New research carried out by FraudSMART has revealed that over one-third of SMEs have been targeted by a financial fraud scam within the past 12 months and one in 18 of these attempts was successful. Niamh Davenport outlines how SMEs can protect themselves. Emerging technology and improved connectivity have helped SMEs take advantage of new business opportunities, but they have also presented fresh opportunities for fraudsters. The financial fraud experienced by SMEs are still committed by using emails and telephone with phishing emails (72%), vishing (26%) and invoice redirection scams (21%) being the most common. The impact of falling victim to financial fraud can be devastating both financially through lost funds, lost revenue, the cost of any legal action and security upgrades, and non-financial, resulting in a tarnished reputation, loss of trust and low employee morale. Fraudsters are targeting SMEs because they are known to have less security and controls in place. Investing in fraud prevention does not have to be a costly task. Simple processes and procedures, such as verbally confirming new bank account details, can prevent a large payment from getting into the hands of a fraudster who is trying an invoice redirection scam. The same goes for CEO fraud. In these cases, fraudsters will make an email appear legitimate with tactics such as imitating the language used by the CEO or senior executive, or choosing a time when they know the CEO is out of the office on annual leave, making you reluctant to pick up the phone and confirm the email. With vishing, another common scan, fraudsters target a business by phoning and claiming to be your bank, card issuer or service provider. Fraudsters try to extract details about your computer system, business, debit or credit card, PIN number, online banking numbers and passwords. This can then be used to gain access to company bank accounts, carry out transactions or steal personal customer information. Prevention The best chance any company has against being defrauded is prevention. Here are some tips for SMEs. Be informed Ensure employees are fraud aware and understand the controls and procedures in place to prevent fraud. Don’t assume you can trust caller ID. Phone numbers can be spoofed so it looks like a particular company is calling. Fraudsters may already have basic information about you or your business in their possession (e.g. name, address, account details), do not assume a caller is genuine because they have these details. Be alert Be wary of payment requests that are unexpected, irregular or require changes to bank account details, whatever the amount involved. Always exercise caution when forming new relationships with potential customers. Undertake appropriate due diligence. Always check your statements. If you notice any unusual transactions, report them to your bank immediately. Be secure Don’t allow yourself to be rushed. Take your time to do the relevant checks. If a supplier/service provider requests bank account details to be changed, have a verification process in place before making payments. Ensure security and software is regularly updated and maintained using official and reliable software. Niamh Davenport is the Fraud Awareness Manager in Banking & Payments Federation Ireland. FraudSMART’s National Fraud Awareness Week runs from 12-18 November and is focusing on SMEs. To learn more about how you can protect your business, download their brochure Protect Your Business from Fraud on their website www.fraudsmart.ie/business. Simon Delaney will also be explaining five common types of financial fraud scams every day on FraudSMART’s social media channels.

Michael Kavanagh summarises the key points in ESMA’s recently published European common enforcement priorities for 2018 IFRS financial statements.  The European Securities and Markets Authority (ESMA) has issued its annual public statement highlighting the common areas that European national accounting enforcers will be focusing on when reviewing listed companies’ 2018 IFRS financial statements. Why should I care? European enforcers, including IAASA in Ireland and the FRC in the UK, will be required to include the ESMA topics in their examinations of companies’ 2018 financial statements. As such the ESMA statement is essential reading for those within the remit of an EU accounting enforcement regime and could be of interest to all others involved in any aspect of financial reporting. Priorities The layout and style of the ESMA statement are very different to previous years and very focused on the implementation of the new financial reporting standards. Now that the new financial instruments and revenue standards are effective – and with IFRS 16 due soon – ESMA clearly expects companies to deliver the required level of detail and transparency in their 2018 disclosures. There are three 2018 prioritised topics: specific issues related to the application of IFRS 15 Revenue from Contracts with Customers; specific issues related to the application of IFRS 9 Financial Instruments; and disclosure of the expected impact of implementation of IFRS 16 Leases. In addition to the three 2018 prioritised topics, the ESMA statement highlights a number of other financial reporting considerations, namely: Argentina being classified as a hyper-inflationary economy as of 1 July 2018; disclosure of non-financial information with particular focus on environmental and climate change-related matters, and key-performance indicators relating to non-financial policies; specific aspects of the ESMA Guidelines on Alternative Performance Measures (APMs); and disclosures on the impact of Brexit. The detail The Statement goes into considerable detail on the three priorities. Here are some details the preparers should consider. Applying IFRS 15 Identification and satisfaction of performance obligation when assessing revenue recognition patterns. Assessing whether an entity acts as a principal versus an agent. Maximising the use of observable inputs when determining transaction price and how this is allocated to multiple performance obligations. Presentation of contract assets and contract liabilities upon transition. Whether disaggregation of revenue is sufficient to enable users to understand the main drivers in revenue. Whether sufficient information has been disclosed, including more granularity on significant judgements.  Applying IFRS 9 Disclosing the nature and effect of initially applying IFRS 9 per the specific transitional disclosure requirements of IFRS 7 Financial instruments: Disclosures, including:   reclassifications of financial assets and liabilities; and reconciliations of the closing impairment allowances under IAS 39 Financial Instruments: Recognition and Measurement to the opening loss allowances under IFRS 9 New ‘business as usual’ disclosures in IFRS 7 – including new or expanded disclosures about credit risk and hedge accounting. Presentation of interest revenue. There is a specific section dealing with applying IFRS 9 to credit institutions and insurance undertakings/conglomerates.  Disclosures on the impacts of implementing IFRS 16 Entity-specific disclosures including:   imminent changes in accounting policies, transition approach and use of practical expedients;  expected impacts, including quantitative information, which ESMA expects to be known or reasonably estimable; and explaining the differences between the current IAS 17 Leases disclosure of minimum lease payments for operating leases and IFRS 16. For more detail, the ESMA public statement is available here. Michael Kavanagh is a Director in the Department of Professional Practice in KPMG.

The Financial Reporting Lab (The Lab) has published guidance for companies on the presentation of performance metrics in their reporting following calls for clarity from investors. Performance Metrics – Principles and Practice includes examples of how companies can apply the principles outlined in the Lab's earlier project report, Performance Metrics – An Investor Perspective, published in June 2018. That report found that investors wanted performance metrics to be aligned to strategy, transparent, in context, reliable and consistent. Alongside those principles it included a set of questions for companies and their boards to consider when deciding on how they report their performance. While some examples of better reporting have been identified, investors continue to emphasise the importance of applying the principles when companies are preparing their metrics. Companies are, in many cases, addressing the expectations of the principles but do not always report on this clearly. Phil Fitz-Gerald, Director of the Financial Reporting Lab, said: "The Lab's report highlights the importance of presenting performance metrics that are aligned to strategy, transparent, in context, reliable and consistent. It provides practical guidance and examples of how this can be achieved and how reporting of performance metrics can better meet investors' needs." Source: Financial Reporting Council.

Smaller companies should provide more specific disclosures of significant accounting judgements and more quantitative information on key sources of estimation uncertainty according to a new report by the Financial Reporting Council (FRC), Reporting By Smaller Listed and AIM Quoted Companies ('smaller companies'). The FRC reviewed the reports and accounts of 40 smaller listed and AIM quoted companies to consider:   Alternative performance measures (APMs) and strategic reports; Pension disclosures; Accounting policies, including critical judgements and estimates; Tax disclosures; and Cash flow statements. The topics were selected from previous FRC thematic reviews, which focused on larger companies, and other aspects identified through the FRC's regular monitoring activity. While the review identified some better examples of smaller companies' disclosures, it also identified several areas requiring improvement. Companies should provide more specific disclosures of significant accounting judgements and more quantitative information on key sources of estimation uncertainty. The FRC also found that companies could do more to ensure that the classification of cash flows complies with IAS 7 Statement of Cash Flows and that all sections of the report present APMs in a balanced and transparent manner. The report is relevant to all preparers of accounts and auditors as these findings are similar to the FRC's conclusions from its review of the UK's larger companies. Companies may find the 'reminders' section of the report particularly helpful when preparing their future reports and accounts. Paul George, FRC's Executive Director for Corporate Governance and Reporting, said: "The better practice examples identified by the thematic review indicate that smaller companies are able to provide high quality information to stakeholders. We expect companies of all sizes to carefully consider the findings from the review to enhance their disclosures. There is scope for companies to provide stakeholders with more tailored information about the areas of their accounts subject to most judgement and the potential effect of material changes in estimates and assumptions." Thematic reviews for 2019/20  The FRC will continue to supplement its routine monitoring programme with thematic reviews of aspects of corporate reporting where there is both stakeholder interest and scope for improvement and learning from better practices. In addition to the follow-up thematic reviews of the new IFRSs on revenue and financial instruments, announced on 5 November, the FRC will also undertake thematic reviews of:   Impairment of non-financial assets; The effect of the new IFRS on leases in companies' 2019 interim accounts; and The effects of the decision to leave the EU on companies' disclosures. The FRC will select companies for its impairment review predominantly from sectors of the economy that are currently under pressure. It will also review the accounts of those for whom circumstances and events in the current year indicate that impairment may be a significant matter. Some, but not all, companies in the sample will be pre-informed of the review. The FRC will also conduct a focused review of the information reported in June 2019 interim reports of a number of companies, focusing on industries where the adoption of the new standard, IFRS 16 Leases, may have a material effect. Source: Financial Reporting Council.

IAASA's statutory role includes examining whether the annual and half-yearly financial reports (collectively referred to as 'periodic financial reports') of certain entities whose securities have been admitted to trading on a regulated market, situated, or operating within the EU ('issuers') have been drawn up in accordance with the requirements of the relevant reporting framework as laid down by the Transparency (Directive 2004/109/EC) Regulations, 2007. IAASA's examination constituency in this regard comprises issuers of equity and debt as well as closed ended funds. These issuers publish an aggregate of approximately 210 periodic financial reports per annum. IAASA selects issuers' periodic financial reports for examination based on risk assessment criteria, supplemented by cyclical and random selections. Given the level of IAASA's examination activity, together with the scale and nature of the examination constituency, IAASA anticipates a requirement to supplement its internal professional resources from time to time by engaging the services of suitably qualified and experienced providers of statutory financial reporting expertise. Accordingly, IAASA is seeking to appoint an individual or firm to provide financial statement review services for a period of three years, and an alternate provider to be used only in the event that the preferred service provider cannot act due to, for example, unavailability or independence issues. Further details are available below: Invitation of Expressions of Interest for the Provision of Statutory Financial Reporting Full Scope Review Services. The closing date for receipt of expressions is 9am on Monday, 26 November 2018. Late applications will not be considered. Source: The Irish Auditing and Accounting Supervisory Authority.

Within five years, 65% of governments will report on an accrual basis, according to a recent report by IFAC (the International Federation of Accountants) and CIPFA (the Chartered Institute of Public Finance and Accountancy). The report was drawn from the International Public Sector Financial Accountability Index, which captures current and future use of public financial reporting bases and frameworks by governments around the world. The 2018 Index Status Report, which captures information from 150 countries, finds that while 25% of governments currently report on an accrual basis, 65% of governments will report on accrual by the end of 2023. Asia, Africa, and Latin America and the Caribbean will lead the projected increase by the end of 2023. By providing a comprehensive view of government finances, accrual reporting helps ensure that expenditure of public funds is transparent, public officials are held accountable, and future liabilities are recognised officially and planned for properly. "Accruals-based accounting and auditable financial statements are essential if governments are to promote trust and transparency, identify and fight corruption, and above all deliver the outcomes their citizens expect and deserve," said Rob Whiteman, Chief Executive of CIPFA. Public financial reporting frameworks are developed in various ways, with many using International Public Sector Accounting Standards (IPSAS). IPSAS provide high quality financial reporting guidance for governments and other public bodies around the world, in order to improve their consistency and transparency. 51% of governments that currently report on an accrual basis use IPSAS directly, indirectly or as a reference point. By the end of 2023, nearly three-quarters (73%) of governments that report on accrual will use IPSAS in one of these three ways. The report also outlines key actions for successful accrual reforms. According to the report, successful implementation of accrual reforms requires coordinated planning and sustained support. Additional recommendations include: frequent and clear communications, a change management programme, and coordinated training and capacity building. "The rapid acceleration of accrual reporting in the public sector, and IPSAS in particular, is a promising sign for citizens across the globe. Professional accountants play a critical role in unlocking the full benefits of accrual accounting and in improving decision making, transparency and accountability throughout the economy," said Kevin Dancey, IFAC's incoming CEO. IFAC and CIPFA plan to expand the Index progressively in terms of both coverage and information depth and to provide periodic status reports throughout this crucial uptake period for accrual financial reporting globally. Source: International Federation of Accountants.