complex, and will be expensive as a result. Thus, it may not turn out to be a practical solution for smaller SMEs in distressed scenarios.The principal advantage of the new restructuring plan is that it will offer the ability to cramdown one or more classes of dissenting creditors or shareholders. In effect, this means that even if a class of creditor does not vote for the plan, the court may still sanction a cramdown provided certain conditions are met, including that no creditor is worse off than the relevant alternative.The procedure is more likely to be used in more complex and larger distressed company scenarios, particularly with bond-holder involvement, meaning it is unlikely to be used regularly in Northern Ireland.Suspension of termination clauses for suppliers of goods and servicesWhen a company enters an insolvency or restructuring procedure, suppliers will often stop or attempt to stop supplies by virtue of the terms of its supply contract.This new Act prohibits the termination of any contract for the supply of goods and services to a company by reason of the company entering into an insolvency procedure. This will include the new moratorium procedure outlined above, administration, CVA, liquidation or a restructuring plan. However, this prohibition does not apply to schemes of arrangementAlso, a supplier company cannot insist on any disadvantageous amended terms (e.g. significant price increases). There are some exceptions to this suspension, however, such as contracts for the supply of services from insurers and banks.A temporary exemption (available during the COVID-19 period) to this supply restriction will be available to ‘small’ businesses. This may be of importance to Northern Ireland supplier companies, as many of them will qualify as ‘small’ for this purpose.A company can also apply to the court to terminate supply where it can prove ‘hardship’. ‘Hardship’ is unfortunately not defined as yet.Temporary changesThese temporary changes only apply during the period of the COVID-19 crisis.Suspension of the offence of wrongful tradingThis new Act directs the courts to assume that a director is not responsible for the worsening of the financial position of the company that occurs during this period (currently to 30 September).This reduces, but critically, does not remove, the threat of personal liability on company directors arising from ‘wrongful trading’. This temporary suspension only applies to ‘wrongful’ trading – it does not exempt directors from possible personal liability arising from ‘fraudulent trading’.Temporary suspension of statutory demands and winding petitionsThe Act temporarily removes the threat of statutory demands and winding-up proceedings, but only where COVID-19 has had a worsening effect on the company. In these circumstances, statutory demands will be void if served on a company during this period. However, a company will not be protected from the making of a winding-up order where the financial difficulties of the company would have arisen regardless of the effects of COVID-19.AnalysisThese new measures will be welcomed as they have the potential to help many viable companies that have been directly impacted by the effects of this unprecedented crisis.The intention of the new moratorium is that it will be a ‘debtor-in-possession’ process whereby the monitor acts in a limited capacity as overseer. This follows recent trends in some administrations (e.g. Debenhams) where administrators have provided consent to directors to make certain decisions via a ‘consent protocol agreement’ in what many are calling ‘light touch’ administrations.Only time will tell whether this new moratorium procedure is preferred over the traditional administration process, but recent developments certainly indicate a move towards a more rescue-orientated restructuring culture, which will surely be required to save viable businesses and address the unique nature of the upcoming economic environment.Michael Drumm is a licensed insolvency practitioner and an advisory partner at CavanaghKelly.Sean Cavanagh is a Founding Partner of CavanaghKelly, a licensed insolvency practitioner and Chair of the Insolvency Technical Committee at Chartered Accountants Ireland.

Gemma Donnelly-Cox, Mary-Lee Rhodes, Benn Hogan and Mary Lawlor make the business case for corporate human rights reporting and outline critical issues for businesses to consider.Businesses can impact human rights in every context in which they operate. These impacts can be positive: delivering employment, infrastructure and furthering development. They can also be negative, bringing risks, including forced and child labour, pollution and corruption.Since 1 January 2017, all companies in Ireland to which the Non-Financial Reporting Directive (NFRD) applies have been required to disclose information relating to respect for human rights, including human rights risks and due diligence processes. Over the same period, there has been an increased interest among investment managers, most notably in Europe, in the human rights performance of companies. Furthermore, mandatory human rights due diligence is coming down the tracks. On 29 April, the European Commissioner for Justice, Didier Reynders, announced his intention to bring forward a legislative proposal in 2021 on mandatory human rights and environmental due diligence.It would seem to be in the clear interest of companies to have a human rights policy and to undertake human rights reporting. Richard Karmel, Global Business and Human Rights Partner at Mazars UK, makes this case in saying (in correspondence with the authors): “Reporting on human rights isn’t a compliance area; it is about being authentic and meaningful in disclosing not only the actions that you have taken to address your greatest risk areas (salient risks) but also reporting on how you know this information. Companies shouldn’t view addressing human rights as an internal cost for external benefit; there is huge internal benefit – greater productivity, improved quality of supplies, less staff turnover and absenteeism, and the attraction of new recruits, for example. This is not a cost area, but one of investment and companies are very good at monitoring their return on investment.”However, when we looked at human rights reporting by Irish companies, we found a significant information gap. Very few of the companies we studied in Ireland include human rights performance in the policy statements or company reports they publish, including those prepared under the NFRD. This may be due in part to the limited guidance within the Directive on how companies should report on human rights, including due diligence.We consider here some of the factors driving human rights reporting, what is required in such reporting, and what it looks like when companies do it well.The UN Guiding Principles and the Irish national planIn December 2011, the United Nations Human Rights Council unanimously adopted the Guiding Principles on Business and Human Rights (UNGPs). These principles were the first agreed statement by UN member states following 40 years of attempts to clarify the relationship between business and human rights. Embedded in the UNGPs is the three-pillar ‘Protect, Respect and Remedy Framework’, which sets out the duties of states to protect human rights, and the responsibilities of businesses to respect human rights and remedy failures. At a national level, a range of laws and ‘national action plans’ (NAPs) were created by member states seeking to embed these principles in company law and practice.Ireland’s NAP, published in 2017, recognises the need to, among other things, “encourage” companies to “develop human rights-focused policies and reporting initiatives”, “conduct appropriate human rights due diligence” and to consider a range of matters regarding access to remedy. An implementation group involving a wide range of stakeholders was established by the Department of Foreign Affairs and Trade to progress the NAP and a baseline assessment of the Irish legislative and regulatory framework was produced.The Corporate Human Rights Benchmark and Irish company performanceIn 2019, the Trinity Centre for Social Innovation published Irish Business and Human Rights: Benchmarking Compliance with the UN Guiding Principles. Mark Kennedy, Managing Partner at Mazars Ireland, has described the report as “a first and important assessment of how companies are dealing with what is a vitally important business issue”. We reported on the results of our pilot study in which we applied the benchmarking methodology developed by the UK-based Corporate Human Rights Benchmark (CHRB). The CHRB conducts an annual assessment of 200 of the world’s largest publicly traded companies on a set of human rights indicators. The indicators consider:Commitments: what commitments does a company make to respect human rights, engage with stakeholders and remedy shortcomings?Responsibility, resources, and due diligence: what steps does a company take to embed responsibility and resources for day-to-day human rights, and to establish a due diligence process that encompasses:identifying human rights risks; assessing them; taking appropriate action on the assessed risks; and tracking what happens after action by monitoring and evaluating their effectiveness?Grievance mechanisms, remedy and learning: what grievance mechanisms are established for staff and external stakeholders? How are adverse impacts remedied, and how are the lessons learned incorporated?Our report applied these indicators to analyse human rights policies and reporting in 22 Irish companies that have international operations. Our source materials for the study were the companies’ publicly available information, as listed in Figure 1.We found that, by and large, the Irish companies in our study are not reporting fully or systematically, and therefore are failing to make their human rights performance visible. No company disclosed a human rights due diligence process, and no company had a publicly reported formal commitment to remedy adverse impacts caused by it to individuals, workers or communities.Where companies are reporting, what does an ‘exemplar’ look like? Adidas AG was ranked first in the 2019 global CHRB (see corporatebenchmark.org). Bill Anderson, Vice President, Global Social and Environmental Affairs at Adidas notes (in correspondence with the authors) that excellence requires transparency about human rights failures as well as successes: “John Ruggie, the author of the UNGP, offered a simple but powerful message to business: in order to meet societal expectations, businesses must both know, and show, that they are respecting human rights. Building policies and due diligence systems on human rights is only half the journey. If a company is to be accountable for its actions and decisions, it must strive for transparency. This can start with small steps, the publication of a statement and a commitment to uphold rights and in time, lead to more dedicated reporting measures on issues and remedies. It is always easy to present the good one is doing, but much harder to account for the negative impacts a company’s operations may have on people’s lives.”Human rights reporting is here to stayWhile few companies in our sample of 20 Irish companies reported systematically on human rights, and despite an apparent lack of awareness among them of the UNGP, and a lack of explicit compliance, our view is that awareness of the requirement to report is slowly gaining strength in Ireland. It makes business sense to know how to report and how to address areas that indicate less than ideal human rights performance.Companies reporting under the NFRD are likely to face a shifting environment in the coming years. The European Commission is currently conducting a review of the NFRD, with a proposal expected in Q4 of this year. As mentioned above, the EU is committed to bringing forward legislation on mandatory human rights and environmental due diligence in 2021.Companies that get the basics right now by implementing policies and due diligence to prevent human rights abuses, instigating appropriate systems to remedy harms caused, and communicating their actions through non-financial reporting mechanisms will be well-placed to respond to this evolving regulatory landscape.We continue to benchmark Irish companies and in autumn 2020, will report on an expanded sample. We hope that benchmarking in Ireland will contribute to the impetus for improved corporate human rights reporting. Richard Karmel shares this view, noting that benchmarking “has an important role to play in the world of human rights reporting; after all, few companies want to be seen in the bottom quartile. Naturally, human rights benchmarks should stimulate a race to the top and ultimately encourage better treatment by business of those who are most vulnerable in our supply chains.”Gemma Donnelly-Cox, Mary-Lee Rhodes, Benn Hogan and Mary Lawlor represent the Centre for Social Innovation at Trinity Business School.

As public health restrictions begin to ease, how can organisations make their workplace safe for employees? Sonya Boyce outlines the key priorities that organisations must consider before staff return. Ireland has now entered the next phase of lifting the public health restrictions that were put in place to protect our nation’s health. As many employers begin to make strides towards returning to the workplace, there are a significant number of factors to consider. Update internal policies The Health and Safety Authority (HSA) and Health Services Executive (HSE) published a Return to Work Safely Protocol (protocol) as the set of guidelines and measures for organisations to follow. Compliance with the protocol is mandatory and it will be enforced by the HSA under existing legislation. All organisations must update their policies to reflect the changes required for containing and restricting the spread of COVID-19 in the workplace. It is important to circulate the updated policies to staff in advance of returning to the workplace to ensure that all employees are familiar with their obligations and the measures put in place to protect them. Having clear, up-to-date policies ensures that there is no ambiguity in your approach to dealing with COVID-19. Updates should be made to policies around holidays, sick leave, absenteeism management, people with caring responsibilities and remote working, amongst others. The protocol requires employees to fill in a Return to Work form declaring they have not been in contact with anyone affected by the virus. This form should also contain details regarding the purpose of a contact tracing log which the employer is required to put in place. Another aspect to be considered is the management of external stakeholders and customers who are on the premises, the procedure to be followed during internal and external meetings within the workplace, and the conduct in communal areas such as kitchens, canteens and tea stations. Employing a COVID-19 Compliance Officer to ensure that policy and procedure is adhered to is also an option. Maintain workplace hygiene Organisations should prioritise regular cleaning of the workplace. Ensure contact/touch surfaces such as tabletops, work equipment, door handles, and handrails are always visibly clean, and are cleaned at least twice daily along with the washroom facilities and communal spaces. It is the employer’s responsibility to supply employees with essential cleaning materials such as wipes/disinfection products, paper towels and waste bins/bags to keep their workspaces clean. If employees are required to use Personal Protective Equipment (PPE), then they must be trained in the proper use, cleaning, storing and disposal of PPE. Employers are required to ensure employees use the PPE provided. Provide pre-return training It is the employer’s responsibility to provide training to employees prior to re-entering the organisation. COVID-19 training must be conducted for all workers to ensure they are aware of: their obligations; the organisation’s updated policies; the way the workspace has been re-organised; working practices and guidance on public health; what to do if they develop COVID-19 symptoms; and points of contact and escalation within the organisation. It is important to tailor training to your organisation’s specific needs and avoid using generic COVID-19 training. Implement infrastructure changes  Since the government guidelines for physical distancing of two metres remains in place, office spaces will need to be re-configured to adhere to this. The concept of staggering employees’ return to the office, whereby half of employees attend the workplace for two or three days per week, or on a week in/week out basis, while others continue to work remotely before rotating for the remainder of the week, may be beneficial to your organisation. This system allows all employees to attend the workplace while ensuring that safe physical distancing (e.g. having every second seat free) can be facilitated. The pandemic has impacted severely on every part of our society and our economy. We are now entering a new phase and the return to the workplace must be carefully considered. Sonya Boyce is the Director of HR Consulting at Mazars.

Although the cost of examinership may be prohibitive for smaller entities, Companies Act 2014 provides two alternative restructuring mechanisms that are both less complicated and less costly. Declan de Lacy reports. The restrictions imposed to stem the spread of COVID-19 have caused an unprecedented economic shock. The IMF’s Economic Outlook forecasts that the global economy will experience its worst recession since the 1930s, with Ireland experiencing a fall of nearly 7% in GDP and a rise of almost 150% in unemployment. The oncoming recession will inevitably result in companies failing at even higher rates than were seen during the downturn a decade ago. It is equally inevitable that many of the companies which will ultimately fail could be made viable by restructuring their debts and other obligations. It is incumbent on our profession to steer troubled companies through this crisis and give them the best possible chance of survival. The examinership process is the most widely recognised mechanism for restructuring insolvent companies. This mechanism is not suitable for small and medium-sized enterprises (SMEs), for whom the cost of examinership is prohibitive. That is not to say that formal debt restructuring is not accessible for SMEs. Companies Act 2014 provides two alternative restructuring mechanisms that are both less complicated and less costly. These mechanisms are the schemes of arrangement provided for by Sections 449-455 and Section 676 of Companies Act 2014. Neither mechanism is well-known or widely used, even though they have existed in one form or another for more than 50 years. Companies Act 2014 introduced the most recent version of these schemes and made the Section 449 scheme much more accessible. The infrequency with which these mechanisms are used is not a reflection on their effectiveness. They have recently been used by international companies to restructure hundreds of millions of euro worth of debt. They were also used to restructure the obligations of the property funds operated by Custom House Capital and by the company at the centre of the pork dioxin scare of 2008. Both schemes provide mechanisms by which a company may propose an arrangement in which the amounts due to creditors are either written off, deferred or otherwise compromised. If the requisite majority of creditors approve the arrangement, it can then become binding on all creditors. In practice, creditors need to be offered some quid pro quo to induce them to accept the proposals. This might be the introduction of new funds to partially reduce creditor balances or future payments linked to trading results. In each case, the outcome for creditors must be no worse than in a liquidation scenario as otherwise, an aggrieved creditor would have grounds to ask the court to refuse to permit the implementation of the arrangement. It is not necessary to treat all creditors in the same manner. Indeed, it is likely that any arrangement would involve secured creditors, preferential creditors and trade creditors being treated differently. Unlike examinership, neither scheme provides a mechanism by which onerous leases may be disclaimed. Notwithstanding this, landlords are likely to support proposals to reduce excessive rents to market rates if the alternative is the termination of the contract when their tenant goes into liquidation. A significant advantage of a scheme of arrangement over an examinership is that a company’s directors can commence the process without going to the High Court. There is also no requirement for an independent accountant’s report to be prepared. This means that a scheme of arrangement can be implemented for a fraction of the cost of an examinership. A further advantage of a scheme of arrangement is that the company does not automatically go into liquidation if a scheme is proposed, but not approved. The Section 449-455 Scheme There are no criteria that a company must satisfy before proposing a scheme of arrangement under Section 449-455. The first step in preparing to implement an arrangement is to identify the separate classes of proposed affected creditors. These might typically include preferential creditors, secured creditors, trade creditors, and related parties. A meeting of each category of creditor must be convened to consider the proposed arrangement. A ‘scheme circular’ must be prepared, in which the company sets out details of the proposed arrangement and how each class of creditor will be affected. Once notice of the class meetings has been issued, the company may apply to the Court for an order giving it protection from existing and new proceedings. This application is unlikely to be made unless a company is under immediate pressure from creditors. An arrangement becomes binding on all of a company’s creditors if 75%, by number and value, of the creditors represented at each class meeting votes in favour, the arrangement is sanctioned by the Court, and a copy of the order is filed with the Companies Registration Office (CRO). The Court has recently held that it should sanction a scheme unless “it is satisfied that an honest, intelligent and reasonable member of the class could not have voted for the scheme”. By comparison, a proposal by a company in examinership may be approved by the Court if it is agreed to by more than 50% of only one class of affected creditors. The Section 676 Scheme Any company that is either being, or is about to be, wound-up may propose a scheme of arrangement under Section 676 of Companies Act 2014. This means that the company must be in liquidation, or that a winding-up petition has been filed, or that an extraordinary general meeting (EGM) and creditors meeting to pass a winding-up resolution and appoint a liquidator has been summoned. Of course, if the proposed arrangement is approved, the winding-up need not proceed. A scheme pursuant to Section 676 is less complicated to implement than either an examinership or a scheme under Section 449-455. There is no requirement to distinguish separate classes of creditors or to obtain separate approval from each class. Additionally, an arrangement approved by the requisite majority of creditors becomes binding without the need to be sanctioned by the Court. The Court only becomes involved in the arrangement if an aggrieved creditor applies to have it amended or varied. The major disadvantage of the Section 676 arrangement is that it must be approved by 75% of all of the company’s creditors, and not only by 75% of those represented at the meeting where it is considered. This means that a proposed arrangement could fail through creditor apathy and not because of any opposition by creditors. Conclusion Neither scheme offers a perfect solution, either for companies or their creditors. The requirement in a Section 449 scheme to obtain the agreement of a majority of all classes of creditor means that a class comprising a small fraction of a company’s overall indebtedness can frustrate the wishes of the majority. The requirement in a Section 676 scheme to obtain the agreement of 75% of all creditors, and not only those who choose to make their views known, means that a meritorious proposal could fail due to creditor apathy. In many cases, onerous contracts, including leases, may be the reason for insolvency and the absence of a means to repudiate them is a defect in these schemes. It is not controversial to say that the restructuring options available to SMEs require improvement. As long ago as 2011, the programme for government adopted by Fine Gael and Labour included plans to introduce new restructuring mechanisms for SMEs that did not require court involvement. The Company Law Review Group made recommendations on the matter in 2012. More recently, in 2019, the European Union issued a new directive on restructuring and insolvency, which will require changes to our restructuring law and must be implemented by July 2021. In the meantime, directors of SMEs will need expert guidance if they are to avail of the imperfect restructuring options available to them today. Members of the Institute should be mindful that they must hold an insolvency practising certificate to advise companies in connection with arranging schemes of arrangements. The approach of Revenue and public bodies to schemes of arrangement In most companies, the debt due to the Collector General will represent more than 25% of the debts due to the preferential class of creditors. In such circumstances, Revenue’s agreement will be essential to securing the agreement of 75% of each class of a company’s creditors, as required for a Section 449 arrangement to succeed. Companies Act 2014 explicitly states that State authorities may accept proposals made under a scheme of arrangement that would result in their claim being impaired. This means that debts for taxes, local authority rates, and redundancy payments may be compromised as part of an arrangement. Notwithstanding this, the section of the Revenue Commissioners’ collection manual dealing with Section 449-455 proposals indicates that, where a company “wishes to put forward proposals, Revenue would be prepared to consider them but that they are unlikely to be accepted if they do not provide for full payment of the tax debt”. Interestingly, the section of the same document that deals with examinership indicates that “Revenue’s position will depend on the circumstances of the case (e.g. previous tax collection history, whether there will be a change of directors etc.)”. It therefore seems that Revenue approaches proposed write-downs of tax debts in examinership cases with a more open mind than they would for Section 449 proposals. This suggests that SMEs, for which the cost of examinership is prohibitive, may be treated less favourably by Revenue than larger enterprises, for which examinership is an option. Revenue’s response to the COVID-19 pandemic has been extraordinary and has gone so far as to suspend debt collection procedures entirely. In this context, it might be expected that Revenue will now adopt a more open mind to proposed arrangements in the interest of preserving industry and employment.   Declan de Lacy leads the Advisory and Restructuring Department at PKF O’Connor, Leddy & Holmes.