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A new code for the corporate governance of large private companies was launched last week, providing a framework to help them not only meet legal requirements but to promote long-term success. Recognising this, the Wates Principles encourage these companies to adopt a set of key behaviours to secure trust and confidence among stakeholders and benefit the economy and society in general. These principles are part of a number of changes made this year to the UK corporate governance framework. They have been developed by a coalition established by the Financial Reporting Council (FRC) and chaired by James Wates CBE. By explaining the application of these principles, large private companies will be able to meet their obligations under The Companies (Miscellaneous Reporting) Regulations 2018. James Wates CBE, Chairman, Wates Group said: "I believe that good business, well done, is a force for good in society. The Wates Corporate Governance Principles are a tool for large private companies that helps them look themselves in the mirror, to see where they've done well, and where they can raise their corporate governance standards to a higher level. "Good corporate governance is not about box-ticking. It can only be achieved if companies think seriously about why they exist and how they deliver on their purpose then explain – in their own words – how they go about implementing the principles. That's the sort of transparency that can build the trust of stakeholders and the general public." The six principles are: Purpose and leadership: an effective board develops and promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose; Board composition: effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the company; Board responsibilities: the board and individual directors should have a clear understanding of their accountability and responsibilities. The board's policies and procedures should support effective decision-making and independent challenge; Opportunity and risk: a board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks; Remuneration: a board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company; and Stakeholder relationships and engagement: directors should foster effective stakeholder relationships aligned to the company's purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions. Reporting against these principles will take effect on 1 January 2019. Source: Financial Reporting Council.

Dec 13, 2018
News

During the holiday season, we might need to give gifts to people from outside our own country or culture. Navigating the cultural minefield can be difficult for business executives. One culture's prized gift can be another's cause for grave offence. Here are some tips for international corporate gift giving for the holiday season. What is taboo? In China, be sure to avoid the number four as it is considered bad luck (the pronunciation of ‘four’ is very close to the pronunciation of ‘death’), while the number eight is good, because it sounds similar to the word for wealth.  Giving a clock to someone in Chinese culture is a bad omen, suggesting they are running out of time. The colours blue and black should also be avoided because they are associated with funerals. In the UK, knives are generally not given as presents because superstition says it could cut through a friendship.  Similarly, in Japan presenting a knife to a colleague is seen as suggestive of suicide.  Broaches, hankerchieves and scarves in Italy also have a strong association with mortality and should be avoided. In Chile, a too-extravagant gift could be uncomfortable for the Chilean receiving the gesture, so stick to business-related gifts like leather notebooks and pens. A good gift in any of these countries is a coffee table book that reflects something about your own culture and background. It shows you appreciate the recipient and would like them to get to know you and your culture better. Presentation Both in China and Japan, gifts should be presented with two hands, since such a gesture implies the importance of the gift. The gift should be given at the end of the business meeting and never wrapped in white paper. In Brazil, gifts should only be given in informal settings and never too expensive, or it could be seen as a bribe. In Muslim countries, business gifts should be presented with the right hand and never comprise of alcohol. However, in Saudi Arabia and Yemen, only very close friends and family would give gifts, so maybe a handshake and a thank you would be most appropriate. Consider religious beliefs   The fact that not all the clients celebrate Christmas, Easter or other big holidays of the Christian world should be taken into account. Giving a gift to someone who cannot accept it because of their religious beliefs can make both the gift giver and the gift recipient uncomfortable. To avoid this, you can simply ask if they celebrate Christmas, for example, without getting into specifics about their religious preferences. It might be better to send a small token after the completion of a big project instead of a gift on a significant holiday. Appreciation Every time someone gives you a gift or does something special for you, always show good manners by sending a thank you note later, regardless of the occasion. To receive a present graciously, always open it when the person is with you. Always show enthusiasm and try and engage beyond a simple thank you for casually given gifts. If you know you are unlikely to write a thank you note, call them to say thank you, or send a WhatsApp or text message; it’s not ideal, but is better than nothing! It's the thought that counts In the end, it’s important to consider whether you are giving the appropriate type of gift, the value of the gift, the occasion when it should be presented, the way it should be presented, even the colours which should be avoided.  However, business gifts need not be sent out for Christmas only; there are several different groups of people that might warrant receiving a gift. When it’s difficult to decide who should be given a gift (whatever time of year), a good general rule of thumb is to send gifts to the people who help make your company successful.   “The manner of giving is worth more than the gift” goes a wise old saying. And that couldn’t be truer than in the case of corporate gifting, where every interaction counts in terms of the experience that it delivers.  You can read Orla’s last piece of corporate gift-giving here. Orla Brosnan is the CEO of the Etiquette School of Ireland

Dec 10, 2018
News

Tax functions are facing an unprecedented level of pressure due to the constantly evolving legislative and regulatory landscape. John Farrelly explains what organisations can do to ease this burden. Tax legislation and regulation has been ever changing in 2018, and it doesn't look like it's going to get any easier next year. As a result, tax risk is now a constant topic of discussion in the boardroom. And now, the tax authorities are digitising and exploring how they can use innovative technology to drive efficiency and effectiveness in their operations. More and more organisations are using digital channels to address global market opportunities and explore new operating models. All of these put tax leaders and their function squarely in the spotlight. To alleviate these pressures, there are a number of things tax and finance leaders can do.  Assess your current functions They can start by reassessing their current functions to determine if they are fit for purpose in this new digital and globally connected world. Organisations should understand internal and external stakeholder requirements; map the high- and low-value activities; and develop an operating model that is fit for the future. Drive innovation The next thing that should be high on the list is to see how technology can be used to drive innovation and new ways of working. A recent EY survey on technology trends impacting the finance functions found that data analytics, robotic process automation, cloud (and software as a service), artificial intelligence and blockchain are all going to disrupt our current working environment and all of these apply to the tax function. It’s time to really investigate how these technologies could be used to your advantage. For example, the combination of the human mind (tax professional) and machines (artificial intelligence) can drive significant cost savings and efficiencies for tax functions. It takes a human approximately 75 hours to analyse and classify 10,000 rows of transaction data for tax purposes. A machine can do this in seconds. When you consider the amount of time spent doing this kind of processing in tax functions, you start to see the benefits of artificial intelligence. Automation Another very relevant area for tax functions to consider is robotic process automation (RPA). What are the repetitive, time-consuming and tedious tasks that consume the valuable time of your staff?  Many of these tasks can be automated without any change to underlying systems or processes already using RPA. These tools are inexpensive to implement and manage, and have a rapid return on investment.  Cloud and SAAS Cloud and Software as s Service (SaaS) is now commonplace and enable tax functions get easy access to software applications on-demand. Blockchain, on the other hand, is probably a little further down the road for most organisations, but will create both risks and opportunities for tax as it evolves. Data The most important thing to focus on is your tax data. Data is the raw material needed to support any technology-led innovation. We are seeing tax authorities in all jurisdiction requesting data, either as part of the compliance reporting process or as part of a tax audit. Getting a handle on your organisation’s data is critical from a tax perspective. Understanding how the data flows through your organisation’s system, ensuring easy and timely access to this data and having the ability to visualise and analyse tax data in near real-time is becoming a must-have for tax functions.  John Farrelly is Head of Tax Technology at EY Ireland

Dec 10, 2018
News

By Michael Hayes Ireland is expected to experience strong, sustained growth in electricity demand between now and 2030. In an analysis of various future energy scenarios, EirGrid estimates that Ireland’s total electricity requirement will increase by between 22% and 53% by 2030. This increased demand must come from renewable sources in order to satisfy both national and EU targets, as well as CSR agendas of large corporations and FDI. Ireland has set a target that 40% of all electricity comes from renewable sources by 2020, rising to at least 55% by 2030, with many industry participants encouraging 75% by 2030. The EU has also set a separate target of 16% where all energy is to come from renewable energy sources by 2020, rising to 32% by 2030. Analysis by the Sustainable Energy Authority of Ireland (SEAI) suggests Ireland will miss this 16% target, with the current trajectory suggesting it will only achieve 13% by 2020, and likely result in EU fines. The essential role of offshore wind Meeting the future renewable electricity demand while also meeting EU renewable targets will require Ireland to deploy between 400MW to 700MW of new renewable generation capacity per year against a historic onshore wind deployment rate of c.200MW per year. While solar and onshore wind can and will play a role, offshore wind is the only technology with the scale and deployment capacity to meet this demand in full. Dramatic reductions in technology prices and improved performance now mean that offshore wind costs a fraction of its historic pricing, with a trajectory to hit parity with other technologies in the short to medium term. Economic and social benefits Ireland is the only European Union country with an Atlantic coastline which is not developing its offshore resource. Not only is this placing Ireland at an economic and competitive disadvantage, Ireland is missing out on a large number of associated economic and social benefits, including a significant economic boost; 20,000 new jobs by 2040; revitalisation to coastal areas; security over Ireland’s energy supply; and additional volumes of renewable power necessary to attract new foreign direct investment, to name a few.  There is a strong pipeline of offshore wind projects in the Irish Sea. With clear Government support, these projects could deliver c.1,000MW of capacity in the immediate future that could help mitigate the 2020 fines. There is an additional c.3,000MW that could be delivered between 2020 – 2030. Long-term impact With appropriate policy support, Ireland can become an industry leader in the emerging area of floating wind, which is a particular technology where the western seaboard can experience significant benefit due to the nature of the sea basin and the large scale of the natural resource. In addition, once Ireland has achieved its targets for domestic renewable energy supply, there are significant opportunities in relation to interconnection and export. Such interconnection will support a higher penetration of renewable power onto the Irish grid and enable future exports. Policy recommendations In order to facilitate development of the Irish offshore wind industry and stimulate the required private sector investment, specific Government policy support is required. To ensure joined up work and action, it is proposed that the Government forms an Offshore Wind Development Committee on the model of the IFSC, where the Department of the Taoiseach plays a lead role, to bring together representatives of the relevant Government Departments and State Agencies and industry representatives, with a remit to oversee the work necessary to develop the offshore wind industry. Based on consultation with key industry participants, I recommend the following policy initiatives: the Government should develop a targeted policy for the development of the Irish offshore wind industry; inclusion of technology-specific support for offshore wind within the proposed renewable electricity support scheme (“RESS”); issue foreshore leases under the current Foreshore Act to enable Irish Sea projects to commence development in the immediate term, and introduce a Foreshore Amendment Act dealing with offshore wind; and implement a specific offshore wind grid connection round for Irish Sea projects. These policies would facilitate existing projects and provide a stimulus to the industry for future projects, enabling immediate investment and activity in the sector. All of the suggested policies can be implemented in the short term. You can read the full report here. Michael Hayes is the Global Head of Renewables in KPMG.

Dec 10, 2018
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Auditors' work on the information in the front end of company reports outside of the financial statements does not meet the requirements of auditing standards consistently, according to a new report from the Financial Reporting Council (FRC). Inconsistency in the extent and quality of the work in part reflects the non-prescriptive requirements in the audit standards. Firms' own guidance to their auditors also lacks prescription, which has led to varying approaches being taken to this work, even by different audit teams within the same firm. While the FRC identified instances of good practice in the audits that it reviewed, there were too many instances where insufficient work was performed to support the statements made by auditors in respect of the other information (OI) in their audit reports. Investors place a great deal of focus on the OI in annual reports, often referred to as the "front end", to guide their decisions, because it is helpful to assessing a company's future prospects. The amount of information included in the front end has grown significantly over time and in most cases is now larger than the financial statements themselves. OI, if it is materially mis-stated, can undermine the credibility of the audited financial statements or may inappropriately influence the decisions of users of the annual report. The auditor's opinion on the financial statements, though, does not cover the OI. Instead, as part of an audit of the financial statements, the auditor is required to consider whether the OI is materially inconsistent with the audited financial statements or the auditor's knowledge and report on this in the auditor's report. Mike Suffield, Acting Executive Director for Audit at the FRC, said: "Auditors must improve the extent and quality of the work that they perform on the front end of the annual report. The FRC will review the requirements on auditors in this area in auditing standards, as part of its current project reviewing Auditing Standards, to see what changes are necessary to help improve the work carried out. We will also consider in detail the requirements for assurance over information included in the front end as part of our recently announced project on the future of corporate reporting." To improve the quality and consistency of their work on OI, the FRC expects auditors to:   Undertake more targeted procedures, based upon more prescriptive guidance from audit firms; Place greater emphasis on their review of key non-financial information; Increase their scepticism and pay more attention to the completeness of information, particularly in relation to principal risk disclosures and their linkage to viability statements; Require boards to prepare, on a timely basis, appropriate documentation to support key areas of the OI such as the viability statement; and Ensure staff with appropriate experience and knowledge to identify potential material misstatements and inconsistencies are assigned to review the OI. Source: Financial Reporting Council.

Dec 06, 2018
News

The Financial Reporting Lab is calling for investors and companies of all sizes to participate in a new project. Following the Lab’s reports on risk, viability and dividend policy, this project will explore best practice disclosures around the sources and uses of cash. It will consider how reporting on the location, nature and availability of cash within a group, as well as future uses of cash, can be presented in a way that is most useful to investor decision-making. The scope of the project The scope of the project will develop in light of the contribution from those that participate. However, the project is likely to examine disclosures in annual reports and other public communications that help investors to understand: What is the make-up, nature and location of cash within a group? What is the availability of cash and what restrictions are in place concerning its access and use? What are the plans in place for the use of the cash? We expect to work and report on this project in two phases. The first phase (in Q1 2019) will look at current practice and consider the extent to which it meets investor needs. The second phase (in Q2 2019) will involve company interviews and joint roundtables to address identified gaps in the reporting of cash. We will aim to issue a report combining insight from both phases in Q3 2019. Participation The Lab invites investors and companies to nominate their interest in participating in the 'Reporting on the Sources and Uses of Cash Project' by 15 January 2019 via email.   The opportunities for participation will develop but typically consist of a combination of individual meetings of an hour and roundtable meetings of two to three hours. While we would welcome company participation earlier, we recognise that this may not be practical during the reporting season and this will be factored into the timetable of the project to fit around availability accordingly. Extensive company involvement is unlikely to begin before the annual reporting season has finished. Participants will be kept updated on the progress of the project throughout and given an opportunity to comment on drafts of the reports where they have been involved. Further information on the Lab, including its published reports, can be found at https://www.frc.org.uk/Lab Source: Financial Reporting Council.

Dec 05, 2018