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Artificial intelligence is grabbing the headlines but there is still room in the discussion for process automation, the replacement of repetitive manual and cognitive tasks by machines. Ronan Fitzpatrick, Digital Director in PwC Ireland, explains how automation is a key step in the progress towards advanced intelligent technologies. Almost every aspect of our daily lives has been digitised. Internet and mobile technologies have transformed the way that we live and work and the financial services industry has also seen drastic technology-led changes over recent years. The most recent wave of technology is coming at pace, and it centres on data, treating it as an asset and using it intelligently.  Artificial intelligence (AI) refers to computer systems that can sense their environment, think, learn and then take action as a result. The most critical difference AI brings is in the phrase “take action”. AI enables machines to respond to signals from the data (and the world at large) they receive. AI will utilise data to assist us with the many tasks that we currently do ourselves and we will be able to do things that we’ve never conceived of before. The fastest-growing category of AI is machine learning – the ability of software to improve its own activity based on interaction with supporting data. Commercially-applied AI has expanded in recent years, driven by a combination of cloud computing power, the availability of huge datasets and advances in machine learning.  Automation in accountancy Accountancy has traditionally relied on significant amounts of human effort and not an inconsiderable amount of manual effort to extract and manipulate large volumes of data. In other words, processes that are perfect for disruption from automation and AI. Driving efficiency in accounting practices through technology brings the benefit of reducing costs, increasing productivity and providing better accuracy. Benefits will come not only from the organisation and storing of data but learning from that data. Automation can free us from tasks like cross-system manual processing, bulk data updates, reconciliation activities, reporting, document verification and tasks with a combination of high transaction volumes and complex regulation, amongst others. We believe there is no need for our accountants to become the “boiling frogs”; less repetitive tasks leaves room for more big thinking. The focus moves from the mundane and repetitive work on large volume data sets and an amount of associated repetitive tasks to value-added consulting and compliance services. We hire the best graduates every year – if we allow preparation tasks be completed by the technology, it frees our people to elevate themselves to review, rather than being bogged down with data manipulation and manual reconciliation. While there might be less need for accountancy professionals who are used to doing the manual repetitive, preparatory work, the more we can free our people up to work with our clients, the more value we’re going to bring the clients, higher-value subject matter expertise, regulatory and compliance advice. While we will undoubtedly use an increasing number of technology-based propositions, driving a change in the task composition of our accountants, for now (at least) there is still significant room for the delivery of value through the appropriately skilled “humans in the loop” to support the machines. Introducing automation For organisations considering where to start, there can still be a tendency towards inertia and using a backdrop of legacy systems to push back the timing of any such shifts towards automation. Our advice is take control now. Begin your journey, ask the important questions: What do you want from automation and AI? Where do you begin? How do you keep pace with change? Here are some steps in the right direction: Work out what AI means for your business;  Prioritise your response; Make sure you have the right talent and culture, as well as technology; and Build in appropriate governance and control. Ronan Fitzpatrick is the Digital Director in PwC Ireland.

Dec 10, 2017
News

After a long week of Brexit back-and-forth between the UK and the EU, it looks like the negotiators have come to an agreement on the Irish border, signalling the end of Phase 1. Eoin O'Shea talks a look at the UK/EU agreement. Last Friday, EU and UK Brexit negotiators published a joint report on progress made during Phase 1 of the on-going Brexit talks, announcing that agreement had been reached on the three key initial items: the Brexit bill, citizens’ rights, and the issue of the Irish border. This breakthrough, according to EU president Donald Tusk, will enable EU leaders to authorise the opening of talks concerning a Brexit transition period and a future trade relationship between the UK and the EU. The Phase 1 agreement contains important implications for the Irish border. It includes such statements as “The United Kingdom also recalls its commitment to the avoidance of a hard border, including any physical infrastructure or related checks and controls” and “The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border”.  In the agreement, the UK spells out its wish to avoid a hard border by means of a long-term relationship agreement with the EU but, if the talks break down, the UK is committed to proposing solutions unique to Ireland and, if those solutions are not agreed to, the UK will keep its laws aligned to EU single market rules and customs union rules which affect all-island co-operation.  Irish Border The language used in the document to describe the future softness of the Irish border is tighter than some of the political statements on the issue since the referendum (for example, “no return to the borders of the past” and descriptions of the border being “as frictionless as possible”), and the statements, as written, foresee the UK seeking to negotiate quite a strong relationship with the EU single market and customs union during the Phase 2 talks. Pessimists might, however, point to the fact that agreeing to avoid doing something is perhaps not the same as agreeing not to do that thing. However, the EU will seek to hold the UK to their commitments throughout Phase 2 of the negotiations and so those commitments should be welcomed by the Irish business community.  Citizens' rights The parties agreed that EU citizens who are in the UK, and vise versa, on Brexit day will continue to benefit from the EU rights to live and work in each other’s territories and that the affected person will be able to apply for a residence document to access these rights. This aspect of the agreement is less relevant to Irish people because, notwithstanding Brexit, Ireland and the UK will remain part of the Irish/UK common travel area and so Irish and UK citizens will have, as now, unfettered rights to move and live in each other’s territories. In what might be seen as a ‘blow’ to hard Brexiteers, EU citizenship rights conferred will remain ultimately controllable by the European courts for a long time to come. Citizenship court cases that begin in the UK will still be referable by UK courts to the EU’s Luxembourg court up to 8 years after Brexit day. Those with Irish qualifications will be pleased to hear that their qualifications will continue to be recognised in the UK (and vice versa) after Brexit, according to law which will be set forth in the Brexit withdrawal agreement. As set out in the Phase 1 document, this will include auditors.  Brexit bill It appears that the UK has agreed to nearly every one of the EU demands for payment. The UK will continue to pay into the EU budget until the end of 2020 and will foot its share of the EU’s financial commitments and liabilities at that date. The likely overall pay-out will likely veer towards the upper end of Brexiteers’ worst fears. In summary, the UK has caved in to every one of the EU’s key demands so far. The next phase of the talks can now begin, with an initial aim of agreeing a transitional arrangement “as early as possible in 2018”. Last Friday, EU President Donald Tusk set forth what he considers to be the ‘only reasonable solution’ for the Brexit transition phase – that all EU law applies in the UK, that the UK continues to pay into the EU budget, that the European Courts would have the same full, legal control of EU law in the UK. President Tusk also stated that, at this stage, the UK must provide additional clarity in respect of what the UK sees as its future relationship with the EU and has committed the EU to opening ‘exploratory talks’ on that subject. The European Commission, for its part, still hopes a withdrawal agreement can be concluded by Autumn 2018. Eoin O’Shea is a practising barrister, specialising in commercial and tax law. 

Dec 09, 2017
News

What are the role and functions of this relatively new Audit Quality Unit within IAASA that you head up? The Audit Quality Unit of IAASA was set up as a result of the EU Audit Reform legislation which came into effect on 17 June 2016. There are two teams within the unit – Audit Inspections and Auditing Standards.  The Audit Inspections team carries out inspections of public interest entity audits and auditors. Public interest entities (PIEs) are entities listed on the Irish Stock Exchange, all credit institutions and all insurance undertakings. Currently, there are nine audit firms in Ireland which carry out audits of approximately 1200 PIEs. There are two aspects of an inspection. The first is looking at what we call firm-wide procedures. The second aspect of an inspection is selecting a sample of engagements and inspecting those audit files. We are looking at compliance with law, ethical and auditing standards, rules of accountancy bodies and with the firm’s own rules. We issue reports on the inspections which identify where we have found areas which could be improved upon. We also highlight any areas where we noted particularly good practice. The Auditing Standards team looks after the adoption of ethical and auditing standards. IAASA has a license to use the standards adopted by the Financial Reporting Council (FRC), which are amended for use in Ireland. The bulk of the amendments to the standards are for legal referencing purposes and do not change the meaning of the standards. There are some limited substantive amendments to the FRC standards. These will arise in rare circumstances where something may be in conflict with Irish law or where the market is so significantly different in Ireland that a change is required. We currently have an open consultation to obtain input as to whether IAASA should look at other areas, including guidance (Practice Notes and Bulletins) and Standards on Investment Reporting. We are also in the process of setting up a technical advisory panel to establish a diverse panel of expert stakeholders to input into the process going forward.  There are some other, smaller functions housed within the unit, including considering requests from PIEs to obtain permission to reappoint their auditors after the expiration of the maximum tenure period, as well as registration of auditors from outside the EU who are auditing companies listed on the Irish Stock Exchange. How frequently do you anticipate inspecting each PIE audit firm? We are currently in the course of carrying out initial inspections on all PIE firms, which will be completed by the end of 2018. From 2019, we intend to inspect each of the Big 4 firms annually and all other firms every three years. There will be follow-up visits to ensure that firms implement the recommendations in our reports within 12 months and there could be reasons why we revisit a firm in less than three years for another audit, such as a significant change in a firm, or if there were significant issues with an earlier inspection. Until now, auditors of PIEs were inspected by the relevant recognised accountancy body (RAB). Do you think firms will notice a difference in approach or in methodology from IAASA inspections?   We understand that our inspections are more detailed than inspections previously received from the RABs. Our inspection methodologies follow the Common Audit Inspection Methodology used by European regulators and the time taken by our team is comparable with other regulators. The current legislation (SI 312 of 2016) provides for an ongoing inspection role for the recognised accountancy bodies with respect to the audits of non-PIEs. Presumably this will require a certain amount of collaboration and sharing on information between IAASA and relevant RABs. How will this operate in practice and is it envisaged that IAASA will dictate the scope and timing of the inspections? We are working closely with the RABs to make the process as efficient as possible. Clearly, it is not in anyone’s interests to have duplication between the IAASA and RAB inspections. We are talking to the RABs to understand what information they require from IAASA. There is a separate unit within IAASA, the Regulatory Monitoring Supervision Unit, who oversee the RABs and this is high on their agenda. Within IAASA, I work closely with the head of that unit, so we are all working together to establish good practices. In the UK, the FRC now publishes reports on each individual audit firm on an annual basis. Does IAASA intend doing likewise? It is currently intended that IAASA will publish its firm reports starting with the reports on the 2019 inspections. This allows us to get a full picture of audits across the PIE market before finalising report templates and views on the quality of audits. It also allows firms an opportunity to deal with any areas where IAASA may have an expectation that the firms would not have previously been aware of. The reports will take a similar format to the FRC reports, detailing firm-wide findings and summarising the audits reviewed. We will make every effort to anonymise the report to ensure that the entities audited are not identified to avoid any unintentional commercial impacts. A poor audit would not necessarily indicate poor financial reporting so we do not want any inferences being made. In Ireland, it is possible that certain audit firms will be liable to inspection by IAASA, the relevant RAB, the FRC’s audit quality review team, and the foreign regulators? Do you think this is ‘overkill’ and is there any possibility that such duplication and associated costs can be avoided?  As I mentioned earlier, there is a clear division domestically where IAASA looks after firm-wide and PIE audits in PIE audit firms and the RABs look at non-PIE audits. We are working to keep that efficient and avoid duplication. The RABs continue to perform everything for auditors who do not audit any PIEs.  Within the EU, all regulators are obliged to rely on the inspection systems of their EU counterparts. Regulators can request the home regulator to look at specific audits on their behalf and can request that one of their own inspectors take part in the inspection, again avoiding duplication.  For non-EU auditors, IAASA has a number of bi-lateral arrangements in place, and is working on others, which again, allow for reliance on each other’s system of inspection. There will be some exceptions to this, for example with the PCAOB. The PCAOB will carry out inspections jointly with IAASA. Mutual reliance with PCAOB is more difficult given the differences in standards in place. But again, IAASA is very conscious of the impact of these inspections on firms and will work to ensure processes are as efficient as possible, while ensuring all regulators meet their own local legal requirements. Lisa Campbell is the Head of Audit Quality Unit in the Irish Auditing & Accounting Supervisory Authority. 

Dec 09, 2017
News

Wizuda published its nationwide General Data Protection Regulation (GDPR) IT research and found that, although only 37% of companies have previously been subject to a data protection audit, 55% of companies think they will be subject to an audit in the coming 18 months. With less than 6 months before the GDPR comes into full effect, the survey also found that over a third of Irish organisations have not yet started work on their GDPR compliance project, with over a quarter (26%) indicating other projects were a priority. Wizuda commissioned Amárach Research to conduct a national research project across 175 organisations, investigating GDPR awareness, prioritisation and obligations. This study focused on SMEs and targeted IT decision makers ranging from IT Directors, Heads of IT, CIOs and CISOs. “Whilst it is worrying that less than two thirds of Irish SMEs have actually started their own project, it is good to see that 80% of those surveyed see IT as a major stakeholder in their GDPR compliance programme” said Danielle Cussen, Managing Director, Wizuda.  “Both the OPDC and data controllers will be looking to ensure that all data processors are GDPR compliant, so we would expect the number of Irish companies planning for a data protection audit continuing to increase in the run up to May 2018.”  An audit is coming  The survey showed that 69% of Irish SMEs consider themselves to be data processors. The GDPR imposes direct statutory obligations on data processors meaning they will be subject to direct enforcement and potential fines by the Office of the Data Protection Commissioner (ODPC), as well as compensation claims by data subjects. All data processors must now make all information necessary available to demonstrate compliance and allow audits to be conducted by the data controller. With the recent 56% budget increase given to the ODPC, along with the prescriptive obligations that data controllers must now place on data processors under GDPR, only 19% of Irish SMEs believe that they won’t be subject to a data protection audit in the next 18 months.

Dec 08, 2017
News

The Financial Reporting Lab (the Lab) is looking for investors, analysts and companies of all sizes to participate in a project on effective Reporting on Performance. Following on from the Lab’s reports on business models and risk and viability, this project will explore how companies measure performance against their strategic objectives. It will consider both financial and non-financial metrics, and highlight how these measures can be presented in a way that is most useful to investor decision-making. We invite investors, analysts and companies to indicate their interest in participating by 31 January 2018 by emailing FinancialReportingLab@frc.org.uk. Full details of the project can be found here.

Dec 08, 2017
News

Following on from its consultation in May 2017, ESMA has published its final report comprising technical advice, draft implementing technical standards and guidelines under the Money Market Fund Regulation 1 (the Final Report). The Final Report provides clarification on some of the more technical requirements being imposed on managers of MMF under the MMFR. You can read the full report on esma.europa.eu.

Dec 08, 2017

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