The Russian invasion of Ukraine has given rise to potentially complex financial reporting considerations for Irish companies with a presence in one or both territories. David Drought delves into the details of two areas of concern. The ongoing conflict in Ukraine, and resulting sanctions and counter sanctions imposed globally on and by Russia, have impacted certain companies.  Although the conflict is first and foremost an immense human tragedy for those involved, companies whose operations have been affected will need to consider the financial reporting implications.  Here, we consider two potential issues—the first being whether control of subsidiaries located in Russia has been lost, and the second being whether impairment tests of non-financial assets in the affected territories should be carried out. Do you continue to control your subsidiary?  Under IFRS 10 Consolidated Financial Statements, a company (investor) controls a subsidiary (investee) when it has power over the subsidiary, is exposed to variable returns from its involvement with the subsidiary, and can also affect those returns by exercising its power. Control requires power, exposure to the variability of returns, and a linkage between the two. Continuous control assessment  Suppose the facts and circumstances indicate that there are changes to one or more of the elements of the control model. In this scenario, an investor must reassess whether it continues to have control over the investee.  Here, companies will need to consider whether the consequences of the ongoing conflict lead to changes in investors’ relationships with investees in Russia. As a result of the effects of the ongoing conflict, for example, foreign investors may: face difficulties in repatriating funds from investees; exit or cease operations in these markets, either by choice or by being forced to do so because of sanctions imposed; or be impacted by potential new restrictions imposed on foreign owners – e.g. nationalisation of local operations. The hurdle for losing control of an existing subsidiary is generally high, but the loss of control of subsidiaries in the conflict-affected countries or regions should not be immediately presumed.  There is, for example, no exclusion from consolidation due to difficulties alone in repatriating funds from the subsidiary to the parent or the lack of exchangeability of currencies.  In considering the impact of these ongoing conflicts, management must consider these two critical elements of control: power and returns. Power When assessing power over the investee, an investor considers only substantive rights relating to an investee – i.e. rights that it has the practical ability to exercise.  Determining whether rights are substantive requires judgement. Whether there are any barriers due to the consequences of the ongoing conflict preventing the holder from exercising these rights should be considered (e.g. due to current sanctions a company may no longer be able to exercise rights previously available to it.) Returns When assessing returns, an investor evaluates if they are exposed to variable returns from involvement with an investee. The sources of these returns may be very broad and may include both positive and negative returns.  Sources might include dividend or other economic benefits, for example, remuneration for services provided to the investee, tax benefits or certain residual interests.  Management should consider whether the company’s exposure to the variability of returns has been impacted and needs to be reassessed. IFRS 10 does not establish a minimum level of exposure to returns to have control.  Where there has not been a loss of control, there may be other impacts to consider. These might include: possible impairment of the investment in the subsidiary; presentation of the subsidiary as held-for-sale or as a discontinued operation; or  possible impairment of the assets held by the subsidiary. Do I need to test my non-financial assets for impairment? Control in relation to other assets  Before considering impairment for companies with assets on the ground in Russia or Ukraine, it is necessary to assess whether they have, in substance, lost control of those assets.  Control in the context of assets generally means the practical ability to control the use of the underlying asset. If control has been lost, the asset is derecognised in its entirety, and no impairment is carried out. IAS 36 Impairment of assets  The standard requires management to assess whether there is any indication of impairment at the end of each reporting period.  Irrespective of any indicator of impairment, the standard requires goodwill, and intangible assets with indefinite useful lives (and those not yet available for use) to be tested for impairment at least annually. An annual test is required alongside any impairment tests performed as a result of a triggering event. Triggering events  The likelihood that a triggering event has occurred for non-current assets has increased significantly for companies that: have significant assets or operations in Russia or Ukraine; are significantly affected by the sanctions imposed and/or Russia’s counter-measures; are adversely affected by increases in the price of commodities; and/or are significantly affected by supply chain disruption. Impairment indicators  Indicators of impairment may come from internal or external sources, but the likelihood of some impairment indicators existing has increased for companies impacted by the Russia-Ukraine war. Some indicators that may arise include: the obsolescence or physical damage of an asset. For example, plants and operations in Ukraine may be subject to physical damage; significant changes in the extent or manner in which an asset is (or is expected to be) used which has (or will have) an adverse effect on the entity.  a significant and unexpected decline in market value; significant adverse effects in the technological, market, economic or legal environment, including the impact of sanctions on the entity’s ability to operate in a market; a rise in market interest rates, which will increase the discount rate used to determine an asset’s value in use; and the carrying amount of the net assets of an entity exceeding its market capitalisation. Falling stock prices may result in an entity’s net assets being greater than its market capitalisation. Abandonment or idle assets  Companies may have abandoned—or have considered a plan to abandon—certain operations or properties in Russia or Ukraine.  Some companies may have been forced to abandon owned or leased facilities in Ukraine as a result of the war, for example. In such cases, the company needs to accelerate or impair the depreciation of the property based on the revised anticipated usage or residual value. Assets lefts temporarily idle are not regarded as abandoned—for example, when a company temporarily shuts a manufacturing facility but intends to resume operations after military activities in the area abate.  Although temporarily idling a facility may trigger an impairment of that item (or the CGU to which it belongs), a company does not stop depreciating the item while it is idle—unless it is fully depreciated or is classified as held-for-sale. Companies should, however, consider the most appropriate depreciation method in this situation.  Disclosures When reporting in uncertain times, it is essential to provide the users of financial statements with appropriate insight into the key assumptions and judgements made by the company when preparing financial information. Depending on an entity’s specific circumstances, each area above may be a source of material judgement and uncertainty requiring disclosure. David Drought is a director in the Accounting Advisory team at KPMG in Ireland

Delta Partners’ Maurice Roche has Ireland’s next generation of tech unicorns in his sights with the launch of the VC firm’s latest fund, writes Clare O’Sullivan. With the launch of its latest €70 million fund, Dublin-based venture capital firm Delta Partners is targeting the newest generation of promising seed and early-stage technology businesses across Ireland.    Announced in April, the fund is the sixth to be launched by Delta since its formation in 1995. In the years since, Delta has backed over 120 companies, realising a mammoth €1.8 billion.      The new fund is backed by limited partners (LP) including Bank of Ireland, Enterprise Ireland and Fexco as well as the family offices of successful Irish technology entrepreneurs. Bank of Ireland has been an investor in Delta’s previous funds and has a number of initiatives/products aimed at the technology sector. Fexco is a new LP to Delta and widely regarded for its innovation in the fintech sector. Previous companies that have received investment from Delta include Clavis, the e-commerce company sold to London’s Ascential plc in 2017, Neuravi, the Galway-based medtech firm acquired by Johnson & Johnson in the same year, and SensL Technologies—sold to ON Semiconductor in 2018. Delta’s current portfolio, meanwhile, includes Luzern, the Dublin-based e-commerce platform, and Sirius XT, a UCD spin-out developing the world’s first commercial lab-scale microscope. It is a diverse portfolio—and necessarily so, according to Maurice Roche, General Partner at Delta Partners and a Fellow of the Institute. “In a market as small as Ireland, you nearly need to be sector-agnostic as a VC investor. Our main focus is tech, but it makes sense for us to have a range of investments in the broader tech sphere,” Roche said. With the launch of Delta’s latest fund, as many as 30 start-ups will be in the running for funding over the next three to four years. “We will focus on a spread of early stage companies where we aim to be the first institutional investors , i.e. at the early seed stage (companies raising capital to develop the product and prove the value proposition with customers) to late seed (companies raising capital to scale on the back initial customer traction and have early signs of product/market fit),” said Roche. Among all potential investees, a top priority for Delta will be the people involved. “The numbers are important, obviously, but it’s also about the people to a huge extent, the market and the opportunity,” Roche said. “You want to be confident that the management team is capable of developing the product and getting early customer wins. The people behind the product really matter.” A case in point is Richard Barnwell, who recently joined Delta as a partner from Digit Games, the gaming studio he founded in Dublin in 2012. A previous investee of Delta Partners, Digit was acquired three years ago by Scopley, the LA-based gaming company. Another new addition to the Delta Partners team is Amy Neale, who is joining from Mastercard where she led fintech innovation teams globally. “Richard has real start-up experience, and he has been successful, so I think he will be a great support to the entrepreneurs we work with,” Roche said. “Amy is our first female partner and a very valuable addition because she has ‘lived’ in the fintech ecosystem through her role with Mastercard, and fintech is a sector we have invested in, and will continue to invest in, with our new fund.” The fund has reached a first close with Bank of Ireland and Enterprise Ireland as cornerstone investors, supported by Fexco and several family offices. New investors will be added to the fund in the months ahead. “We are extremely thankful to our investors who have entrusted Delta with their capital to invest in the next cohort of Ireland’s early-stage technology companies” Roche added. “This fund will be aimed at what we see as the funding gap for early-stage companies in Ireland. Great Irish entrepreneurs are succeeding across the technology spectrum and the main thing they lack is capital to help them achieve their ambitions,” Roche said. “Our focus will be the start of their journey and helping them to succeed at that foundational level.” A veteran of the VC sector in Ireland, Roche joined Delta Partners at its inception 27 years ago. “I qualified in 1990 and spent some time working in corporate finance where I gained experience advising companies raising venture capital. I was interested in technology, and it was serendipity really that I met Frank Kelly, the founder of Delta, by chance one day playing golf.  “Frank had come back from the States to set up a VC fund in Ireland and he was looking to hire. We got talking and I’ve been part of the Delta story ever since.” In that time, Roche has borne witness to the Dot.com crash, the recovery of the global tech sector, the launch of the iPhone and the rise of the mobile app, and the transition from on-site IT to Software-as-a-Service (SaaS) in an increasingly digital world. “From my own experience, I would say that Irish start-ups have done well in business-to-business (B2B) applications, particularly in fintech and payments,” he said. “We have a very strong entrepreneurial tradition and a lot of very successful companies that have scaled internationally across SaaS and enterprise applications spanning digital health, customer data analytics, customer experience management and many other areas. “We will always be looking at markets ripe for disruption because, where change is happening and new innovations are gaining traction, there is opportunity.” Right now, cybersecurity is one such market rich with opportunity, according to Roche.   “If you look at what has happened in the last few years, businesses have become a lot more conscious of the need to protect their data,” he said.  “We have seen a marked rise in phishing and other cyber-attacks. That has made people much more aware of data protection and privacy. As a result, we’re seeing a lot of money going into cybersecurity, particularly cloud-based offerings.” Another big focus for Roche is fintech. “We have seen just how transformational fintech can be from the consumer point-of-view and person-to-person payments with the rise of digital banking apps like Revolut and N26. “Our main interest here is on the B2B side, because the transformational effects technology continues to have in the enterprise space is enormous and there is a lot of potential there.  “We’ve also seen the speed at which tech start-ups in Ireland like Flipdish and Wayflyer have achieved unicorn status. “With this new fund, we want to find the very best tech start-ups out there waiting to be discovered and give them the funding and the support they need to achieve the global success they deserve.”

Accountancy was well on its way to digital transformation long before COVID-19, but it can’t be denied that post-pandemic, the digitalisation of the profession has come a long way. Five members discuss their firm’s digital transformation and their role within it. David O’Connor Director Sheil Kinnear Our organisation operated, as many practices, did with an on-premises server and that worked well to a point but as demand for more flexibility grew as a response to the pandemic, it became an obvious option for us to take. In partnership with Datapac, moving to the cloud has futureproofed the business. We have learned to be more flexible and conscious of the risks around us. It has become more and more apparent that cyber security is a concern as we move toward a more paperless, digital environment. As a firm that does statutory audits, the ability to securely access our various software tools from anywhere was a huge incentive for us. I think there is an improvement in terms of what can get done no matter where you are. We are also benefitting from superior processing speeds both in the office and remotely. A challenge in our sector now is the transfer of knowledge. It’s huge in our business and people who work remotely still have to pass on that knowledge to trainees and other team members. This takes a lot more structure and scheduling.  I think there is a change towards more flexible working, but we do like to get together as a team and share knowledge and, because of that, it’s going to be hybrid going forward. Emer McCarthy  Group Strategy and Ecommerce Director Kilkenny Group We set up a “Go Digital” initiative a few years ago to transform as a company and become a true omnichannel retailer.  We defined a range of important steps and investments around channels, technology, and organisational restructuring to realise the omnichannel strategy.  We are one of the first to market with our VR store experience, giving potential shoppers worldwide an immersive, in-store experience from the comfort of their own homes. It allows our customers to engage with the Kilkenny Design brand in a completely new and unique way when the way we shop has undergone such a dramatic shift. COVID-19 has driven dramatic change in the digital space, and consumers have adapted accordingly. We have seen a decade of change over the last two years, and businesses need to continuously invest in experiences or processes via digital to meet and exceed the needs of the evolving omnichannel consumer.  Thankfully, we had commenced this journey before the pandemic, which allowed us to navigate an otherwise tricky trading period for bricks and mortar during the pandemic.   Our culture is very open to technology and the benefits that it brings. Embedding technology and new processes bring a level of change management but collectively, our culture has embraced the same by bringing our teams on the journey with us. Our environment has changed the need to adapt quickly to trends. COVID-19 has driven dramatic change in customers’ digital knowledge and use, which expedites the need to roll out pipeline projects sooner and plan to meet consumer needs three years in advance, at least. Louise Heffernan  Audit and Practice Manager Hugh McCarthy & Associates The pandemic exposed a weakness many firms weren’t prepared for and are now forced to adapt to, highlighting how behind some of us were in the digital age, primarily facilitating working remotely and having a strong online and digital presence.  We took this opportunity to begin a rebrand of the firm, working towards moving all systems online and providing additional training where needed.  We understand Rome wasn’t built in a day, but we are in the final stage of an online rebrand, transitioning to a paperless office and entirely cloud-based within four years.  My role in this has been writing and redesigning the website, developing a strategy with the marketing team, working with the IT team to develop a future cloud-based infrastructure, securing software that is online while ensuring GDPR compliance and setting out a four-year plan to go paperless while upskilling the team to ease with the gradual transition. The company has changed in so many ways. While our team chose to come back into the office, there is an option to work from home, providing a higher level of trust amongst the team and strengthening team communication. Giving the option to work from home also shows we value our employees and understand and appreciate the importance of life outside the office. Because of our digital focus, I have changed how I train the team, making sure all resources are available online while developing the team’s IT literacy. And my role has evolved – I now work with marketing and focus on long-term strategic planning while heavily analysing future costs. Bill O’Leary  Director  Goldbay Consulting Four years ago, I introduced accounting software to offshore wind energy consultants, delivering user-friendly automated features. Its reporting capability significantly enhanced the quality, relevance, and timeliness of our management information, which supported profitable business growth.  In March 2020, the pandemic forced us to change how we worked and the so-called “paperless office” had finally arrived.  My organisation implemented video conferencing software. Weekly and operational review meetings, and bi-monthly revenue assurance meetings with directors and senior fee earners were critical in managing revenue and cash flow during the pandemic.  More recently, our focus is on improving operating margin by using data management tools to extract, process and present project margin information in a graphical format to the leadership team. Collaboratively, we review project information, seek to understand the past better and work to agree on actions to modify future behaviour and increase performance.  Leveraging modern software and related digital processes have enabled me to provide the tools, coupled with knowledge, to empower our project leaders to make better informed financial decisions.  The benefits of digitisation and automation of processes are not always linear. As more simple and repetitive tasks are automated, the remaining work becomes more complex – which creates several challenges, such as increasing demands being placed on senior fee earners and the training and development staff becoming more complex.  The answer, which is nothing new, lies in how we use the wealth of digital information available today. How we extract, analyse, synthesise, present, communicate, discuss, understand, and act on the fruits of digital transformation is critical to unlocking the benefits of the digital revolution.  David Heath  CEO Circit At Circit, we have tried to create a culture of digital transformation from the company’s very beginning. With the assumption that technology will continue to evolve at pace, our team is encouraged to be tuned in to what is available in the market and trial services that they believe our organisation and people can benefit from.  This does not mean we implement every new tool we are aware of, but we do become better at monitoring the market, assessing the potential positive benefits of a new cloud service, and getting the timing right for making a change. By having a mentality of being adaptive, we can more easily advise and be an example for our customers who are also on their own digital transformation journey. Lockdowns and viruses have accelerated business trends already underway for companies, like moving to the cloud and modernising their IT departments, but it has also made them think about how their employees can work more efficiently. We’re moving from it being about ‘work from home’ to it being about entirely new ways of doing work.  For example, in the past few weeks, I’ve held investor meetings over video conference instead of in person, with the same – if not better – results.  Instead of thinking about who’s in an office, I’ve also been broadening the scope of who I chat with and when. On an average day, I’m probably talking to five times the number of people from different time zones than when I worked at the office. After all, anyone I want to communicate with is only a chat bubble and video call away. I think we will be forever changed, but now the challenge is to get the balance and team culture correct – one that is digital-first, security risk averse, being personable and willing to travel to in-person meetings to maintain a deeper connection with customers. 

Economic conditions might seems prime for investment, but with a recession on the horizon, Cormac Lucey recommends looking at the global economic outlook before you make any decisions. Capital allocation is a senior management team’s most fundamental responsibility, according to Michael J. Mauboussin and Dan Callahan in their essay “Capital Allocation: Evidence, Analytical Methods, and Assessment Guidance”.  Capital allocation is always important but is imperative today as the return on invested capital is high, growth is modest and corporate balance sheets have plenty of cash.  Unfortunately, there is one key risk on the horizon today that may upend many investment decisions: the prospect of a global economic downturn.  Recessions are one of the most significant risks that confront senior managers. They weaken financial performance and cause company values and share prices to drop. Suppose those drops are accentuated by expensive investments or acquisitions made on the eve of a recession. In that case, they can unleash a search for managerial scapegoats that lead to executives departing their positions “to pursue other interests”.  However, whether one looks at the USA, China or the eurozone, the immediate economic outlook is gloomy. GDP growth has gone negative in America, which recorded an annualised -1.4 percent rate in the first quarter, and that’s before the Federal Reserve’s interest rate tightening campaign began to bite.  April’s US consumer price index surprised on the upside, with the core measure rising 0.6 percent month-on-month, or 6.2 percent year-on-year. With monthly price rises at this level, it will be difficult for elevated base effects from last year to decrease the annual inflation rate. That high inflation data came shortly after labour market reports showed a 20-year record for the ratio of job vacancies to numbers unemployed.  This recent data is only likely to harden the Fed in its resolve to choke inflation out of the US economy. Bill Dudley, a former President of the Federal Reserve Bank of New York, recently warned investors to pay closer attention to the words of Jerome Powell, Chair of the Federal Reserve (Fed).  “Financial conditions need to tighten. If this does not happen on its own (which seems unlikely), the Fed will have to shock markets to achieve the desired response. This would mean hiking the federal funds rate higher than currently anticipated. One way or another, to get inflation under control, the Fed will need to push bond yields higher and stock prices lower,” Dudley stated. The situation in China provides little comfort. Whereas its economy often provides a counterweight to US influences (growing fast when the US is growing slowly and vice versa), the Chinese authorities’ zero-COVID-19 policy is choking economic activity. China could already be in a recession.  Shanghai’s port activity is falling faster than in early 2020, when the COVID-19 outbreak caused the entire global economy to shut down. Chinese purchasing manager index measures have already fallen well below 50, signalling a contraction in activity levels.  In Europe, inflation has also become too uncomfortable for the European Central Bank. President Lagarde has said that quantitative easing will end in Q3, and interest rate hikes will likely commence at the ECB’s 21 July policy meeting.  However, this year, the eurozone first-quarter growth was a measly 0.2 percent over the previous quarter. The war in Ukraine has directly affected energy supplies to EU economies, forcing many to seek alternative, and costlier, sources. With recession looming, be careful not to make significant investment decisions you might later regret. Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland.

The crypto slump has highlighted the risks posed by cryptocurrency as a speculative asset, but for professionals in finance, the immediate challenge is working out how best to account for it. Gavin Fitzpatrick and Mike O’Halloran dig into the details. Money, currencies and the methods by which people and businesses earn, store and exchange value have taken numerous forms throughout history.  The evolution of currency dates back many millennia, from the early days of bartering to modern methods, such as coins, notes, loans, bonds and promissory notes. Introduced in 2009 with the launch of Bitcoin, cryptocurrency is the latest evolution in this process. Despite a slow initial uptake, its popularity has risen dramatically in the past decade and, today, there are thousands of different cryptocurrencies in existence.  Views on their usefulness and longevity are somewhat fragmented, however. Investors who have been fortunate enough to acquire cryptocurrency at low prices sing its praises, whereas critics argue against its fundamentals and highlight the volatility of the cryptocurrency market. For companies and the accounting profession, however, the immediate challenge is working out how these assets should be accounted for. Here are some common questions worth bearing in mind. Is there a specific standard that accountants can apply to cryptocurrencies? In short, the answer here is no—nor do cryptocurrencies fit neatly into any existing standard. Accounting for cryptocurrencies at fair value through profit and loss may seem intuitive. However, such an approach is not compatible with IFRS requirements in most circumstances, as cryptocurrencies may not meet the definition of a financial instrument as per IAS 32.  Should cryptocurrencies be treated as another form of cash? IAS 7 Statement of Cash Flows states that cash comprises cash on hand and demand deposits. IAS 32 Financial Instruments Presentation notes that currency (cash) is a financial asset because it represents the medium of exchange. While cryptocurrencies are becoming more prevalent, they cannot be readily exchanged for all goods or services.  IAS 7 also considers cash equivalents—short-term, highly liquid investments that are readily convertible to known cash amounts and subject to an insignificant risk of changes in value. Given the considerable price volatility in cryptocurrencies, entities have not sought to apply policies where they define holdings in crypto assets as cash or cash equivalents. In the absence of a specific standard, what guidance and methodologies can accountants follow when deciding how to account for these assets? In practice, accounting policies defined to deal with cryptocurrencies follow the principles of accounting for intangible assets or, in some cases, accounting for inventory.  Intangible assets IAS 38 Intangible Assets defines an intangible asset as “an identifiable non-monetary asset without physical substance”.  Identifiable – under IAS 38, an asset is identifiable if it “is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged.” Cryptocurrency holdings can be traded and are, therefore, identifiable. Non-monetary – IAS 38 defines monetary assets as “money held and assets to be received in fixed or determinable amounts of money.” The value of a cryptocurrency is subject to major variations arising from supply and demand. As a result, its value is not fixed or determinable. Without physical substance – as a digital currency, cryptocurrencies do not have physical substance. As a result of applying the above logic, many companies classify holdings in cryptocurrencies as intangible assets. In line with IAS 38, companies can use one of two approaches to account for intangible assets: Cost – cryptocurrency asset is carried at cost less accumulated amortisation and impairment. In applying this approach, companies must determine if the asset has a finite or indefinite useful life. Given that cryptocurrencies can act as a store of value over time, they have an indefinite useful life, meaning the asset would not be subject to an annual amortisation charge. Instead, an annual impairment review would be necessary. Revaluation – under IAS 38, intangible assets can be carried at their revalued amount as determined at the end of each reporting period. To adopt this approach, the asset must be capable of reliable measurement. While active markets are often uncommon for intangible assets, where cryptocurrencies are traded on an exchange, it may be possible to apply the revaluation model. In order to present increases and decreases correctly (i.e. determining how much is presented in other comprehensive income versus profit and loss), entities must be able to track movements in sufficient detail across their holdings. Establishing the cost of the crypto asset denominated in a foreign currency According to IAS 21 The Effects of Changes in Foreign Exchange Rates, entities will record holdings in cryptocurrencies using the spot exchange rate between functional currency and the cryptocurrency at the date of acquisition.  As noted earlier, cryptocurrencies are not considered to meet the definition of monetary items. Therefore, holdings in cryptocurrencies measured at historical cost in a foreign currency will be translated using the exchange rate at the initial transaction date. Holdings measured using the revaluation approach shall be translated using the exchange rate applied when the valuation was determined.  Inventory As demonstrated, holdings in cryptocurrencies can meet the definition of intangible assets under IAS 38. However, within the scoping section of IAS 38, it is noted that intangible assets held by an entity for sale in the ordinary course of business are outside the scope of the standard. This conclusion is drawn from the fact that such holdings should be accounted for under IAS 2 Inventories. While the default treatment, under IAS 2, is to account for inventories at the lower cost and net realisable value, the standard also states this treatment does not apply to commodity broker-traders.  Such traders are required, under IAS 2, to account for their inventory at fair value less cost to sell, with changes in value being recognised in profit and loss.  Intuitively, it may seem appropriate for entities holding cryptocurrencies to follow the same accounting applied by broker-traders under a business model that involves active buying and selling.  However, since cryptocurrencies do not have a physical form aligning their accounting to a scope exception for commodity traders, it is a judgment call.  In practice, where there is a business model under which crypto assets are acquired to sell in the short term and generate a profit from changes in price or broker margin, the treatment described here from IAS 2 for broker-dealers has been applied.  Other considerations  So far, we have explored accounting for holdings of cryptocurrencies (IAS 38) and trading in cryptocurrencies (IAS 2). The standards referenced are not new.  To date, the IASB has focused on aligning accounting for cryptocurrencies to existing guidance, and practice has developed accordingly. While there is clear logic to the policies developed from this approach, there are still challenges.  For example, while applying the cost model of IAS 38 is straightforward, the balance stated in the financials may be significantly different to the market value. On the other hand, applying the revaluation model of IAS 38 can be difficult from the point of view of tracking movements in value to determine how much is presented in profit and loss versus other comprehensive income.  What about custodians? As recently as March 2022, the US Securities and Exchange Commission (SEC) released their Staff Accounting Bulletin No. 121.  The bulletin provides guidance for reporting entities operating platforms allowing users to transact in cryptocurrencies, while also engaging in activities for which they have an obligation to safeguard customers’ crypto assets.  Until now, custodians may have concluded that they do not control the asset they safeguard. However, the SEC believes that stakeholders would benefit from the inclusion of a safeguarding liability and a related asset (similar to an indemnification asset), both measured at fair value. This guidance is applicable to reporting entities that apply US GAAP or IFRS in their SEC filings. These entities are expected to comply in their first interim or annual financial statements ending after 15 June 2022. While this requirement applies to SEC filings, it is an essential development to be aware of. Challenges ahead Accounting policies designed to deal with cryptocurrencies have developed, in practice, from existing standards. While these policies are grounded in fundamental accounting principles, there are challenges.  As cryptocurrencies continue to become more prevalent, some of the key assumptions in these policies will be challenged.  For example, if the price of cryptocurrencies becomes less volatile, this would challenge the conclusion that they meet the definition of non-monetary assets under IAS 38. Instead, with less price volatility, it could be argued that they meet the definition of cash equivalents.  Given the current challenges and ongoing development of cryptocurrencies, many are calling for standard-setters to engage in a dedicated project to address these issues.  Gavin Fitzpatrick is a Partner in Financial Accounting and Advisory Services at Grant Thornton.  Mike O’Halloran is Technical Manager in the Advocacy and Voice Department of Chartered Accountants Ireland.

Where can small businesses find the advice they need to keep growing? Trusted advisers, says Emma Jones.  My company solves problems for small businesses based on data sets and evidence that guides businesses from different localities and sectors to support that is proven to work for their peers. We shortcut a founder’s route to success through pointing them to the right intervention for their business, at the right time, boosting productivity by saving valuable hours searching for relevant advice.    One factor that has aided the move towards standardised and personalised advice is the number of businesses now operating on common platforms.  Take the e-commerce sector as an example: most online sellers use the same ‘stack’ of technologies, whether that is Big Commerce for sales, Facebook to drive advertising, or Google Analytics to measure results.  This means smart data companies can show a founder if they are selling more or less – or paying more or less for those sales – than competitors.  With insight in hand, a founder then wants advice on how to improve and get into the top tier of performers. Business owners want to simply be told ‘how’ and ‘where’ to spend their time and money. They are willing to share data on key company metrics in return for advice on how they can perform better.  This is where the role of trusted advisers comes in.  With a foundation of data, advisers can guide a business owner through a personalised support journey, with in-built accountability as the adviser takes on the role of a coach in setting out milestones for the business to deliver.  There is a key role for accountants in this as managing or raising money is integral to business progression. While we want to connect small business owners with the right support, we also want to connect them to the trusted experts who can help them to do the jobs that need to be done to spur growth.  Guiding business owners to make the right moves, based on data and insight, and connecting them to the right advisers can help to boost their efficiency, potentially delivering a similar benefit to the wider economy.  Emma Jones is Founder of Enterprise Nation.