The 2018 FAE results provide interesting insights, which will inform the ongoing evolution of the Institute’s syllabus. The FAE 2018 summer examination results were published in late October and were well-received. This is always a milestone in the Institute’s calendar annually and this year was no exception. Following on from the results, some interesting statistics and insights have emerged. Return to percentage-based marking The FAE underwent noticeable changes this year. Marking and adjudication returned to a percentage-based marking methodology in the 2017/2018 academic cycle. This was a departure from the competency-based marking methodology, which was adopted in 2009. The purpose of the change was to provide more clarity on the interpretation of the examination result. One of the limitations of the competency-based marking methodology was its vagueness in terms of the extent to which a candidate had passed or failed. This was further complicated by a traffic light system of scoring at FAE Core. Although the marking methodology change was communicated to all key stakeholders over the last number of years, there was considerable anxiety around the return to percentage-based marking. It should be noted that while the marking methodology changed, there was no change to how the FAE examination papers were structured or presented. Indeed, the syllabus and weightings have remained broadly similar year-on-year.  Some stakeholders were concerned that the marking changes would cause confusion and impact adversely on examination results. The FAE Committee was pleased to note that there was no material change to the overall results at FAE in 2018. The overall pass rate at FAE 2018 was 80%, which was the same as the 2016 result. Interesting statistics Other interesting statistics have emerged from the FAE 2018 results related to individual candidate performances throughout the year: The best predictor of a candidate’s final end-of-year examination result is their performance in their relevant interim assessment (AAFRP being the FAE Core interim assessment and the Elective interim assessment). There is a direct correlation between the performance level in these assessments and the FAE examination. It is therefore imperative that candidates engage as soon as possible with the education programme and approach their interim assessments very seriously as part of their overall study programme; The FAE Core final examination is currently held over two days with FAE Core Comprehensive on day one and FAE Core Simulations on day two. The results recorded by candidates over the two separate days had very strong levels of correlation. Indeed, the level of correlation was much higher than expected with the overwhelming majority of candidates displaying a difference in performance of +/- 3% over the two days. While the two days of examinations related to three separate case studies and multiple diverse industries, candidates clearly displayed strong business acumen and consistent application of their skills on both days.  Chartered Accountants Ireland is very pleased to see candidates continuing to display strong competencies in key areas. The syllabus is evolving to ensure that the next generation of Chartered Accountants will continue to excel as business leaders long into the future. This is not something that should be taken for granted and doesn’t “just happen”. It involves a huge volume of work from the committed stakeholders of the Institute, to whom the Institute is very grateful for their continued support. Future-proofing the profession To consolidate and future-proof the position of the Chartered Accountant, continued syllabus change is required to stay ahead of the external challenges and technological changes facing all sectors of society. One thing is certain: Chartered Accountants Ireland is committed to rising to any future challenges, as it always has, with a dedicated executive team of professionals working in tandem with its invaluable and supportive stakeholders. Ian Browne is Head of Assessment & Syllabus at Chartered Accountants Ireland.

When monitoring third-party risks, it is important that entities focus on value creation as well as value protection. Outsourcing is an increasingly a key strategic decision for many businesses, allowing them to focus on core corporate activities. However, when things go wrong in third-party relationships, companies may be exposed to significant reputational, regulatory, strategic and financial risks. There are two notable recent examples of high-profile third-party failures in Ireland: The Central Bank of Ireland imposed fines on financial institutions in relation to the governance and control of outsourced services delivered by third parties; and In 2018, a restaurant chain in the UK was forced to close more than 560 of its 900 outlets as “operational issues” at a new distribution partner left deliveries “incomplete or delayed”. This is estimated to have cost the restaurant chain in question £1 million per day in lost sales. In 2016, the Central Bank of Ireland warned that poor management of third-party relationships is putting banks at risk, citing “very serious failings” in relation to the governance of these arrangements and brandishing some cases as “astonishing”. Specific criticism related to poor management of outsourced arrangements, lack of oversight and a lack of engagement and challenge from boards. Extended enterprises The operational environment of many companies has expanded to include third-party service providers. Taken together, these third parties constitute what we term “the extended enterprise.” We continue to see companies struggle to identify, measure, report and monitor third-party risks within their extended enterprise. This has led to companies being exposed to a variety of risks and failing to maximise the upside of third-party relationships. The challenge for businesses is to formulate an extended enterprise risk management strategy that proactively manages the risks associated with the extended enterprise while also driving performance. In our experience, the answers to this challenge lie in expanding one’s view of third-party risk management to incorporate value creation as well as value protection. For companies to leverage their risk management processes to improve performance, it is critical that they develop an end-to-end approach for sensing risks systematically throughout the extended enterprise so that vulnerabilities can be addressed proactively. We term this approach ‘extended enterprise risk management’ (EERM). Extended enterprise risk management EERM is the practice of anticipating and managing exposures associated with third parties across the full range of operations, as well as optimising the value delivered by third-party relationships. The risk management landscape is often fragmented and decentralised. Many companies have not agreed and documented their risk appetite. They may approach third-party risk management on an ad hoc basis, addressing prominent areas such as cyber risk and regulatory compliance as they arise. Crucially, many companies do not have a broad pan-company view of all current third-party engagements and the associated risks. A common theme that emerges here is a lack of ownership of risks across the company. For example, despite the increasing focus on risk management, some companies still do not have a dedicated risk officer. Additionally, many companies are not appropriately utilising the three lines of defence to manage risk and drive performance across the extended enterprise. The first line of defence is the business unit, which owns the third-party relationship and is accountable for managing associated risks in alignment with policies and procedures. The second line of defence is a centralised governance programme for extended enterprise risk management, which is responsible for establishing and enforcing policies/processes to ensure that third parties are managed consistently by the business. The third line of defence is internal audit, which is charged with administering a robust audit programme aligned to the most critical extended enterprise risks and controls as well as performing independent assessments. In addition to underinvesting in the three lines of defence, many companies focus excessively on quantitative metrics – contract income and expenditure, for example – when engaging a third-party. When assessing third parties, companies should always include appropriate qualitative metrics – vendor quality, technical capabilities, vendor risk profile, control environment, and ability to drive performance, for example. By not having a defined EERM framework in place, many companies are concentrating on firefighting rather than maximising the benefits that can arise from well-managed third-party relationships. Driving value  Companies increasingly need to move toward a holistic approach to EERM that emphasises value creation as well as value protection. This typically involves establishing a systematic and proactive approach to managing risks across the third-party lifecycle and, in so doing, unlocking value and improving business performance. An operating model for implementing and integrating the various components of risk management across the third-party relationship lifecycle forms the foundation of this approach. To be fully effective, such models must be aligned to the company’s overarching risk appetite and risk management framework. The model should link the individual components of risk management to agreed and documented business objectives and the company’s risk registers. Four cornerstone capabilities  Many companies believe they cannot take an end-to-end approach to managing the extended enterprise because securing executive sponsorship and getting people to take ownership can be an uphill battle. Additionally, many businesses think that the task is too vast and they do not have the expertise and resources to build, execute and sustain a comprehensive third-party oversight programme. In our experience, these barriers are more perception than reality. It is neither necessary nor possible to do everything at once. Companies should consider some practical steps to take toward establishing an EERM programme or evolving an existing one. Many companies can get a sense of what those steps might be by considering the extent to which they have developed the following cornerstone capabilities. Strategy and governance This involves the creation of an agile and flexible governance model: Is there a defined and documented strategy and governance model for managing third-party risk? Is there a defined policy to assess third-party requirements prior to entering into relationships? Are third-party risk management activities linked to value drivers agreed and documented? Have you identified, agreed and documented critical key performance indicators (KPIs) for all third-party relationships? Have you agreed and documented how third-party KPIs will be reported and monitored? Are there defined processes in place to identify new and emerging third-party risks?  People This involves managing relationships, compliance and regulations: Is senior management sufficiently invested in EERM? Are the employees charged with responsibility for third-party risk management receiving sufficient and appropriate training? Is there sufficient investment in the three lines of defence to deliver effective monitoring of third-party risks? Are there defined and documented roles for managing third-party risk across the extended enterprise? Process This involves navigating events that shape the extended enterprise: Are there appropriate contracts in place with all third parties? Do monitoring processes allow for the reliable assessment of third-party performance? Does the company react to third-party events or actively seek to prevent them? Are risk management processes standardised across the company and integrated with tools and data? Is sufficient consideration given to how evolving technologies, market trends and disruptive forces present opportunities and challenges to third-party relationships? Technology This involves using data and analytics to make informed decisions: What tools and technologies are employed to make informed decisions about third-party performance? What transactional data are you entitled to access? Does the company’s IT and systems support KPI monitoring, reporting and performance assessment? Factors to consider in assessing your third-party risks   The complexity of the extended enterprise and resource constraints are no longer sufficient reasons to avoid taking an integrated approach to third-party risk management. Wherever your company stands at present in relation to EERM, some practical steps can be taken now to establish an EERM programme or to move your existing risk management model to the next level. The following factors should be considered. Strategy and programme This involves the development of EERM solutions to assess, design and implement a strategically aligned extended enterprise programme. These may include: Conducting an enterprise-wide strategic third-party risk assessment; and Developing the governance and operating model for EERM including KPIs, reporting and monitoring mechanisms. Evaluation and continuous monitoring This involves the selection and application of a suite of solutions to measure third parties and proactively sense and respond to extended enterprise risks and opportunities. These may include: The selection of quantitative and qualitative metrics/KPIs; Third-party risk assessment processes; and Contract compliance mechanisms. Technology enablement This involves the selection and application of technology solutions to transform and continuously enhance EERM. These may include: Systems design and deployment; Data analytics; and Reporting protocols. Conclusion Effective EERM programmes allow companies to align third-party risk management to strategic objectives and deliver enhanced returns on investment by emphasising value creation as well as value protection.  Crucially, there is no ‘one size fits all’ EERM model or programme. Each company faces unique challenges and therefore, EERM programmes tend to be bespoke by nature. Time spent on EERM programme design is rewarded in the longer term. Finally, successful EERM programmes are continuously re-assessed to ensure that the model being applied remains appropriate at all times. Jimmy Crowley is a Senior Manager in Risk Advisory in Deloitte Ireland.

A shake-up could be on the way for IFRS rules on accounting for goodwill and the presentation of the income statement.   As listed companies and their subsidiaries throughout the European Union (EU) grapple with the International Accounting Standards Board’s (IASB) recent accounting standards on revenue and financial instruments, the IASB itself has turned its attention to other accounting topics. Two of the topics that are currently occupying the IASB are accounting for goodwill and the presentation of the income statement/profit and loss account. It may seem surprising that these topics are on the IASB’s agenda because the existing requirements of IFRS on these areas appear quite settled. However, both topics have given rise to debate and controversy and, consequently, the IASB has been exploring whether and how the existing requirements should be improved to address the criticisms. Goodwill Let’s look at goodwill first. As far back as 2004, IFRS stopped amortising goodwill. This was in line with US GAAP but unlike local GAAP in other jurisdictions, such as Japan and the UK, which continued to amortise goodwill. The IFRS approach reflected the view that the income statement expense for goodwill amortisation had little information value for investors and analysts, who tended to add it back in assessing corporate earnings. Instead, IFRS requires management to make an annual assessment of the value of the business unit to which the goodwill belongs in order to determine if the goodwill needs to be written down/impaired. Preparers of IFRS accounts point out that the annual valuation exercise can be complex and costly, as well as being unnecessary when the valuation shows plenty of headroom over the book value. As the IFRS rules prohibit taking into account the enhanced cash flows from planned restructurings or capital expenditure in assessing the value in use, they are regarded as unrealistic as the full potential of the business unit is not being included. Investors and regulators, too, identify serious flaws in the current rules. It has become apparent that the internally generated goodwill of the business into which the acquired business has been integrated acts as a shield that protects the acquired goodwill from requiring impairment. Indeed, that internally generated goodwill, which is not recognised in the accounts, has to be completely “burned through” before the acquired goodwill needs to be impaired. In addition, management’s assessment of the future cash flows on which the value in use is based can often reflect management’s optimism about its future prospects. Consequently, many commentators have criticised this approach to impairment testing as giving rise to impairment charges that are too little and too late. As acquired goodwill is brought onto the balance sheet but internally generated goodwill is not, there is an inevitable inconsistency between the results achieved by acquisitive groups and those that have grown organically. The balance sheet value of acquisitive groups will tend to be higher while their post-acquisition profits will be reduced where intangible assets recognised on acquisition are being amortised against profit. Some academics suggest that internally generated intangible assets should be capitalised, in the same way as certain development expenditure is capitalised. None of these problems or inconsistencies with goodwill accounting are new, but the vastly increased importance of goodwill and intangible assets on balance sheets throughout the world means it is opportune for the IASB (and the Financial Accounting Standards Board (FASB) in the US) to explore various avenues to address them. For example, if the amount of acquired goodwill should eventually be reduced to zero, rather than continuing to be recognised on the balance sheet at its cost – potentially in perpetuity – would the reintroduction of some form of amortisation be appropriate? Amortisation is, of course, open to the criticism of the arbitrariness of estimating the useful life of goodwill, but some point out that estimating future cash flows in order to assess value in use is subject to similar uncertainty. Alternatively, should the value in use of the business unit be restricted by the internally generated goodwill in order to focus solely on whether the value of the acquired goodwill has been maintained above its book value? These and many other accounting possibilities have been raised at recent IASB meetings. Some of you may recall that goodwill on acquisition was once regarded with such scepticism that it was written off to reserves immediately. I think it’s unlikely that the IASB will revert to such a drastic approach. There is also growing criticism that the current goodwill accounting rules and disclosures provide little information on whether the acquisition has been successful and has fulfilled its promise. This is regarded as a shortcoming in the degree to which the accounts provide a measure of management’s stewardship of their resources. The IASB is therefore also considering how the requirements on disclosure of post-acquisition performance can be enhanced – for example, a table showing the year-on-year change in profits analysed between organic growth and acquisitions. Income statement presentation Having issued its recent standards on key measurement issues including revenue, financial instruments and leases, the IASB sees the need for a period of calm while we all get used to the new standards. Nonetheless, the IASB is conscious that the rules of IFRS on how the income statement should be presented are relatively form-free, with few hard and fast rules on which line items should be presented. The absence of such rules has, of course, led to management exercising its discretion on what to present, including non-IFRS measures of performance and a significant level of diversity in practice. Although the IASB acknowledges the usefulness of management measures of performance as evidenced by their use in the market, it considers that a greater degree of regulation, consistency and comparability is desirable. It is perhaps surprising that it has taken the IASB so long to open up this area for detailed consideration, given how prescriptive IFRS is in many other areas. The lack of IFRS rules in this area contrasts with the very prescriptive formats of the EU Accounting Directives that are followed in UK and Irish GAAP profit and loss accounts. A key item of debate is the term ‘operating profit’, which is presented on many, if not most, IFRS income statements and is regarded as a key metric. IASB is conscious that there is considerable variation in what companies include in operating profit. For example, there is significant diversity in whether the equity-accounted results of associates and joint ventures are part of operating profit. IASB currently appears to be tending to the view that they are more in the nature of an investment return than an operating return, while acknowledging that some associates and joint ventures are integral to the group’s business and thus deserve separate disclosure on the face of the income statement in proximity to operating profit. The extent to which gains and losses on derivatives and other financial instruments are regarded as part of operating profit rather than financing is also subject to inconsistency. The IASB appears to be intent on “owning” the term ‘operating profit’ rather than leaving it to the discretion of management to decide what it should and should not include. Nonetheless, the IASB is also considering permitting or requiring a ‘management performance measure’ to be presented in the accounts together with a reconciliation to an IFRS line item. This would facilitate the familiar practice of providing adjusted profit numbers to exclude once-off, unusual or exceptional items. This approach would also be consistent with the requirements of IFRS 8 Segment Reporting that segmental results should be presented as seen “through the eyes of management”. The IASB is also conscious of the growth of automated investing and the related digital consumption of financial information. Accordingly, it considers it desirable that the sub-totals and line items in the income statement should be defined and regulated, or at least rigorously reconciled to line items that are defined by IFRS standards. Conclusion Given the level of research and debate the IASB has already devoted to these two topics, it seems very unlikely that the status quo will remain unchanged. I think IFRS can be expected to become more demanding and rigorous in terms of what is presented on the income statement and how the performance of acquired businesses is disclosed while, hopefully, simplifying some aspects of goodwill impairment testing. However, there seems to be some way to go before the IASB achieves a consensus on what proposals to make. We can also expect companies, investors and analysts to have strong views about the IASB’s eventual proposals, not to mention contributions from regulators and audit firms on whether those proposals provide enhanced investor protection and are auditable. I think widespread feedback from all classes of stakeholders will be important in ensuring that the standards on these two key areas of financial reporting are taken forward appropriately. Terry O'Rourke is Chairperson of the Accounting Committee at Chartered Accountants Ireland.

Company law accounting requirements for Irish small and micro companies. The Companies (Accounting) Act 2017 (CA 2017) in the Republic of Ireland made a range of amendments to the accounting and filing requirements of Companies Act 2014 (CA 2014), including the introduction of new simplified accounting requirements for small and micro companies. The simpler requirements are contained in the small companies regime (SCR) and the micro companies regime (MCR), which derive from the provisions of the 2013 EU Accounting Directive designed to reduce the administrative burdens on small and micro companies across Europe. A company qualifying for the SCR or the MCR can adopt the simpler requirements of those regimes in respect of financial statements and reports for a financial year in relation to which that company qualifies as a small company or micro company. While initially this could lead to quite a number of changes for the financial statements of small and micro companies, as preparers familiarise themselves with the regimes the intended simplification for small and micro companies will become more evident. A number of articles have been written on the topic in previous editions of this magazine. Also, the Institute has recently issued a new Technical Release 04/2018: Companies Act 2014 – Small and micro companies, which is intended as a signpost to assist with the preparation of statutory financial statements of small and micro companies. Rather than repeating the commentary in this helpful reference material, I thought it might be useful to highlight certain aspects of the new requirements through a series of Q&As. This article is written in the context of a private company limited by shares (LTD).  Where other company types are adopting the SCR or the MCR, additional reference to the relevant Parts of CA 2014 will be necessary – see more on this later. How do companies qualify to use the SCR and MCR? In order to apply the SCR or the MCR in the preparation of its financial statements, a company must qualify as a small company or a micro company, as applicable, under CA 2014. The conditions to qualify as a small company are set out in sections 280A (small companies) and 280B (small holding companies) of CA 2014, and those for micro companies are set out in section 280D. Included in these sections are the new size criteria for small and micro companies, set out in Table 1 below. Aside from the size criteria outlined in Table 1, certain companies are dis-applied from the regimes. For example, “ineligible entities” cannot qualify as small, even if they meet the size criteria. The provisions in sections 280A, 280B and 280D, including the application of the new size criteria, and the definition of “ineligible entities”, have been discussed in some detail in the articles and Technical Release mentioned above.  It may be helpful for readers, by way of example, to consider how some of these provisions may apply in practice: Scenario 1 A company that meets the micro size thresholds but is part of a group and included in the consolidated financial statements of that group cannot qualify for the MCR. This is because section 280D(4) of CA 2014 provides that a subsidiary that is included in the consolidated financial statements of a higher holding undertaking cannot qualify as a micro company. Scenario 2 A holding company that meets the micro size thresholds but produces group financial statements cannot qualify for the MCR. Again, section 280D(4) says that a holding company that prepares group financial statements cannot be a micro company. Scenario 3 A subsidiary that meets the small size thresholds itself but is part of a larger group that does not meet the small thresholds can qualify for the SCR in preparing its individual financial statements, but not the audit exemption. In order for a small company to be able to avail of audit exemption, the largest group to which the company belongs must qualify as a small group – see more on this below. Scenario 4 A holding company that meets the small size thresholds but is the holding company of a group containing an ineligible entity cannot qualify for the SCR, as to qualify as a small holding company, no member of the group can be an ineligible entity. Can all company types qualify for the SCR or the MCR?  Under CA 2014, the following types of company can qualify for the SCR or the MCR if they meet the conditions for doing so: Company limited by shares (LTD); Company limited by guarantee (CLG); Designated activity company (DAC); Unlimited company (ULC). CLGs, DACs and ULCs need to refer to Parts 18, 16 and 19 of CA 2014 respectively, in addition to the general accounting requirements in Part 6 and the Schedules. Public limited companies (PLCs), public unlimited companies (PUCs) and public unlimited companies that have no share capital (PULCs) cannot qualify as small companies or micro companies.   What accounting standards do companies use when applying the SCR and the MCR? Under both regimes companies are required to apply accounting standards in the preparation of financial statements. For companies applying the SCR, typically this will mean the application of Section 1A of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. A micro company that chooses to prepare its financial statements in accordance with the micro companies regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime, by virtue of an explicit requirement in the standard.  Section 1A of FRS 102 and FRS 105 have been amended to reflect the Irish company law disclosure requirements – see more on this below.  The recognition and measurement requirements of FRS 102 apply to small entities applying section 1A. For FRS 105, separate recognition and measurement requirements are included in the standard. Do the SCR and MCR mean fewer disclosures are required in the statutory financial statements of companies applying the regimes? The information required to be provided in the notes to the statutory financial statements of companies adopting the SCR or MCR is driven by sections of the main body of CA 2014 (primarily in Part 6), as well as the requirements in the relevant Schedule to CA 2014 (Schedule 3A (small companies), Schedule 4A (small groups) or Schedule 3B (micro companies)), and the applicable accounting standard. One of the main advantages for companies adopting the SCR or the MCR is a general reduction in the number of notes that are required to be provided in the financial statements. CA 2017 introduced exemptions for small and micro companies from providing certain ‘Part 6’ disclosures. It also introduced the Schedules 3A, 4A, and 3B to CA 2014, which contain less financial statement note requirements than were previously required of these companies (or that are now required of larger companies), by Schedules 3 and 4.  However, it is important to remember too that CA 2017 also introduced a number of changes to the disclosure requirements that previously existed under CA 2014, including some new note disclosure requirements. For example, the requirements of section 321 regarding the disclosure of accounting policies were extended to include the reason for an accounting policy change and, to the extent practicable, the impact of the change on the financial statements for the current and preceding financial years.  Also worth mentioning is a new requirement to disclose details regarding the company such as the name and legal form of the company;  its place of registration and registered number; the address of its registered office; and additional information where the company is being wound up. These disclosures are required of companies applying the SCR and MCR, and indeed are also required of other companies not applying the regimes. It is worth reminding readers too at this stage that CA 2017 also introduced a new requirement in the Schedules, that the notes be presented in the order in which, where relevant, the items to which they relate are presented in the balance sheet and in the profit and loss account. Where can I find details of the disclosures required under the SCR and MCR? As mentioned above, the information required to be provided in the notes to the financial statements is driven by sections of the main body of CA 2014 (primarily in Part 6) as well as the requirements of the relevant Schedule to CA 2014, and applicable accounting standards. The Financial Reporting Council’s December 2017 amendments to FRS 102 incorporated the new SCR in the Republic of Ireland, including changes to Section 1A of FRS 102 and the inclusion of a new Appendix D to Section 1A specifically for small entities in the Republic of Ireland. These amendments include the legal disclosure requirements for small companies adopting the SCR in the Republic of Ireland based on the requirements of CA 2014, including Schedule 3A, and the relevant sections in Part 6.  Amendments were also made to FRS 105 to incorporate the new MCR in the Republic of Ireland, including a new Appendix B to Section 6 of FRS 105 specifically for micro entities in the Republic of Ireland. Again, these amendments include the legal disclosure requirements for micro companies adopting the MCR in the Republic of Ireland based on the requirements of CA 2014, including Schedule 3B, and the relevant sections in Part 6. The inclusion of the Irish legal disclosures of the SCR and MCR into FRS 102 and FRS 105 respectively is sure to be good news for preparers of financial statements under the regimes, creating, so to speak, an effective ‘one stop shop’ of accounting standard and company law requirements for the financial statements of companies applying the regimes. If I provide the minimum disclosures required under the SCR or MCR in the financial statements, do the financial statements give a true and fair view? Under section 289 of CA 2014, the directors of a company shall not approve financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position, as at the end of the financial year, and of the profit or loss for the financial year.  Small companies While the SCR has a limited set of mandated disclosures, there remains an overarching requirement of CA 2014 for directors of small companies to prepare financial statements that give a true and fair view and as such directors may need to consider providing disclosures in the financial statements above and beyond those specified by CA 2014 where necessary. Section 1A of FRS 102 too has a similar requirement to consider note disclosures in other parts of FRS 102 that may be necessary in order to comply with the requirement for the financial statements to give a true and fair view. Micro companies For micro companies adopting the MCR on the other hand, financial statements prepared in accordance with the MCR are presumed in law to give a true and fair view. If a company qualifies to apply the SCR in the preparation of its financial statements, does it automatically qualify for audit exemption too? In short, the answer is no. Whether the audit exemption can be availed of will depend on a number of factors and the assessment will vary depending on whether the company is a stand-alone company or part of a group. Non-group company A company that is not a member of a group may avail of the audit exemption provided that it qualifies as a small company and meets the other requirements of CA 2014. Group company The definition of a group is wider for the purposes of the audit exemption than it is for the purposes of assessing whether a group is small for preparing its financial statements under the SCR. In order for a holding company to qualify for the SCR for the purpose of preparing its financial statements, it must head up a group which also meets the small criteria (‘sub group’). So there is a ‘look down’ approach taken for the analysis. However, in order for a small company that is part of a group to be able to avail of audit exemption, a ‘look up’ approach must be taken to assess whether the largest group (‘main group’) to which the company belongs qualifies as small. If the main group qualifies as small, then a small company within the sub group may avail of audit exemption as long as the other criteria, such as the timely filing of annual returns (group-wide), are met. If the main group does not qualify as small, then audit exemption is not available to any of the companies in that sub group. In addition, the presence of a securitisation company (e.g. a ‘Section 110 company’) in the main group precludes all members of the group from availing of the audit exemption. Does a small company which is not applying the SCR in the preparation of its financial statements, need to present a statement of cash flows? The requirement to present a statement of cash flows comes from Section 7 of FRS 102, and paragraph 7.1B in Section 7 says that a ‘small entity’ is not required to comply with Section 7. So irrespective of whether a small company is applying Section 1A of FRS 102 or ‘full’ FRS 102 in the preparation of its financial statements, it does not need to present a statement of cash flows. The small company does of course need to meet the definition of a small entity under FRS 102. Is there a requirement to disclose directors’ remuneration in small and micro company financial statements? Company law disclosures regarding directors’ remuneration are required in the financial statements of a company adopting the SCR, including the new disclosures introduced by CA 2017 in respect of payments to third parties for services of directors. Companies preparing their financial statements under the MCR are exempt from these requirements to disclose directors’ remuneration. Do the changes introduced by CA 2017 require more information to be included in financial statements that are abridged for filing purposes? Depending on the circumstances, this may be the outcome. Whilst overall disclosures for SCR and MCR companies have been reduced, all notes to the statutory financial statements are now required to be included in the abridged financial statements. Prior to CA 2017, a small company was only required to extract certain notes to its financial statements for inclusion in its abridged financial statements. Section 353 of CA 2014 provides that a company’s abridged financial statements are extracted from its statutory financial statements and comprise the balance sheet and all notes to the financial statements. This requirement includes notes that relate to profit and loss account items, despite the exemption from filing the profit and loss account. It also includes notes to the statutory financial statements required when information is aggregated on the face of the profit and loss account and therefore analysed in a note (as permitted under the SCR).  In the statutory financial statements, the law allows for the appropriation of profit to be disclosed at the foot of the profit and loss account, on the face of the balance sheet, or in the notes. Where a company has opted in its statutory financial statements to include the appropriation of profit at the foot of its profit and loss account, it must provide this information in a note to its abridged financial statements. A couple of other relevant observations in respect of filing include: It is no longer a requirement when filing an annual return with abridged financial statements, to annex a separate statement with the information in relation to directors’ interests in shares and debentures. Small and micro companies are exempt from filing a directors’ report. (Note that micro companies are exempted from preparing a directors’ report at all, subject to the required information in respect of the acquisition or disposal of own shares by the company being provided elsewhere in the financial statements). Conclusion Change will always bring challenges but the good news here is that the simpler requirements of the SCR and the MCR are designed to reduce the administrative burdens on small and micro companies. As always, an article like this can never be a substitute for reference to relevant law and accounting standards. But help is at hand. Again I would refer you to the articles mentioned earlier and also, in particular, to Technical Release 04/2018: Companies Act 2014 – Small and micro companies. The Technical Release is available in the Knowledge Centre section of the Institute’s website. If you still have a concern, the Institute’s technical enquiry service is available to Institute members and can be contacted at technical@charteredaccountants.ie. Good luck! Barbara McCormack is a Manager in the Representation and Technical Policy department at Chartered Accountants Ireland.

Let’s take a deep-dive under the iceberg in search of unhelpful ‘mental models’ in the workplace... We noticed that people’s inability to collaborate wasn’t just about their misunderstanding of the strategy, it was because they didn’t understand their own unconscious motivation.” This is a quote by leadership coach and Zen Buddhist chaplain, Claire Genkai Breeze, in a recent interview for Coaching at Work magazine. It echoes some of our own observations when working with leaders and their teams across a variety of professional environments. Unconscious motivation – it’s a biggie. In the same article, she continues: “Part of our job as coaches is to help people spot what is habitual and what the consequences are, nested against the business strategy”. Again, this is something we would identify as constituting a big part of our own work.  Helping people spot patterns both in their own behaviour and within their working system in general creates a significant part of a coach’s value to an organisation. Identifying patterns is a key element in the work of uncovering both individual and organisational unconscious motivation. We uncover the stuff that derails meaningful collaboration and, in so doing, help create a space in which creative and sustainable new ways of working together can emerge. One of our team recently worked with a director on the ‘partner’ track in a London firm. She turned up 55 minutes late for a two-hour coaching session. In the world of systemic coaching, we call that ‘an event’. An occurrence that gives some insight into the current reality of an individual’s working world. Or, possibly – as the ‘systemic iceberg’ graphic seeks to demonstrate – an insight into that individual’s wider systemic organisational culture. On probing into the event in some depth, our coach began to uncover some interesting stuff (another important technical term!) both about our client and the organisation in which she worked; stuff that had very real consequences when ‘nested against’ the firm’s business strategy. Systemic coaching is all about leveraging our observations into ‘maps’ that will help our clients create a vision, strategies and tactics with which to reach their desired future; and also, to understand the level to which current organisational structures are producing dominant patterns of behaviour. One of the most helpful of these ‘systemic maps’ is the ‘iceberg’ that we’ve illustrated. It looks for patterns of behaviour occurring across an organisation – either in the moment, or across the organisation’s history – and interrogates the most dominant of these patterns in a way that uncovers both the systemic structures that produces them as well as the prevailing assumptions, beliefs and values that sustain those structures. Systems coaches call these assumptions, beliefs and values ‘mental models’, and the challenging and subsequent reshaping of organisational mental models has become big business in the leadership development world these last few years. So how was all this relevant to our late arriving director? What unhelpful organisational mental models lurking under the firm’s waterline surfaced during the truncated coaching session that ensued? And how did the coach go about helping his client to uncover them as they carried out the conversation? First, he listened closely to her story; seeking to understand her world rather than criticise her behaviour. “I’m so, so sorry,” she began, “I was getting ready to come over to the session when the relevant partner called a project team meeting to go over some issues around the billing situation, and I couldn’t get away.” “Do these ad hoc meetings occur often?” the coach asked. “Does the partner expect everyone to immediately change their business plans on a whim to discuss the current state of the work in progress?” See, he was looking for patterns; we’re subtle like that. Having established that a partner calling unscheduled meetings about billing wasn’t a hugely regular occurrence in itself, the coach might have been forgiven for moving the focus of the session onto more personal terrain – time management, expectation setting, communication skills, or any other of her shortcomings that had come to light through the whole ‘55 minute-gate’ heel-kicking experience she just put him through. But his instinct was to dig deeper – another important facet of the coaching conversation – and to follow his curiosity into different aspects of the director’s working experience. “Was there any way you might have been able to ask one of your senior managers to represent you at the meeting?” he asked. “I mean, had this been a client meeting, would you have been able to make me wait for 55 minutes while you discussed a billing issue? Do you ever do that?” And in asking this question, the coach exposed a pattern of behaviour in this aspiring partner. “No, had you been a client, that would have been a suitable reason to hold the work in progress meeting at another time, but unfortunately you aren’t – so there wasn’t much I could do. And as for delegating to a senior manager, I don’t have anyone I can delegate that level of work to. I need these meetings to go well. Actually, I’ve had to cancel quite a few non-client meetings last minute because of update meetings about certain projects.” And there we have the pattern. “But don’t you guys have protocols around who can represent whom when there is a conflict of interest like this?” asked the coach. By interrogating the structures, he was hinting at the possibility of designing an alternative structure that might allow for a more effective approach to getting things done. He was digging to uncover some assumptions, beliefs or values that might be prevalent in the organisation – prevalent and creating an environment in which it seems reasonable to keep a paid external coach waiting for 55 minutes out of a relatively expensive two-hour session. Without dragging this out too much, we can tell you that in the short ensuing conversation, the coach layered more probing follow-ups onto the ‘protocols question’ noted above. The client was able to identify several of these unhelpful mental models that were present in her organisational system. She identified them; understood why they were stumbling blocks to the firm’s espoused vision for the future; considered how they needed to be challenged and changed – at least in her own head and in her own sphere of leadership within the firm if she was going to make a meaningful impact in her journey towards becoming a partner. By elevating the conversation from events to systems structure and beyond, experienced executive and team coaches can help leaders make clearer sense of their own experiences and use those experiences to formulate more effective solutions to the problems at hand. Mastering systems thinking can dramatically help leaders move their organisations away from what is known as ‘the trajectory of what is’ (that place of believing that an organisational future is always predicated on what has gone before) and onto ‘the trajectory of what could be’ (a space in which teams and organisations can create their own future, unrestricted by fears, habits and out-dated practices from the past or present). And then, with their own unconscious motivations exposed, challenged, reflected upon and perhaps rewritten, colleagues can begin to meaningfully collaborate on creating something magnificent and special within their organisations. SÎan Lumsden and Ian Mitchell are co-founders of Eighty20 Focus, a real-time executive coaching organisation.

The days of traditional accountancy careers are over. Companies are looking to Chartered Accountants to combine their qualification with skills outside of the typical accountant’s remit to accommodate the evolving workplace. Traditionally, accountants and other professionals had a job for life. In recent years, this has started to change. Chartered Accountants, in particular, have an increasing range of options open to them. This has been accelerated in recent times with the fast pace of change in the workplace, much of which has been driven by technology. Embracing career-broadening opportunities in a constantly changing workplace is essential to ensure career success. The emergence of the hybrid career As the global and Irish economies evolve, so too has the job market for many professionals. What has emerged is a new generation of job and career options. These are commonly referred to as ‘hybrid’ careers. A hybrid career is one that essentially combines two or more roles; areas of specialism or sets of competencies that complement each other and have the potential to add real value in the context of what is happening in a fast-paced, knowledge-intensive market. The focus is on the synergies between the different disciplines and how those different skillsets have a real impact in an organisation. For Chartered Accountants, it serves to make their roles more interesting and, indeed, challenging. Job specifications are expanding to include skills and competencies that, up to now, would have been standalone roles in their own right. What a hybrid career looks like Hybrid roles combine traditional soft skills with high-level professional and technical expertise. There are examples of hybrid roles arising in the area of IT audit, business transformation, cybercrime as well as within the financial services sector. Accountants can combine law and accountancy in the area of compliance. Engineering, project management and accountancy are proving to be a combination sought after by employers, not just in the IT sector, but in the manufacturing and pharma sectors as well. The Project Management course offered as part of our CPD Programme is currently our bestselling course, demonstrating that these skills are now very much in demand in the workplace.  A world of opportunity The options are endless if you are willing to be imaginative, creative and can demonstrate to an employer how your core skills and competencies as a Chartered Accountant can blend with other talents, skills or interests that you may have. It provides you with the opportunity to follow your passion and enables you to potentially transform how an organisation operates. For example, I recently met with a member who has gained a wide range of experience in the areas of audit and assurance, IT implementation and project management. This member had recently made a strategic career move into a rapidly growing accountancy IT solutions provider. This exciting new opportunity will allow them to use their qualification as well as their project management experience in an area where they have a genuine interest and where, due to the unique combination of their skills and experience, they have the potential to enjoy job satisfaction and excellent career development potential. They will also be developing an entirely new range of skills in the areas of client relationship management and business development, thereby increasing their marketability for the future. Another real example of the growth of hybrid career paths has arisen in the area of big data where IT and finance skills combine to create highly analytical finance roles that require competencies in both accounting and IT. This has resulted in organisations being able to access data that was previously not available to them and, consequently, the ability to interpret and analyse that data. A Chartered Accountant can add to this development by transforming the data and analysis into insights and quality strategic decisions. There is also strong demand for IT auditors. The combination of strong auditing skills and expansive technology acumen is highly sought after in the Irish market. If you are in a smaller SME organisation, why not indicate to the Managing Director that you want to become more operationally involved in the business? This could be as simple as starting and owning an employee eco-business project or a customer satisfaction programme. It’s all about wearing another hat. Don’t fall behind To keep pace with the changes that are taking place, it is imperative to develop new areas of expertise, bolt on new specialisms and develop your soft skills as your career progresses. Companies like to see a strong desire to learn and an enthusiasm to embrace change along with a natural intellectual curiosity that drives you to keep up with developments.  One way to develop the skills required for new hybrid job opportunities is through projects or consultancy roles. Exposure to key projects and initiatives can help hone, develop and broaden your skillset. For example, many projects such as implementations, process re-engineering and outsourcing will require you to use and develop not only your finance and IT skills, but your soft skills – such as communication and influencing capabilities – as well. Enrol on training courses that dovetail with projects you are interested in getting involved with. Explore and discuss how to hybridise your skillset with your mentor and learn how they diversified their skills and competencies to advance their career.  Overview There is no doubt that we are at the beginning of major changes that will see the role of a Chartered Accountant evolve and change. This obviously presents great opportunities and it is essential to ensure that you have the skills and competencies to position yourself to make the most of the career potential that emerges. You must focus on continuous learning and development, embracing change with enthusiasm and the willingness to take on a new challenge. Ultimately, Chartered Accountants are well placed to lead the way and leverage their skillsets to benefit not only their own careers, but their workplace and organisations.   Karin Lanigan is the Manager of the Career Development and Recruitment Service at Chartered Accountants Ireland.  Dave Riordan is a Recruitment Specialist and Career Coach at Chartered Accountants Ireland.