As relations with the West continue to cool, China is facing economic challenges reminiscent of the Irish economy in 2008, writes Cormac Lucey Tensions are growing between the China and the US as the latter leads the West in a sharp reversal of a policy of openness and commercial integration, which continued despite concerns about military espionage and intellectual property theft.  Now, the US is reducing its interactions with China, and a wave of reshoring/friendshoring is underway in the West. Under current President Xi Jinping, China has been picking territorial fights with its neighbours and Xi has reportedly asked his military to complete preparations by 2027 to seize Taiwan by force.  Meanwhile, senior Chinese political and business leaders are disappearing suddenly with alarming frequency and non-Han ethnic minority groups, such as the Uyghurs and Tibetans, have been subject to terrible oppression.  The Chinese economy is not faring much better. When I look at China’s economic position, I think we may now be witnessing ‘peak China’.  First, the country’s enormous property/debt bubbles are beginning to deflate. Coming into 2024, China is in a similar position to Ireland circa 2008. Its economic underpinnings are dangerously fragile, the first tremors of deflation are being felt and the authorities are insisting that everything is okay.  Over the past 15 years, China’s total debt levels (public plus private) have doubled relative to economic output (GDP).  According to Numbeo, a website that analyses the cost of living across different countries, rent yields in Beijing range from 1.45 percent (city centre) to 1.69 percent (suburbs). These yields are way below the lowest levels witnessed in Ireland at the peak of our property bubble.  They are lower than Chinese interest rates, meaning that buy-to-let landlords using debt to fund their purchases will face interest charges that exceed their rental income (negative carry).  Thanks to its now defunct ‘one child per family’ policy, which ran from 1979 to 2015, China faces a demographic implosion over the coming decades. The UN forecasts that its population will decline from 1.4 billion this year to 1.3 billion by 2050 – and below 800 million by 2100.  Today, China faces the same demographic and debt-deflation challenges that confronted Japan three decades ago.  For all the messiness and dysfunction of the West, democracy does force a society’s problems onto the political agenda rather than allow them to be suppressed, and it facilitates innovation over stagnation.    Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland

The Institute, under the auspices of the CCAB-I, made representations on behalf of members at last week’s meeting of the TALC Collection subcommittee. Among the issues discussed, Revenue provided updates on the implementation of the Enhanced Reporting Requirements for employers, the Debt Warehousing Scheme and the vacant homes tax. Revenue also reminded the group of the costs to which the VAT flat rate farmer scheme applies. Revenue is aware of an issue in the Statement of Net Liabilities process and will be contacting the affected taxpayers.  Enhanced Reporting Requirements for Employers (EER)   Despite the CCAB-I's concerns over the introduction of ERR, Revenue has advised us that the requirements will enter force from 1 January 2024. In the meantime, Revenue intends to go live with the reporting portal in the second week in December. In the meantime, Revenue will continue to hold information webinars up to 14 December 2023 on the new  requirements for employers for agents and employers.   Revenue issued e-Brief 254/23 this morning referencing an update to Revenue’s guidance on the small gift exemption, which include examples of how ERR will apply.   A recent snap poll of our members last week has indicated that 60 percent of organisations are not ready for the Enhanced Reporting Requirements. As the 1 January 2024 deadline approaches, we continue to meet with Revenue to discuss implementation and guidance. We will continue to keep members updated via Chartered Accountants Tax News.   Debt Warehousing Scheme   Revenue reported that the total debt warehoused in the scheme was €1.8 billion consisting of over 57,000 businesses, 67 percent of which owe less than €5,000 each. Over 5,500 businesses owe a combined €1.5 billion, each owing in excess of €50,000. Revenue is continuing its telephone outreach campaign contacting businesses owing in excess of €50,000.   The Debt Warehousing Scheme is currently in Period 3, running from 1 January 2023 to 1 May 2024, with interest accruing at 3 percent per annum on the unpaid debt. The 3 percent interest charge will be incorporated into the phased payment arrangement (PPA) for its duration. Where there is no PPA, the interest will be charged retrospectively.   Taxpayers have until 1 May 2024 to agree a PPA with Revenue and are reminded that they can make interim payments during this period, and also request for the offset of any refunds owing against the balance of tax warehoused.   To assist taxpayers and their agents in quantifying the PPA instalments and interest payments, Revenue is providing a PPA calculator on its website. Revenue is encouraging taxpayers to engage now in the PPA process as there is flexibility in terms of payment terms, amounts and downpayments. In addition, payment breaks can be arranged once the PPA has been commenced. A nominal downpayment amount of 0.1 percent of tax and interest can be input using the online application system to commence the process of engagement and negotiation with the caseworker.   Revenue has prepared a number of ‘How to” videos in relation to the PPA process which are now available on the Revenue website (link to videos).   Vacant Homes Tax  Revenue provided current statistics on the Vacant Homes Tax (VHT) that was due to be reported on by 7 November 2023. Of the 50,000 properties reported to Revenue, only 5,000 properties were declared vacant. Revenue wishes to remind property owners that there is only an obligation to file a VHT return where the property is vacant.  Of the 5,000 declared to be vacant, 2,000 properties have been claimed to be exempt VHT. The VHT liability on the remaining 3,000 properties is due for payment by 1 January 2024.  Earlier in the year, Revenue wrote to owners of some 25,000 properties to advise them of the actions they needed to take, where the data available to Revenue indicated that the recipient may have a liability to Vacant Homes Tax (VHT). Revenue received responses from 45 percent of this cohort. Revenue intends to review the non-responders after the due date for payment of VHT, 1 January 2024.  Statement of Net Liabilities  Revenue is aware of some 1,000 instances in the Statement of Net Liabilities process where an offset of 2022 Income Tax refund against 2023 Preliminary Tax was selected but the refund issued, resulting in an underpayment of 2023 preliminary tax. Revenue will be contacting the affected taxpayers.  VAT Flat Rate Farmers Scheme  Farmers who are not registered for VAT are not, in the normal course, entitled to credit for, or repayment of, VAT incurred by them on their business inputs. However, a flat-rate farmer, who would not otherwise be entitled to reclaim VAT on costs incurred for the purpose of their farming business, can reclaim VAT on certain costs in accordance with Value-Added Tax (Refund of Tax) (Flat-rate farmers) Order 2012. Revenue wishes to remind farmers, and their agents, that VAT reclaimable is that VAT paid in relation to costs incurred only on:  (a) the construction, extension, alteration or reconstruction of that part of the building or structure which was designed solely for the purposes of a farming business and has actually been put to use in such a business carried on by him or her,  (b) the fencing, drainage or reclamation of any land which has actually been put to use in such a business carried on by him or her, or  (c) the construction, erection or installation of qualifying equipment for the purpose of micro-generation of electricity for use solely or mainly in his or her farming business.  It is to be noted that outlay for other purposes, such as on the acquisition of milk bulk tanks, feed bins, milking parlour equipment, automatic scrappers and automatic calf feeders do not come within the scope of this refund order. 

A recent survey conducted by Chartered Accountants Ireland has shed light on the significant challenges facing parents seeking childcare in Northern Ireland. The survey, which gathered responses from Chartered Accountants across Northern Ireland, highlights the crucial issues of cost barriers and their impact on career progression, while calling for increased childcare support and parity with initiatives in England. An overwhelming 75% of those surveyed cited cost as the biggest obstacle when securing appropriate childcare in Northern Ireland. For many, the financial burden of childcare is staggering, with two-thirds of respondents currently paying up to £1,000 each month per child. One-third of those surveyed are grappling with even higher costs, paying between £1,000 and £2,000 per month, per child. The survey also unveils the extent to which childcare responsibilities l impacts on career progression. A striking 93% of respondents acknowledged that their careers or working patterns had been affected. The survey found that 22% of respondents had been forced to reduce their working hours, while 29% had requested flexible hours to manage their childcare needs. An additional one-third are contemplating making adjustments to their working hours, underlining the magnitude of this challenge. In a call for improved childcare support, a significant majority of those surveyed expressed their desire to see parity with the enhanced childcare provisions announced in England, such as the commitment to providing 30 hours of free childcare for all children under five by 2025. Parents in Northern Ireland are looking for similar support to alleviate the financial burden and enhance their career opportunities. Commenting on the survey results, Zara Duffy, Head of Northern Ireland, Chartered Accountants Ireland said, "The findings of this survey make it clear that Northern Ireland must address the critical issue of childcare costs and its impact on parents' careers as a matter of priority. “We would like to see the Government taking urgent action to support parents. This includes exploring the possibility of providing more affordable childcare options and considering initiatives that aligns Northern Ireland with the childcare provisions being offered in England." “These survey results serve as a stark reminder of the challenges faced by parents in Northern Ireland and the urgent need for accessible, affordable, and high-quality childcare services. Chartered Accountants Ireland is committed to advocating for changes that will ease this burden and help parents balance their work and family responsibilities.”

97% of parents surveyed by Chartered Accountants Ireland report that their career or working pattern has been impacted by childcare responsibilities. The findings show that 16% reduced their working hours, one quarter (27%) requested to work flexible hours, and one in five (19%) are currently considering adjusting their working hours. The survey, which gathered responses from chartered accountants in the Republic of Ireland has shed light on the significant challenges facing parents seeking childcare in Ireland. It highlights the crucial issues of cost barriers and their impact on career progression, while calling for increased childcare support. Chartered Accountants Ireland represents over 32,000 professional accountants, two thirds of whom work in business. When asked what they saw as the main barriers to securing appropriate childcare in Ireland, members highlighted both cost and capacity as being the biggest issues facing working parents. The financial burden is clear, with one third of members paying up to €1,000 a month per child on childcare, and one third paying between €1,000 and €2,000 per month. Commenting Cróna Clohisey, Tax & Public Policy Lead, Chartered Accountants Ireland said “The significant cost burden is one element of the problem, but even accessing places in childcare facilities in the first instance is a big barrier. As most of us know, this process begins long before a child is even born. Members are clear that both cost and the lack of available spaces need to be addressed by Government in order to better support working parents.”  This month’s Budget announcement provided for an increase in the national childcare subsidy (NCS) from €1.40 to €2.14 as well as extending the NCS to certain childminders, but the Institute argues that while this will help with the cost of childcare, it will not address capacity constraints within the market. Clohisey continued “A longer-term strategy for tackling ongoing capacity issues in the sector is critical – quite simply more places need to be made available but that can only happen with appropriate funding so that staff are adequately paid and therefore attracted and retained. We have an economy at full employment, and our members are overwhelmingly reporting childcare as a barrier to their full participation in the market. “While a government commitment was made to address supply issues through core funding, this funding must go beyond just keeping the sector from collapse. We are asking government to recognise that childcare provision is part of the critical infrastructure necessary for a functioning economy. The crisis needs to be addressed with a long-term strategy with children at the forefront, that adequately funds the sector, increases capacity, and supports working parents.”  

Technical knowledge and professional competency are key elements to achieving a favourable outcome in any tax dispute. Conor Kennedy outlines his advice on the dos and don’ts of preparing for a hearing Recent decisions by the Tax Appeals Commission (TAC) confirm that the main reason for tax disputes to proceed to hearing can be traced back to a breakdown in communication or a failure to provide the necessary facts, documents or explanations to the Revenue Commissioners.  Excluding the tax repayment type of appeal, whereby a claim must be made within four years, the majority of cases that end up before the TAC deal with issues of evidence.  In 80 percent of the cases resolved in 2022, there was either a failure to provide evidence or the wrong kind of evidence was provided. This resulted in the inability of the Appeal Commissioner to overturn the Revenue assessment leading to a finalisation of the taxes due.  In some instances, Revenue may have lacked confidence in the taxpayer or its agent’s technical knowledge or professional competency.  Once at litigation stage, Revenue will invariably engage a barrister. The appointment of a barrister can provide an independent, objective view of the law and factual background, resulting in the possible resolution of the matter before it gets to court.  The professional or legal fees incurred in taking an appeal to the TAC, or indeed the courts, may far exceed the actual amount of tax in dispute. Furthermore, any costs associated with disputes before the TAC are not recoverable from Revenue.  The importance of making a good initial impression and maintaining professionalism and competency throughout the dispute process cannot be overstated.  Here is my advice for practitioners on how to prepare for hearings to increase the likelihood of a favourable outcome for clients. Perception: honesty, integrity and competency Revenue’s perception of the integrity, honesty and competency of a taxpayer should not be an issue if the taxpayer is known to Revenue and has had previously good relations with the agency.  A good relationship with Revenue overcomes many hurdles in seeking to resolve a tax dispute at an early stage. Any previous indiscretions involving under-declaration of taxes undermine credibility, unless they can be explained as human error as opposed to something more sinister. As already noted, if a tax dispute proceeds to litigation, considerable professional fees could be racked up, experts may have to be called, and historic documents may need to be retrieved.  Another issue is the time lost to preparing the case, for both managers and staff, not to mention the stress of giving evidence to the TAC. While a settlement represents an additional cost, it can sometimes be considered as an exercise in damage limitation. Familiarity with the facts Facts are the foundation stone of any case. In focusing the mind on the story to be told, it is prudent for any custodians of fact to draft a written document recording all the relevant factual information and documents supporting the argument.  The benefit of such a document is that it can address all essential facts requiring proof and reduce the risk of failing to disclose relevant evidence. In presenting a case before Revenue, the TAC or a court, the presentation of facts or the telling of the story in a logical and sequential manner can play a significant part in giving a decision-maker confidence in the practitioner’s ability and competency.  Many barristers presenting cases before courts and tribunals prepare the advice on proofs – the roadmap identifying all the facts to be proven, and the way in which they must be proven with reference to the rules of evidence.  This involves establishing the relevant facts and the approach to be taken, either by direct evidence provided by the person concerned or, indeed, documents not in contention or dispute.  Where these documents are disputed, it will be necessary to provide direct evidence supporting their veracity and integrity. Business expenses The issue of determining entitlement to deduct a business expense comes consistently before the courts and tax tribunals.  To prove that an expense was incurred wholly and exclusively for the purpose of a trade, it must be established that the expense was incurred for a genuine business purpose related to the trade and had no other purpose or benefit.  To prove the direct link between the expense and the operation of the trade, supporting invoices, receipts, contracts and any other relevant documentation will be required.  Personal expenses should be clearly identified and separated from business expenses. The taxpayer should give direct evidence to support the purpose of the expenditure, to authenticate and legitimise the documents and to confirm the rationale for incurring the business expense in question. Proof of occupation Proof of occupation of a principal private residence in seeking relief from capital gains tax on the disposal of the property requires documentary evidence of occupation such as correspondence, bills, photographs, and third-party witnesses, such as neighbours, who can independently verify the occupation of the property during the time under dispute.  Non-residency in the State Similarly, in a claim for non-residency in the State, there is a requirement to demonstrate the location of the individual’s foreign residence, proof the accommodation was available for their use, reasons for the non-residency, utility bills, and bank and credit card statements reflecting consistent transactions in the country of residence supported by oral evidence. Specialised areas of law Share and property valuations, transfer pricing disputes and specialised areas of law, such as aviation and foreign law, usually require expert evidence as Appeal Commissioners or judges tend to have limited if any experience in such matters.  As observed by Noonan J. in Duffy v McGee T/A McGee Insulation and GMS Insulations Limited [2022] IECA 254, expert evidence can play a decisive role in determining the outcome of a hearing. The selection of the appropriate expert is therefore crucial as in many cases, this is the difference between winning and losing an appeal. Hearsay documents Care is also needed in the case of hearsay documents. Hearsay is an out-of-court statement that is offered for the truth of what has been asserted. To overcome this difficulty, any third-party documents provided should be verified by the originator of that document.  In other words, a witness should be available to give evidence that they produced or created the document, thereby standing over its authenticity and legitimacy. On many occasions, there will be facts that undermine the client’s position, and it is best to address these facts head on and thereafter attempt to ameliorate their effect. Doing so enhances credibility, honesty and integrity and reduces the potency of unfavourable evidence. Knowledge of the law Taking time to research the legislation and supporting case law governing the transaction, relief or any other impugned Revenue decision is a prerequisite to ensuring that the best account is presented, thereby giving the client a better opportunity to make a Revenue official, Appeal Commissioner or judge comfortable with ruling in their favour.  The more capable the presentation, the greater the confidence that will be instilled in the decision-maker. As with certain factual anomalies, there could be legislation or case law that undermines a taxpayer’s case. In such a situation, the adverse law should be addressed and ideally distinguished for the purposes of reducing its potency. When presenting cases to the TAC or courts, some practitioners use arguments that possess little legal merit and undermine their good arguments. This can cause a Revenue official, Appeal Commissioner or judge to question the practitioner’s professional competency and technical ability. It can also influence the decision-maker to rule against the taxpayer as the safe option is to rely on a submission or argument whose provenance is more reliable. Burden of proof The general principle of “he who asserts must prove” places the burden of proof on the claimant in the dispute.  The burden of proof determines the viability of a claim based on the factual evidence. The failure to satisfy the burden of proof is the consistent mantra of the TAC because it is the reason for the failure of many taxpayers to have assessments to tax overturned or reduced. Evidence is essential in the validation of a legal argument. It establishes the facts of a case and provides information and documentation that support the assertions made by the parties involved. Without evidence, legal arguments would be based solely on speculation and assumption.  The presentation of compelling evidence convinces the TAC and Revenue of the validity of the arguments put forward. It increases the chances of a favourable outcome rather than the disappointing finding that the burden of proof has not been satisfied.   In advance of a hearing, practitioners should prepare well, identify and be able to present all of the evidence. Well-balanced and logical legal arguments will enhance credibility and competency.   Making a good initial impression and maintaining professionalism and competency throughout the dispute process will greatly increase the chances of a favourable outcome. Conor Kennedy is Head of Tax Strategy and Disputes at EY Law Ireland

  In September 2023 the UK Financial Conduct Authority (FCA ) announced a review of the treatment of domestic Politically Exposed Persons (PEPs) by financial services firms. The review will look at firms’ arrangements for dealing with PEPs based in the UK and will report by the end of June 2024. In the previous month of August 2023 it invited UK PEPs to share their experiences, including any problems they or their family members have encountered with the PEPs regime. The FCA has previously (in 2017 ) published guidance for how financial services firms should treat customers who are politically exposed persons when meeting their anti-money laundering obligations.

In Irish news, the Institute has informed the Minister for Finance of members’ concerns with the proposed new enhanced reporting requirements and we give you an update from the recent meeting of the Tax Administration Liaison Committee Collections subcommittee. In UK news, the Autumn Statement will take place on Wednesday 22 November, and the Institute is discussing with HMRC the 31 October 2023 deadline for the end of the VAT margin scheme in respect of certain second-hand cars.  In International news, the OECD publishes the 2023 Secretary General tax report.  Ireland The Institute, under the auspices of the CCAB-I, has written to the Minister for Finance, Michael McGrath T.D., to highlight significant concerns our members have about the proposed introduction of Enhanced Reporting Requirements. Read our update from the September 2023 meeting of TALC Collections subcommittee. UK Last week the Chancellor of the Exchequer announced that the Autumn Statement will take place on Wednesday 22 November. The Institute is discussing with HMRC the 31 October 2023 deadline for the end of the VAT margin scheme in respect of certain second-hand cars. International This year’s Secretary General tax report has been published providing an update on the progress on the OECD’s Two-Pillar Solution. Keep up to date with all the latest Irish, UK, and international tax developments through Chartered Accountants Ireland’s Tax Newsletter. Subscribe to the Tax News by updating your preferences in MyAccount. You can also read this week’s EU exit corner here which features updated guidance and publications and the news that the UK has agreed a deal to associate to Horizon Europe.     

On 1 September 2023, the Institute responded to the Financial Reporting Council (FRC) invitation for comments on their proposed changes to the “UK Corporate Governance Code” (‘Code’)*.  The proposed changes arise from a UK government request of the FRC to strengthen the UK Corporate Governance Code in specific areas following the recommendations arising from UK White Paper on “Restoring Trust in Audit and Corporate Governance” (‘White Paper’) published in 2022. Some of the key changes proposed to the Principles and Provisions applying to boards include: Setting out a revised framework of prudent and effective risk management and internal controls to provide a stronger basis for reporting on, and evidencing their effectiveness. Improving the quality of comply-or-explain reporting, taking account of recently published FRC research and reports, e.g. reducing boilerplate wording and requiring reports to demonstrate the outcomes of governance activities. Revising the responsibilities of the board and audit committee for sustainability and ESG reporting, and associated assurance in accordance with a company's audit and assurance policy. Aligning governance and reporting practices with changes to legal and regulatory requirements as set out in the Government's response to the White Paper, including strengthening reporting on malus and clawback arrangements. The Institute response welcomes FRC proposals that: discourage boilerplate reporting and encourage clear and concise disclosure on the reasons for any departure from the Code’s provisions, and how the Board has otherwise adhered to the overall principles of the Code. encourage consideration of and reporting (in accordance with established sustainability reporting standards) all material sustainability and ESG matters, including climate ambitions and transition planning, in defining business purpose, strategy, and values. increase the emphasis on workforce and broader stakeholder engagement, strengthening diversity and inclusion, and improves the effectiveness of remuneration policies and transparency. respond to some of the Chartered Governance Institute recommendations on board performance reviews and emphasis on improving board effectiveness. engage with emerging risks and opportunities such as artificial intelligence, for which the Institute have provided, in our response, some detailed considerations for inclusion in FRC guidance. Some of the key points highlighted in the Institute’s response focused on: The missed opportunity from limiting the update of the Code to reacting to legislative proposals rather than addressing learnings from corporate governance in recent years, including the principles and values (including ethics and healthy culture) that were lacking in respect of high-profile corporate failures. Highlighting the increasing role and responsibilities of Audit Committees, and the risks arising by mandating them as default for additional requirements versus ensuring the ability of the Board, who are ultimately responsible, to delegate roles and responsibilities as it sees fit in accordance with fiduciary duties. The lack of guidance and definitions for key terms used in the principles and provisions which, if provided, would provide for better understanding, and promote greater consistency, in many areas of the Code, including directors declarations on risk management and internal controls, audit and assurance policies, and narrative reporting. The importance of maintaining the principle-based approach to corporate governance that the Code has championed for over thirty years and to avoid deferring to requirements which are prescriptive, a matter of law and are not suited to a comply or explain model. The risk that established and effective practices for stakeholder engagement, reporting on future prospects and delegating oversight of sustainability matters may be lost based on the way some of the proposals are set out. The Chartered Accountants Ireland response to the FRC addressed all 26 questions and is available here. The FRC proposals are available on their website here. Níall Fitzgerald, Head of Ethics and Governance, Chartered Accountants Ireland   * The Code applies to premium listed companies on the London Stock Exchange and companies with a primary listing on the Irish Stock Exchange (and the Irish Corporate Governance Annex). Other organisations can voluntarily adopt the Code, for example, Chartered Accountants Ireland applies principles of the Code where they are relevant and commensurate to the Institute as a membership body.  

The International Auditing and Assurance Standards Board (IAASB) has issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. This proposed standard will now undergo a consultation period running until 1 December 2023 and stakeholders are encouraged to respond and share their feedback to the proposed standard. ISSA 5000 is a principles-based, overarching standard suitable for both limited and reasonable assurance engagements on sustainability information reported across any sustainability topic. It is intended to work with various sustainability reporting frameworks (including the European Sustainability Reporting Standards and the IFRS Sustainability Disclosure Standards). The standard is drafted as a profession agnostic standard and should be suitable for use by accountant and non-accountant assurance practitioners. With the sustainability reporting requirements for certain entities set to increase over the coming years, a standalone sustainability standard is seen as a key piece of the framework to help ensure that users of sustainability information can place greater trust in the information they are consuming on an entities Environmental, Social and Governance impacts. In launching the consultation, IAASB Chair Tom Seidenstein commented “Our proposed ISSA 5000 is a crucial step in enhancing confidence and trust in sustainability reporting. This proposal directly responds to the International Organization of Securities Commissions recommendations and complements the work of other standard setters, including the International Ethics Standards Board for Accountants,”. The comment period remains open until 1 December and the IAASB are seeking a broad range of views on the standard to gather the views and insights needed to finalise it.

Julia Rowan answers your management, leadership and team development questions I am an experienced manager who is comfortable with delegating work and trusting my team to get on with it. This allows me to keep a strategic focus. I moved to a new organisation recently and find that my manager and other senior leaders expect me to have detailed knowledge of the work of my direct reports. I do not want to get sucked into operational detail. How do I stay high level while keeping my seniors happy? I always put options on a continuum of ‘do nothing’ (i.e. comply) to ‘the nuclear option’ (i.e. leave), and then identify the options in between.  Before you begin, reflect carefully on what is important for you so that you can shape a clear and positive message. Watch the language – are you ‘getting sucked into the operational detail’ or ‘on top of the data’? My guess is that this is a cultural issue, and if you want to effect change, you need to remain credible. Reflect on what the seniors need: do they need you to have information at your fingertips to save them time? To make important decisions? Are there trust issues around work done by more junior people? Is there something else?  Working this out will help you to meet seniors where they are (not where they ‘should’ be). Ask your manager for their support in meeting expectations while contributing at a higher level (focus on both/and rather than either/or). Bring the same question to your team and get their input and solutions. Reflect on your own expectations – you may need to give a little.  Identify the colleague who navigates this most effectively – ask them how they do it. Build the profile of your team: bring them to meetings. Find a reason to host an event at which your team members share their insights, demonstrate their capabilities and build relationships with your seniors. There may be practical solutions. Could you contact seniors before meetings to check if there are issues they want to discuss? Maybe you could create a shared folder where updated information is posted (either so that you can access it quickly – or colleagues can access it). There are a few options in between. There are many more. Just be open to looking for them. Two colleagues who don’t get on keep trying to drag me into their issues. I feel caught in the middle. In such cases, tapping into our sincerity often gives us the clarity and courage to address tough issues. My guess is that you want to support both without siding with either. Imagine one of your colleagues is sitting in front of you. What would you most like to say? It might be “I am uncomfortable as I feel stuck in the middle” or “That sounds difficult. How can I help you to address this with him?” or “It can be hard to work with someone whose style is so different”.  Try it and see what comes out. Then whittle that down to a sincere and helpful response. Julia Rowan is Principal Consultant at Performance Matters Ltd, a leadership and  team development consultancy. To send a question to Julia, email julia@performancematters.ie.

Audit committees face increasingly complex risks in modern business, according to the latest KPMG survey. Arlene Harris speaks to Niall Savage about the four main risks and how committees can mitigate them KMPG recently published the results of its Global Audit Committee (AC) Institute survey, which collates the views of 768 AC members and chairs, of which 31 were operating in Ireland.  Niall Savage, Partner and Head of Audit Markets at KPMG, says the survey results indicate that, while it may seem at odds with its traditional role, the AC and its members continue to have a “bellwether role for the business as they scan the risk horizon”.  Consequently, ongoing geopolitical issues, cyber threats, the rise of artificial intelligence (AI) and considerations around environmental, social, and governance (ESG) will remain top of the AC agenda in the coming months. “The traditional and essential role of an AC is overseeing the numbers, controls and, as its title suggests, the audit process – both internal and external,” he says. “So its priority is more in the monitoring than the advising. This work is critical for ensuring financial transparency, confidence and compliance but does not encompass the broader aspects of business. “However, given the typical composition of the AC, the external non-executives with wide-ranging experience, the effective AC Chairperson draws upon the insights of their members to identify and advise on risk areas and strategies to address them.  “The findings suggest that the things driving the agenda of the AC are big-picture risks that underpin their organisations’ strategies. And four key themes – geopolitical, cyber, AI and ESG – were identified as foremost in the minds of AC members.” Indeed, these four themes don’t come without challenges, but there are ways in which ACs can navigate them in their role, supporting the board and management. The effects of risk on the market “Volatility by its nature creates uncertainty in the market, making it difficult for businesses and their stakeholders to make strategic operational and investment decisions,” says Savage. “For example, consumer sentiment in uncertain times can fall rapidly, with non-essential purchases frequently deferred, impacting large parts of the consumer market and leisure industries. “Geopolitical volatility can also undermine investor confidence, cutting off access to finance and creating barriers for businesses through restricted access to markets, currency fluctuations and shifts in trade policies. There is also a heightened risk of supply chain disruption.” In the last 12 months, ACs have been faced with:  post-lockdown uncertainty, which is driving cashflow forecasts (and risks) of how to meet consumer demands; geopolitical conflicts, such as the Russian invasion of Ukraine, necessitating a rapid response to secure the safety of people and assess the impact on the business in addition to instability in Latin America and the Middle East; rapid and often unexpected inflation across energy, wheat and other commodities, which created unforeseen risks of business failure if these could not be passed on easily; increased interest rate rises and global financial market fluctuations in response to inflation, which changed base case forecasts for investment decisions, funding, and potentially going concerns; ongoing global trade tensions, including those between the US and China, with increasing tariffs, which had ripple effects on global supply chains; and the fallout from COVID and Brexit, which continued to affect the global economy. Geopolitical risks “It is difficult to predict what the next 12 months have in store, but some key actions for AC members to manage these risks include engaging with management and stakeholders to understand their assessment of geopolitical risks and existing strategies to mitigate those risks, and asking management to provide timely updates on geopolitical developments and the organisation’s risk mitigation efforts,” said Savage.   “Also, understanding the geopolitical risks that can impact the organisation and monitoring global political developments, regional tensions, trade disputes, regulatory changes and other geopolitical factors that may have implications for the organisation. “And, staying informed about current events and diplomatic developments that can impact the organisation’s operations – along with knowing if the organisation is especially exposed to certain regions or risks, should the AC consider recruitment or training to ensure that they have the expertise to address any challenges they face, is also important.” Savage also suggests assessing an organisation’s exposure to geopolitical risks, understanding management’s approach to contingency planning, and understanding the full list of regulatory compliance requirements and whether the organisation has processes in place to identify, monitor and adhere to applicable regulations.  ACs must also consider with management the need for scenario planning to model impact and respond to geopolitical events. Cyber risks Advances in modern technology have also brought about a growing number of cyber threats, and in the past 12 months, many Irish businesses and organisations have reported data leaks and thefts as cybercriminals become more sophisticated and professional in their approach to both getting access to systems through ransomware and social engineering but also monetising this access.  As firms try to protect themselves from this, the list of targets and potential weaknesses continues to grow with the proliferation of the internet of things (IoT), which may not have the same level of security and is, therefore, easier to compromise. “For those engaged in public work, there is an additional political dimension and risk to cybercrime with nation state targeting for political gain, which has seen recent coverage of European Commission staff removing certain apps from their phone restrictions on Telco suppliers due to concerns over security,” says Savage. “But there are some essential actions that ACs can take, which include understanding the cyber risk landscape, the type of threats it faces, potential vulnerabilities and the impact of a cyber incident.  “They can also evaluate the organisation’s cybersecurity governance and strategy while focusing on risk assessment, incident response, training and vendor competence. It is important to be informed – stay on top of cybersecurity initiatives and maintain open lines of communication to address any concerns or gaps identified.” He would also encourage organisations to consider engaging external cybersecurity experts or conducting independent audits/penetration testing to assess the effectiveness of these controls, to ensure the AC is informed of cybersecurity incidents and evaluate the organisation’s response and promote cybersecurity awareness through training and incident reporting and ensure that appropriate cybersecurity risk reporting mechanisms are in place. AI risks The advent of AI has brought a new set of risks to business. “Although long discussed and the subject of many films (Terminator 2 springs to mind), the potential impact of AI really hit home late last year with the launch of ChatGPT, which was quickly followed with spectacular claims of cost savings, entire professions wiped out and of course the danger of ‘the rise of the machines’,” says Savage. “Clearly, there are significant risks and opportunities for businesses and ACs to deal with, many of which are ‘unknown unknowns’ to combat this and assess risk.” In the face of this new business landscape, “ACs should understand the concerns and opportunities for people, customers, suppliers and regulators. They should try to understand how best to get the right level of knowledge, evaluate the existing risk management framework to assess whether additional controls are needed, consider policies around the implementation and use of AI and review critical AI implementation projects.” ESG risks The final issue Savage addresses is ESG, which he says has been an “alphabet soup of regulation” for the past few years – and KPMG research indicates compliance with standards is only one of the ESG risks occupying the minds of AC members.  “There is a broader menu of risks to consider, which impact reputation, performance and financial success,” he says. “Failure to address these can lead to reputational damage and financial implications. So, AC members should consider the potential reputational risks associated with the company’s ESG performance and how they are managed. Climate change risks can impact the value of assets, and non-compliance can result in fines or penalties.”  To address these risks, it is important for ACs to understand and work closely with all stakeholders including management and internal auditors. Areas of focus should: ensure the AC has the necessary expertise to effectively assess ESG risks – this may involve recruiting or training existing committee members; engage with investors, regulatory bodies and industry associations to understand their expectations and perspectives on ESG; develop a list and understanding of ESG risks relevant to the company across climate change, labour, data and inclusion and diversity; review how data is currently captured and analysed and how reporting is verified; look at the existing risk management practices and policies and assess the key controls and how the risks are currently monitored and reported; benchmark these to peer groups and industry standards to ascertain whether they align with recognised frameworks; and seek regular updates on ESG initiatives and consider external assurance on related reporting.  “There are more insights to the survey, and it is interesting to benchmark different priorities across the regions, priorities around finance team talent, the need for in-person time with management and a focusing agenda to maximise effectiveness,” says Savage. “However, by elaborating on and identifying some common-sense actions on the four critical themes – geopolitical, cyber, AI and ESG – we have supported AC members for the next, hopefully, less volatile, 12 months.”  

The NATO summit was not only about Ukraine. It was about the role of the past and how it affects NATO and the EU, writes Judy Dempsey By the time you read this, we’ll have all moved on from the NATO summit that took place in the Lithuanian capital of Vilnius in July towards other persistent topics.  There’s Ireland’s housing crisis; the worry that Donald Trump might beat President Joe Biden in the 2024 election for the White House; and Russia’s continuing war against Ukraine, to name a few. The list is long. But a common threat runs through these issues: the enduring role of the past and how societies in the 21st century have to deal with it. The past is a compass. It offers the way to the future if there is a political willingness to deal with history. The past can also be distorted.  That sense of the past was clear when attending the NATO summit.  The summit’s conclusions fell short – for some, way too short – by failing to offer Ukraine membership of the US-led military alliance once the war was over.  Lithuania and the other two Baltic States, Estonia and Latvia, but also Poland and the Czech Republic, were disappointed. They believed that Biden and German Chancellor Olaf Scholz, who led the opposition against a membership date, did not have the political courage or historical compass to offer Ukraine at least a timetable.  The bottom line is that, for different reasons, this decision was about Russia.  Biden, who is facing re-election and simmering unpopularity with American support for Ukraine, does not want to drag NATO into a direct confrontation with Russia. Germany thinks the same but is not committed to admitting Ukraine to NATO. Yet, this war has given Germany a big chance to lead Europe and create a strong NATO caucus inside the alliance. Germany demurred.  This brings us to Lithuania.  It has been a staunch ally of the Belarussian opposition and an unremitting supporter of Ukraine. For Lithuania, it is about Kyiv defeating Russia. But it is more than that. Lithuania and the other Baltic States see the war in Ukraine through the prism of Russia but in a special way, distinct from Western Europe.  For Lithuania, this is about Russia trying to regain control over the countries of Eastern Europe, which include not only Ukraine but also Belarus, Moldova, Georgia and Armenia.  Lithuania also sees Russia aiming to create a new cordon sanitaire between the EU/NATO countries and Eastern Europe – a kind of updated version of the Cold War divisions of Europe.  In the view of the Central Europeans, Russia’s imperial ambitions must be stopped. Eastern Europe must not be turned into a grey Russian-controlled zone. The prospects for instability would be too high and dangerous. Germany and the United States, for their part, see the war in Ukraine through the prism of Russia as a nuclear power and threat – as if Russia is not already threatening the security of Europe. They do not see it in terms of the past but in terms of realpolitik. For Central Europe, the past is the legacy of the violent Soviet occupation of the region that must not be repeated in Ukraine.  The past for Western Europe is how, with huge American support, today’s EU was built. It was a peace project constructed upon the ruins of World War Two. This peace project is now being challenged by Russia. The war in Ukraine is about two different European narratives. It is time to reconcile them.  Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe