Accountancy Plus The Official Journal of CPA Ireland - Ireland's role in the EU post Brexit
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March Issue 2019
Accountancy Plus
The Official Journal of CPA Ireland
Ireland’s role in
the EU post Brexit
Also in this issue:
How to be a valuable board member
PAYE modernisation
Major pitfalls in charity
governance
I trust
Barden to
help build my
Finance team,
So should you.
Shauna Igoe
Senior Director Group Finance
Sebela Pharmaceuticals
Experts in accounting &
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1
PRESIDENT’S MESSAGE
Editorial President’s Message
Accountancy Plus Welcome to the March 2019 Edition
March 2019 of Accountancy Plus.
CPA Ireland In a recent global research report ‘The SMP of In late 2018, CPA Ireland launched a new brand
the Future in a Changing World’ commissioned identity and thank you to all members and
by the Edinburgh Group it was recommended stakeholders for the very positive feedback we
17 Harcourt Street,
that small to medium sized practitioners and have received. Going forward, to enhance the
Dublin 2, D02 W963
Professional Accountancy Organisations (PAOs) new brand, CPA Ireland will be carrying out a
must work together to adapt to change for an number of initiatives to build on the brand values
T: 01 425 1000 evolving future. Eamonn Siggins, Chair of the of “open, forward thinking, credible and assured”.
F: 01 425 1001 Edinburgh Group and CEO, CPA Ireland, said: ‘In
We were delighted with the success of our online
the face of a volatile and uncertain environment,
further learning courses in 2018.The launch of
Unit 3, our extensive global research provides a series
our learning management system, Canvas, in
The Old Gasworks, of informed recommendations for SMPs and
September 2018 was instrumental in delivering
Kilmorey Street, PAOs alike. There are many opportunities
a much more engaging CPD experience and
Newry, BT34 2DH ahead for both groups, coming at a time when
education support for our members.
collaboration is a must.’ Mr Siggins concluded:
‘The alliance between SMPs and PAOs is a In December 2018, I was delighted to formally
T: +44 (0) 28 3025 2771
powerful one, but it’s also one that needs to be admit the new conferees into membership
W: www.cpaireland.ie
nurtured.’ and I would like to wish them every success in
E: cpa@cpaireland.ie
their future careers and look forward to them
CPA Ireland believes in the importance of
becoming involved with the Institute on many
Editor supporting our SMPs and will continue to support
levels. 2019 has started well!
David FitzGerald them overcome the challenges identified in the
report. In doing so, we are supporting SMEs and In January, we welcomed the President of ICA
Irish indigenous businesses who rely on CPA India, Naveen N.D. Gupta and Central Council
Chief Executive
SMPs as their trusted business advisers. Member, Sanjay Kumar Agarwal as well as H.E Mr.
Eamonn Siggins
Sandeep Kumar, Honourable Ambassador of India
Trust is a the most powerful currency in business
in Ireland to the launch of the newly established
Editorial Adviser and trust is supported by ethical behaviour.
Dublin Chapter of the Institute of Chartered
Róisín McEntee During 2018, CPA Ireland along with Chartered
Accountants India at our Harcourt Street Offices.
Accountants Ireland participated in the research
I wish them all happy and successful lives in
on an Ethics Report which was released by the
Technical Adviser Ireland and offer the support of CPA Ireland as
Chartered Accountants Ireland Educational Trust
Maureen Kelly they continue their learning journey.
(CAIET), an independent body registered under
the Charities Act. There were a number of key We are looking forward to a busy year ahead
Advertising findings and recommendations published in with over 180 CPD events and webinars currently
Ciara Durham the report which is available to download from scheduled. In support of members, we are in the
T: 086 852 3463 our website https://www.cpaireland.ie/Latest- process of launching two new further learning
E: accountancyplus@gmail.com News/News/News-2019/CPA-Welcome-Ethics- courses: Future Proofing your Practice and Future
Research-Report Proofing the Finance Function. Both courses
Published by Although it is encouraging that 87% of
will commence in May 2019 and will run for one
Nine Rivers Media Ltd. day per month over five months. Further details
accountants responding to this research felt their
T: 01 667 5900 on these courses can be found on the further
employers were strongly supportive of ethical
learning page of the CPA Ireland website.
E: gary@ninerivers.ie behaviour, 94% of accountants say they have
encountered some level of unethical behaviour. As this is my last message as President of CPA
Printed by Therefore, providing accountants with the tools Ireland, I would like to thank CPA members,
Persona and guidance for how to react to any unethical students and staff for your ongoing support. I will
behaviour they observe must be a priority of pass over the office of the President to Gearóid
the profession. CPA Ireland will ensure that it O’Driscoll at the AGM and I wish Gearóid a very
Distribution
is providing a diverse range of ethical supports successful and enjoyable term.
Lettershop Services Ltd.
to our members. One of the key supports to
members, as part of the CPA Ireland technical
query service, is that they can call in confidence
to discuss any ethical concerns or dilemmas that
might arise and be provided with advice and best
practice guidelines.
Cormac Mohan
2018 has been a year of some significant
achievements in CPA Ireland. President CPA Ireland
Accountancy Plus March Issue 2019
Contents
Pictured L – R:
Ciarsha Moore, Cormac
Mohan, President of
CPA Ireland, Sunil Appat
Sukumaran, Emma
Flanagan, Liam Lucey,
Geraldine Leahy
Institute Financial Reporting Taxation
President’s Message 01 Financial Reporting News 08 Tax News 34
FRS 102 Financial PAYE Modernisation
Institute News 54 35
Instruments Factsheet 4 09 Sinead Sweeney
Publication Notices 64 Robert Kirk I am drowning in debt -
what can I do? 38
Information &
64
Law & Regulation Mark Ryan
Disclaimer
Law & Regulation News 12
CPA Profile Protecting your Ethics & Governance
organisation 13
Are accountants
Derek McKay
Deirdre Savage 06 ethically aware?
The FRC: “It is time to 42
Dr Eleanor Higgins and
Sunil Appat Sukumaran 07 build a new house” 16 Matt Kavanagh
Michael Kavanagh
Major pitfalls in charity
Criminal Justice Act 2018
20 governance 44
Patrick D’Arcy
International Niamh Ryan
International News 57 Finance & Management
In Practice
Finance & Management
23
News In Practice News 48
CPD
Leadership Insight Moving from Industry to
24
News & Events 59 Catherine Moroney Practice 50
Aideen Murphy
Optimising Finance in the
Public Sector 27
Student Shane Mohan IT
Student News 62 Using technology as an
Personal Development enabler for good works:
52
Moyee Coffee
How to be a valuable Killan Stokes
board member 30
Eileen Cole
Opinion
Ireland’s Role in the
EU Post Brexit 03
Neale Richmond
03
Irelands Role in the EU Post Brexit by Senator Neale Richmond
OPINION
Ireland’s Role in the EU Post Brexit
by Senator Neale Richmond
In this article, Senator Neale Richmond considers Ireland’s role in the EU post Brexit and
whether Ireland needs to reshape relations.
In recent weeks, we have seen the President; it is a position that has also Member States in this area, an edge
European Commission launch a heretofore received strong support that allows smaller Member States
public consultation on the future from larger Member States like France to compete on a more even scale.
of Qualified Majority Voting at and Germany as well as a wealthy However, with the UK set to leave the
European Council level in relation to Member State like Luxembourg, EU, this raises the question of who
taxation policies. What this effectively Juncker’s home. will be Ireland’s key allies within an EU
means, is the Commission is very of 27 rather than 28?
keen to remove what has become Such a move is of course vociferously
known as a veto that every single opposed by Ireland and on previous Within the EU, Ireland and the UK
EU Member State has over taxation occasions when this idea was co-operate and co-operated on a
policy. This is not a surprise and it mooted, the United Kingdom range of key issues, while there are
is indeed consistent with the long- were also strongly opposed to a number of other existing alliances
held opinion of the Commission, an such a move as it could lead to on key policy areas that interest
opinion strengthened by the term of tax harmonisation, removing the Ireland as well as a number that are
Jean Claude Juncker as Commission competitive edge that exists between proactively being developed.
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Accountancy Plus March Issue 2019
The New Hanseatic League, or the
Hansa, was established in February
2018 by EU finance ministers from
Denmark, Estonia, Finland, Ireland,
Latvia, Lithuania, the Netherlands
and Sweden through the signing of
a two-page foundational document
which set out the countries’ “shared
views and values in the discussion
on the architecture of the Economic
and Monetary Union of the European
Union (EMU).” The name is derived
from the Hanseatic League, a
Northern European commercial and
defensive league which lasted until
the 16th century.
The New Hanseatic League
developed from an informal
cooperation among like-minded
fiscally conservative northern
European states that has also been
referred to at various points as
‘The Vikings’, and the ‘Bad Weather
coalition’. The grouping sees clubbing
together as a way to make up for
the loss of the like-minded UK in the
European political arena after Brexit.
The countries involved want a more
developed European single market,
particularly in the services sector (i.e.
a so-called ‘Capital Markets Union’).
They also want to develop the
European Stability Mechanism into
a full European Monetary Fund that
would redistribute wealth from trade
surplus to trade deficit EU member
states.
When it comes more specifically to
taxation, Ireland’s corporation tax rate
of 12.5% is regularly cited as a target
to be addressed through the removal
of the supposed veto over taxation
policy, to allow for a move towards
tax harmonisation within the EU. It is
worth remembering though that the
average corporation tax rate within
the EU is 21%, and 16 Member States
have corporate tax rates below this.
There are also a number of other Poland and Slovakia have been Furthermore, a number of Member
obvious alliances in existence within prominent even though the alliance States have much lower corporate tax
the EU based on policy as well as has been in operation at EU and rates than Ireland, including Hungary
geography. The Nordic countries NATO levels for a long time, tracing with a corporate tax rate of 9%. In
regularly coalesce on a range of it’s routes back to pre-accession this regard, our Finance Minister,
issues as do the three Baltic states summits in 1991. Paschal Donohoe, has been proactive
and in recent years, the Visegrád or in deepening alliances with Member
V4 group of Member States, made But back to Ireland, what will be our States from Central and Eastern
up of the Czech Republic, Hungary, new alliances? Europe as well as the Baltic states to
Accountancy Plus March Issue 2019
05
oppose any moves towards removing to sign up to PESCO, albeit with a outward looking, country; Ireland
Irelands Role in the EU Post Brexit by Senator Neale Richmond
OPINION
the veto. A series of dinners prior range of opt outs. PESCO will have cannot be insular or shut itself off
to Ecofin meetings have seen this a budget of €1.5 billion for a number from the rest of the world. Ireland’s
approach become more formal. of projects from now until 2020. membership of what is now the EU
These projects include a centre of has been overwhelmingly beneficial
In relation to Agriculture and Food excellence for EU military training and in both social and economic terms.
policy, Ireland has always had a work to allow for new approaches When Ireland joined the EEC in 1973
very special alliance with France. to cybersecurity. The future of with the UK and Denmark it was a
Both Ireland and France are massive defence will as much be about the much poorer nation wholly reliant
supporters and beneficiaries of engagements online as well as on the on its near neighbour for everything;
the Common Agricultural Policy battlefields. independent in name only. In 1973,
or CAP. Other Member States are 60% of Ireland’s exports went to the
less enthusiastic, particularly those On a personal level, there are also UK, today this figure is much closer
with a different approach to their a number of key alliances and to 12% while the EU clearly stands out
rural or agrarian economies, many friendships. It was no secret that Enda as Ireland’s most important export
of whom want further cuts to the Kenny enjoyed a genuine friendship market, taking in multiples of the
CAP. Ahead of the negotiation of the with German Chancellor, Angela amount of goods that the UK does
next European budget known as the Merkel, a long-standing friendship from Ireland.
Multiannual Financial Framework, developed through their leadership
of which the CAP is the largest line of their respective parties for over a Staying in the EU post Brexit,
item of expenditure, a series of decade where they would regularly strengthening our commitment
meetings and discussions have been meet at EU level, the European to the EU and becoming true
held between Ministers and officials People’s Party. Since taking over as champions of European integration
from like minded Member States. Taoiseach, this is a relationship that is of key strategic interest to Ireland
In March of 2018, our Agriculture Leo Varadkar has also been keen to in the post Brexit context. For many
Minister, Michael Creed, met with maintain, and he has already met years, it was very easy for politicians,
counterparts from France, Spain, Merkel’s successor as CDU Leader, including from my own party, to
Portugal, Greece and Finland in Annegret Kramp-Karrenbauer. Within simply blame Brussels for anything
Madrid where they signed a joint the EPP family, Austrian Chancellor, negative while simultaneously
memorandum requesting that the Sebastian Kurz and Varadkar have claiming responsibility for all the
CAP budget be increased to bring it also grown close, helped by their benefits. If we are to survive and
back to current levels. This gathering common involvement in European indeed prosper after Brexit we must
has been followed by a series of youth politics. Throughout the Brexit give credit where it’s due as well.
bilateral meetings in Paris and Cork negotiating process, Ireland has
between Minister Creed and his received absolute support from the
French counterpart. Netherlands, another country that is
exposed to the fall out of a bad Brexit
Along with Austria, Finland and and a genuine friendship has been
Sweden; Ireland is a neutral country developed between Varadkar and
and unlike many other Member Dutch Prime Minister, Mark Rutte.
States, none of these countries
are members of NATO. However, There are many other formal and
all four are strongly committed to informal alliances within the EU that
co-operation in defence, security Ireland is not a part of. For example,
and peace keeping. Ireland has a there is the Three Seas Initiative of 12
proud tradition of over 60 years Member States belonging to a north-
commitment to United Nations’ south axis from the Baltic Sea to the
peace keeping missions. That said, Adriatic Sea and the Black Sea made
the changing nature of global security up of Austria, Bulgaria, Croatia, Czech
and defence policies will mean that Republic, Estonia, Hungary, Latvia,
Ireland will also need to adapt. With Lithuania, Poland, Romania, Slovakia
this in mind, in 2017 Ireland joined and Slovenia or the Craiova Group
PESO, an EU body that aims to boost that includes Romania, Bulgaria,
military cooperation. A number of Greece and non-EU Member State,
critics have instantly balked at this, Serbia. Senator Neale Richmond
dismissing PESCO as an EU army
as opposed to its true role as a new Above all else, the most important Chairman of the Seanad’s Brexit
approach to new security challenges. alliance for Ireland post Brexit is the Committee and Fine Gael
Ireland is one of 25 Member States European Union itself. As a small, spokesperson on European Affairs.
Accountancy Plus March Issue 2019
06
Title:
Director of Financial Planning & Risk
CPA Profile Management
Company:
Trinity College Dublin
Deirdre Savage Qualifications:
M.A., F.C.P.A., M.I.A.T.I.,
Why did you decide to start out How do you find your CPA What or who inspires you most?
on a career in accountancy? qualification has helped you in I think the “what” and the “who” are
I joined Trinity in 1983 with a your role? actually inter-related as personal
career path in mind. An accounting A world-recognised qualification integrity is the foundation of
qualification was crucial to is a great platform, as are the everything. I’ve met many people
advancement within an organisation membership benefits, which includes over the years from inspirational
where professional and academic access to superb CPD opportunities students and academics to business
standards are championed. My own and an extensive network of and political leaders along with
view is that learning is lifelong and, accountants across a broad spectrum some famous actors and popstars
in this environment, that’s very much of industries, services and sectors. (Trinity is a pretty vibrant place!) but
the lived experience. I am currently for me, our former President, Mary
exploring a new qualification that What has been your biggest Robinson is the one that defines the
will support my continued career career achievement? term integrity. It was really meaningful
development. to me that, as Chancellor of the
A significant part of my role over
University, she conferred me with my
the past 10 years has been the
Why did you choose CPA Ireland M.A. in 2010.
development of our working
as your qualification route? environment and our team, ensuring
Being unsure of my future in our skills meet the changing
If you were advising someone
an Ireland that was struggling needs of the University (and other just starting out with their CPA
economically at the time, I stakeholders) and that our business qualification, what tip would
recognised that CPA was an culture is responsive and customer- you give them that would make
international qualification if travel for facing. I’ve led-out on significant their journey smoother?
work became necessary. Fortunately, organisational change within the I would begin by saying that no
that need never arose. I was also University and the Financial Services journey is smooth! Working full-
conscious that as I was in full-time Division respectively, where, since time and studying at night is a hard
employment, the CPA route suited 2012, we have undergone a structural graft but it certainly helped shape
my schedule and allowed the overhaul and implemented a state- my mind-set and attitude to life. As
flexibility to attend lectures and study of-art financial information system a junior accounts clerk beginning
at night. (ERP). During this challenging my studies, I knew that if I eventually
transition period, among other wanted to ‘fly the plane’, I had to be
Please provide a brief history oversight duties, I ensured that our the best at loading the bags first. I
your career. focus on our mission, vision and also believe your “mind-set” is the
Working in a renowned University, values was maintained. most important choice you can
the ethos of ongoing learning and make. Having interviewed a significant
development has become deep For this reason, it was a career number of candidates in my career,
rooted and has benefited my career high point for me when we were I can tell you that the right mind-set/
path. I began my journey as a junior announced as ‘Irish Finance Team attitude will often trump skill.
accounts clerk, progressing in time of the Year’ at the Irish Accountancy
to the role of Projects Accounting Awards in April 2018. To receive an What traits do you admire most
Manager, with responsibility for award that publicly recognises the in others?
the University’s Research Portfolio. high performing finance team we
Truthfulness. It’s the kernel of
Following an opportunity to work have become makes me immensely
everything. Truth leads to trust
on a strategic project within the proud. The icing on the cake followed
and trust is the foundation of all
University, I was appointed to the role in September 2018, when we also
successful relationships. I believe it’s
of Director of Financial Planning & won ‘Finance Team of the Year’ at the
even more important in our current
Risk Management in 2014, and since British Accountancy Awards, which
climate of non-evidence-based
then, have also undertaken the role surpassed all my expectations! We
“information” and of course it works
of Deputy Chief Financial Officer for a were ecstatic.
for audits too!
12-month period.
Accountancy Plus March Issue 2019
07
Title:
Deirdre Savage & Sunil Appat Sukumaran
CPA PROFILE
Financial Accountant
CPA Profile Company:
Canyon CTS Shannon
Qualifications:
Sunil Appat Sukumaran CPA, MBA
Why did you decide to start out interest in accounting and motivated If you were advising someone
on a career in accountancy? me in pursuing an accounting just starting out with their CPA
qualification even though they knew qualification, what tip would
My basic qualifications are a Bachelor
it would mean leaving my position at you give them that would make
of Commerce and a Masters in
the hotel. their journey smoother?
Business Administration specialising
in Finance. A career in accountancy I would advise anybody starting out
How do you find your CPA
gives you an opportunity to use on their CPA qualification to enjoy
qualification has helped you in
and develop your leadership what they are studying and learn the
your role?
and analytical skills. I was always concepts rather than rote learning.
interested in learning new skills and In order to attain a CPA qualification, Use the CPA Ireland website, the
traveling, and I felt accountancy was I worked through from Formation 1 past exam papers and to approach
the best career choice to satisfy this. to the Professional exams in the past the tuition providers whenever help
3 years. This gave me a thorough is required. I studied by attending
Why did you choose CPA Ireland understanding of all the accounting lectures in Griffith College and also
as your qualification route? concepts and standards. The CPA using the study online option.
Ireland syllabus covers a wide range
The CPA qualification is recognized
of topics which gave me confidence What do you think are the most
worldwide, and CPA Ireland has many
to deal with any work situation. pressing issues for accountants?
mutual recognition agreements. This
definitely gives mobility and one can Accounting is a lifelong learning
What has been your biggest
be proud to have this title. profession. You need to always be
achievement?
proactive and up to date on the
Please provide a brief history The biggest achievement for me is new laws and regulations, both
your career. being awarded the “Liam Donnelly domestically and internationally.
medal” for achieving the highest
Before joining CPA most of my
combined result in the professional 2 How do you unwind?
previous work experience revolved
exams in 2018. Studying towards a professional
around the hotel industry in various
roles such as HR management, qualification and working side by
What or who inspires you the side can be quite stressful at times.
front office management and
most in business? I normally choose to go for a walk
general manager at the Hydro
Hotel, Lisdoonvarna, Co. Clare. There are many people in business in the Burren which is a 15-minute
Here I worked closely with the who inspire me, but Warren Buffet drive for me. I strongly believe that
managing director, Marcus White, and Bill Gates are at the top of one should find some time to enjoy
and the financial controller, Robert my list not just because of their the free gifts of the nature, which are
Hurley, managing the hotel business achievements in business but also plentiful in Ireland, and take small
and promoting the “Matchmaking their philanthropist actions. steps to preserve them for our future
Festival”. They were aware of my generation.
What traits do you admire most
in others?
Respecting and recognizing each
other’s ability/disability, and honesty
are the traits which I admire the most.
Accountancy Plus March Issue 2019
08
Consultation into IASB proposes clarifications
improvements to the for companies assessing
Financial reporting of intangibles
launched
whether contracts will be
loss-making
Reporting Possible improvements to the The International Accounting
reporting of factors that are important Standards Board (Board) has
News to a business’ generation of value are
discussed in a consultation launched
published for public comment
proposed amendments to IAS 37
by the Financial Reporting Council Provisions, Contingent Liabilities and
(FRC) on 6th February 2019. Contingent Assets to specify which
FRC proposes amendments costs a company should include
There are frequent calls to reform when assessing whether a contract
to FRS 101 and FRS 102 the accounting for intangible assets, will be loss-making.
partly in response to the move
The FRC has issued FRED 70 Draft
to a knowledge-based economy. The proposed amendments
amendments to FRS 101 – 2018/19
This paper considers the case for originate from a request to the
cycle and FRED 71 Draft amendments
radical change to the accounting for IFRS Interpretations Committee for
to FRS 102 – Multi-employer defined
intangible assets and the likelihood of clarification of which costs to include
benefit plans.
such change being made in the near in this assessment.
FRED 70 arises from the annual future.
A company determines that a
review of FRS 101 Reduced Disclosure
It suggests that: contract will be loss-making—and
Framework. FRS 101 requires the
• relevant and useful information describes it as onerous—if the costs
application of the recognition
could be provided without the need the company expects to incur to
and measurement requirements
to recognise more intangible assets fulfil the contract are higher than
of EU-adopted IFRS with reduced
in companies’ balance sheets; the economic benefits it expects to
disclosures. Unlike accounts that
receive from it.
apply IFRS in full, those prepared • such information could cover a
in accordance with FRS 101 must range of factors, broader than The Board has proposed to amend
comply with detailed accounting the definition of intangible assets IAS 37 to specify that the costs of
requirements set out in company law. in accounting standards, that are fulfilling a contract include both
Some of these requirements conflict relevant to the generation of value; incremental costs, such as the costs
with the requirements of IFRS 17 of materials, and an allocation of
Insurance Contracts. Consequently, • improvements could be made on
other costs directly related to the
FRED 70 proposes that insurance a voluntary basis within current
contract, such as the depreciation
entities shall not be permitted to reporting frameworks (such as the
charge for equipment the company
apply FRS 101 if IFRS 17 Insurance strategic report); and
uses to fulfil contracts.
Contracts is part of EU‑adopted IFRS. • participants in the reporting supply
The comment period for FRED 70 chain could collaborate to bring The amendments will provide greater
closes on 30 April 2019. about improvements. clarity to companies and help ensure
the Standard is applied consistently.
FRED 71 responds to a current Paul George, Executive Director for The changes are most relevant for
financial reporting issue by proposing Corporate Governance and Reporting companies in the manufacturing,
new requirements in FRS 102 at the FRC, said, construction and services sectors,
The Financial Reporting Standard and may result in some companies
applicable in the UK and Republic of “It is unrealistic to expect the value
recognising costs earlier than
Ireland for presenting the impact of of a business to be fully represented
previously.
transition from defined contribution in its balance sheet; there is always
accounting to defined benefit likely to be a gap between the The deadline for commenting on the
accounting. Such a transition is balance sheet total and the market proposals is 15 April 2019.
required by FRS 102 when sufficient capitalisation of a company.
information becomes available for an
The paper suggests several ideas for
employer participating in a multi-
expanding the information provided,
employer defined benefit plan to
both quantitative and qualitative,
apply defined benefit accounting.
to improve users’ assessment of
The comment period for FRED 71
corporate value.”
closes on 31 March 2019.
The deadline for responses to the
Source: www.frc.org.uk
consultation is 30 April 2019.
Accountancy Plus March Issue 201909
FRS 102 Financial Instruments - Factsheet 4 by Robert Kirk
FINANCIAL REPORTING
FRS 102 Financial Instruments
Factsheet 4
by Robert Kirk
Robert Kirk reviews Factsheet 4 on how to account for financial instruments.
In December 2013, the Financial Directors’ loans can meet the The Factsheet also gives an example
Reporting Council (FRC) published 16 paragraph 11.9 (a) criteria as the of how the customer should apply
Staff Education Notes (SENs) to aid contractual return to the holder the transaction under Section 17
users implement FRS 102. The SENs is a fixed amount of €nil i.e. the Property, plant and equipment by
were not part of FRS 102. They were interest free element is irrelevant to recording the motor vehicle initially
simply aimed at helping preparers its classification. However, the other at €13,500 with a subsequent interest
apply certain requirements of FRS 102 criteria in paragraph 11.9 may be expense being recorded using the
but they were not to be relied upon failed and thus there must still be same amortised cost methodology
as definitive statements on how to reasonable compensation for the as the seller. That provides symmetry
apply the standard. time value of money, credit risk and of accounting treatment between the
other basic lending risks which is two parties to the transaction.
In December 2018, the FRC decided unlikely to be the case for an interest
to publish further guidance in the free loan. However, there are two exceptions
form of Factsheets which should be to that general rule:
treated in the same vein as the SENs. Measurement of basic
One of these (Number 4) is on the financial instruments 1. Directors loans – small entities
topic of how to account for financial only under Section 1A FRS 102
instruments which is much broader in Normally basic instruments are Loans to the entity not at market
scope than two of the SENs i.e. SEN recorded initially at transaction price rate from a person who is a
16 Financing Transactions and SEN 2 as adjusted for transaction costs. member of a director’s group
Debt instruments – amortised cost. There is one exception – financing of close family and the group
This short article will look at some of transactions - as follows: includes at least one shareholder
the issues raised in the guidance. in the entity – can measure at
Financing transactions transaction price.
Classification of financial
instruments Where goods or services are sold 2. Public benefit entity concessionary
on credit there are two components loans – can measure at the
The factsheet lists cash and to the transaction – a sale and a amount paid or received.
investments in most ordinary and financing arrangement. These must
some preference shares as ‘basic’ be accounted for separately as
as well as debt instruments as follows:
long as the criteria in paragraph
11.9 of FRS 102 are met. However,
Facts: ABC Ltd sells a motor vehicle to a customer for €15,000 on 1st
there have been issues with this
January 2019, payment due in two years’ time. Normally if sold for
restrictive definition and, as a result,
immediate cash the sale would be €13,500
a number of instruments have been
classified as ‘other’ although their
Solution
substance was ‘basic’. To solve this
an additional paragraph, 11.9A, has Dr Trade receivables €13,500 1.1.19
been introduced into FRS 102 which
the Factsheet emphasizes introduces Cr Sales €13,500
an additional principles-based
Dr Trade receivables €1,500 Use amortised
description which should be applied
cost method to
if an instrument fails the detailed
Cr Interest income spread income
11.9 criteria to identify if it could be €1,500
over 2 years
classified as ‘basic’.
Accountancy Plus March Issue 201910
There are a number of examples in Solution:
the Appendix to Factsheet 4 which
are identical to those provided by
Subsidiary’s books
SEN 16 covering interest free loans
between a parent and a subsidiary, Debit € Credit € Notes
between fellow subsidiaries and
between entities owned by the Bank 50,000
same person. It also includes fixed
term interest free loans between Loan 45,000 Initial
entities and their directors and an
Capital Expenditure 5,000
example of how to treat subsequent
measurement of interest free loans. Interest Expense –
2,450
Yr 1
The accounting treatment of a fixed
Interest Expense – Spread using effective
term interest free loan between 2,550
Yr 2 interest rate over 2 years
entities owned by the same person
is similar in that the lending entity Loan 5,000
should record the difference as a
distribution and the borrowing entity Loan 50,000
as a capital contribution. Another
Bank 50,000 Repayment
similar example provided in the
Factsheet is that of a fixed term
interest free loan between an entity
and its directors. If the director lends Parent’s books
money the difference is treated as
a capital contribution in the entity’s Debit € Credit € Notes
financial statements and if the entity
lends money to the director it is Loan Receivable 45,000
treated as a distribution.
Distribution 5,000 Initial
Basic financial instruments – Bank 50,000
subsequent measurement
Loan Receivable 5,000
These should be measured at
amortised cost using the effective Interest Income – Spread using effective
rate method. This ensures that the 2,450
Yr 1 interest rate over 2 years
interest and transaction costs are
allocated at a constant rate on the Interest Income –
2,550
carrying amount over the life of the Yr 2
instrument. Bank 50,000
However short-term payables and Loan Receivable 50,000 Repayment
receivables due within one year,
which are not discounted, are
measured at their invoiced amount Impairment Derecognition
until paid or received. In addition, as
Each reporting entity must assess A financial asset should only be
long as a market rate of interest is
at the end of each reporting period derecognised when it is settled or the
charged and there are no transaction
whether or not an impairment has contractual rights to its associated
costs then the effective rate is equal
occurred which needs to be written cash flows have expired. In addition,
to the market rate of interest.
off against the financial asset. FRS if a financial asset is transferred to
102 still uses the incurred loss model another party i.e. factored, then it
Subsequent measurement of interest
so there must be objective evidence is only derecognised if the entity
free loans
of impairment. Possible future believes that substantially all the risks
events is not a basis for recognising and rewards of ownership has been
Facts
an impairment. Significant financial transferred. Otherwise the asset
On 1st January a subsidiary obtains assets should be assessed individually should be retained and any cash
a two-year interest free loan of but others can be grouped based on received treated as a loan.
€50,000 from its parent. Assume similar risk characteristics.
market rate of interest is 5.4%.
Accountancy Plus March Issue 201911
Other (non-basic) instrument
FRS 102 Financial Instruments - Factsheet 4 by Robert Kirk
FINANCIAL REPORTING
issues
All financial instruments within the
scope of Section 12 of FRS 102
should subsequently measure them
at fair value with gains and losses
being reported in profit and loss.
However, there are a few exceptions
particularly in certain hedge
accounting situations and if fair value
is not permitted by company law.
However, this is not expected to
occur very often.
Typical derivatives such as interest
rate swaps and foreign exchange
contracts will have to be measured
at fair value each year with changes
Similarly, a financial liability is only An entity shall disclose information reported in profit and loss. The only
derecognised if it is discharged, that enables users of its financial exception to that would be if an
cancelled or the rights to future statements to evaluate the entity adopted hedge accounting.
cash flows have expired. However, significance of financial instruments
where an existing loan has been for its financial position and
Summary
renegotiated with the result that performance.
it is substantially modified then Accountants who are involved in the
the original liability is said to be It emphasizes that this is a principles- preparation of financial statements
extinguished and a new loan set based disclosure requirement under FRS 102 will find the content,
up in its place. This will normally and provides some examples of presentation and layout of the
result in a gain/loss being created possible disclosures for a debt Factsheet on financial instruments
on the difference and this should be instrument including – the interest to be a very useful supplementary
reported in profit and loss. rate, maturity, repayment schedule tool. However, it will still be essential
and any restrictions. It points out, to read the actual standard itself to
Disclosure however, that entities will have to ensure full compliance with FRS 102
consider carefully what information
The factsheet points out that would be required by users.
there are substantial reductions in
disclosure for both small entities Financial instruments at fair
under Section 1A as well as to
value through profit and loss
subsidiaries and parent companies of
groups reporting their consolidated Company law sets out which
accounts under FRS 102. financial instruments can be
measured at fair value together
It then goes on to briefly outline the with disclosures. In the Republic of
key disclosures under the standard Ireland (ROI) all financial instruments
including the significant accounting can be measured at fair value if
policies adopted for financial permitted by IFRS but this requires
instruments, their measurement additional disclosure which has been
bases as well as the carrying amounts incorporated into Section 11 of FRS
measured at fair value through profit 102. Robert Kirk
and loss. It also mentions the key
performance items such as interest Financial institutions and Robert Kirk CPA is Professor
income and expenses and changes
retirement benefit plans of Financial Reporting at the
in fair value.
University of Ulster. Robert is
Both of these types of entity are
However, it specifically highlights required to provide additional
also author of the CPA Ireland
paragraph 11.42: disclosure and this is contained in Skillnet publication, A New Era
Section 34 Specialised activities of for Irish and UK GAAP – A Quick
the standard. Reference Guide to FRS 102
Accountancy Plus March Issue 201912
Alternative to bond - form B67
Law & If, following incorporation, a company applies for and is granted a certificate
from the registrar of companies that the company has a real and continuous
link with one or more economic activities that are in carried on in the State,
Regulation that company will be exempted from the requirement to have at least
one EEA resident director from the date of the certificate, as long as the
News certificate remains in force.
Application for this certificate is made on Form B67 and must be
accompanied by a statement from the Revenue Commissioners made within
two months of the date of the application by a statement that the Revenue
Commissioners have reasonable grounds to believe that the company has
such a link.
What happens if the UK leaves the an offence under the Companies Act 2014 or under
the Taxes Consolidation Act 1997, there shall become
European Union without a deal in payable under the bond a sum of money for the
place? purpose of same being applied in discharge of the
whole or part of the company’s liability in respect of
If the UK leaves the European Union without any deal any such fine or penalty.
in place, companies which have only UK resident
directors will be required to comply with section 137 The bond must have a minimum period of validity
Companies Act 2014. This is the requirement to have of two years, commencing no earlier than the
at least one EEA-resident director. This requirement occurrence of the event giving rise to the requirement
does not apply to any company which for the time for the bond. The surety under the bond must be a
being holds a bond, in the prescribed form, in force to bank, building society, insurance company or credit
the value of €25,000 and which provides that in the institution. Leaflet 17 on the cro website has further
event of a failure by the company to pay the whole or details https://www.cro.ie/Publications/Publications/
part of a fine imposed on the company in respect of Information-Leaflets
ESMA Q&As clarify Prospectus Directive and
EU Fifth
Transparency Directive rules in case of no-deal Brexit
Anti-Money
Laundering The Q&As clarify the application of made before the withdrawal which
certain provisions in these Directives continue after the withdrawal).
Directive (5AMLD) in case the UK withdraws from the
• Issuers admitted to trading on a
European Union (EU) on 29 March
EU Directive 2018/843, regulated market within EU27 / EEA
2019 with no withdrawal agreement
the EU's Fifth Anti-Money EFTA who currently have the UK
in place (no-deal Brexit). These Q&As
Laundering Directive (5AMLD), as their TD home Member State
will only apply in case of a no-deal
was adopted by the Council should choose and disclose their
Brexit.
of the EU on 14 May 2018 new home Member State without
and came into force on 9 The Q&As provide the following delay following 29 March 2019.
July 2018 with an 18-month clarifications in the event of a no-deal
• As the UK will be a third country,
transposition period. The Brexit:
prospectuses and supplements
Department of Finance has
• When issuers of equity securities approved by the UK FCA before
advised that it is considering
and non-equity securities below 29 March 2019 cannot be used in
the implications of 5AMLD
€1,000 who currently have the UK EU27 / EEA EFTA after a no-deal
for the RBO and will provide
as their PD home Member State Brexit.
a further update in the near
choose a new home Member
future. The purpose of the Q&As is to
State, they should choose between
promote common supervisory
Queries in relation to 5AMLD the EU27 Member States / EEA
approaches and practices in the
can be sent to aml@finance. EFTA States in which they have
application of the PD and TD in case
gov.ie activities after 29 March 2019
of a no-deal Brexit.
(either offers/admissions made
Source: www.cro.ie
after the withdrawal or admissions
Accountancy Plus March Issue 201913
Protecting your organisation by Derek McKay
LAW & REGULATION
Protecting your organisation even after
an employment contract comes to an end
by Derek McKay
In the final of our three-part series of articles on the Lifecycle of the Employee,
Derek McKay, Managing Director of Adare Human Resource Management
provides expert advice on how to effectively manage the termination of
employment contracts, whether it’s voluntary, compulsory or required.
In most instances, the end of an no explicit legal requirement to do or prove to the employee that they
employee/ employer relationship is so, we always advise organisations no longer intend to be bound by the
amicable; people need references to ensure that they have robust terms of the contract.
after all so tend to see out their grievance procedures in place; it is
contract in a very professional a good form of protection against Within the realm of The
manner. However, there are times claims of constructive dismissal. Reasonableness Test, the employee
that this isn’t always the case argues that while the employer may
and, at Adare Human Resource Generally speaking, there is a have acted in the terms outlined
Management, we’ve worked with misunderstanding about what in the employment contract, the
organisations who have found constitutes constructive dismissal conduct or actions of the employer
themselves in the Workplace and how it is assessed. It is the are so unreasonable that it then
Relations Commission (WRC) or responsibility of the employee entitles the employee to treat the
Labour Court defending cases that to provide the proof that the contract as being at an end. So, while
could have been avoided. termination of their employment the actions of the employer may not
is one of constructive dismissal have actually breached any of the
How the relationship between an under the Unfair Dismissals Act. conditions of the contract per se,
employer and employee comes to an This is gauged against two specific those actions can still be classified
end is very much in the control of the tests; The Contract Test and The as being so unreasonable that there
employer as much as the employee Reasonableness Test. is justification to the involuntary
but organisations need to be mindful resignation of the employee.
of the potential risks associated with Initially the employee is required to
the termination of employment and demonstrate a breach against these Dignity at work
how to protect themselves. tests, which is a high bar, before
the burden falls on the employer to Given the increased reporting of
In general, there are four main defend the case. This is the opposite cases of harassment and bullying
ways to terminate employment; to an unfair dismissal case where in the workplace, it is essential for
Resignation, Retirement, the burden is automatically on employers to have a Dignity at
Redundancy and Dismissal. the organisation to prove that the Work Policy. Demonstrating that an
dismissal was fair. In this situation, it organisation has taken appropriate
Resignation is automatically considered “unfair” steps to protect an employee is a very
under the legislation, which is where effective way of protecting against
Resigning from a position is the the confusion lies. complaints, particularly constructive
most common form of ending an dismissals.
employment arrangement but is not Under The Contract Test, the
without its risks. There may be some employee argues the entitlement Retirement
unresolved issue in the employee’s to terminate the contract as
decision-making process such as the employer has breached a There is no fixed retirement age
perceived bullying or harassment fundamental condition of the set out in legislation in Ireland for
that led them to terminate their contract. What this means is that private sector employees, however,
employment. Despite there being the actions of the employer show most organisations will have a
Accountancy Plus March Issue 201914
retirement policy in place, which is Our advice to organisations is to Navigating a redundancy process
set out in the terms and conditions ensure all contracts of employment is complex and requires a lot of
of their employment. In our 2018 include a clause that states a preparatory work. It is also an
HR Barometer, three quarters of normal retirement age, that there area that Adare Human Resource
organisations stated that they did is an agreed internal process for Management has vast experience in
have a set retirement age with the managing retirements or requests given the work we do on behalf of
majority setting that age at 65. from employees to remain on past client organisations, defending cases
the contractual retirement age and of unfair dismissal arising out of a
However, this isn’t the case in the that organisations utilise the Code of redundancy situation. It is important
public service, with civil servants Practice on Longer Working to guide to point out that the burden of proof
having the option of working up to 70 their decisions. in a claim for unfair dismissal is on the
if they so wish. employer. While an organisation may
Redundancy believe they are justified in making
The issue of retirement has become an employee redundant, they risk
topical recently with the WRC issuing While the country is now close to full leaving themselves open to claims if
a specific Code of Practice in early employment there is still quite a bit of they don’t follow correct policies and
2018 on longer working, which organisation restructuring going on procedures.
sets out best practice for managing and redundancies can form part of
retirements, as part of the Industrial this process. For a redundancy to be Key legislation alongside the
Relations Act 1990. The code outlines considered genuine, it should satisfy Redundancy Payments Acts 1967 –
best practice for handling retirements the appropriate legislation and fall 2014 that needs to be considered
under certain headings including within the definition of redundancy: when dealing with redundancies
‘Utilising the skills and experience of and potential dismissals includes the
older workers’, ‘Objective justification • The organisation ceases to Unfair Dismissals Acts 1977 – 2015,
of retirement’, ‘Standard retirement operate the business for which the Minimum Notice and Terms of
arrangements’ and ‘Requests to work’. employee was employed to do, Employment Acts 1973 – 2005 and
the Employment Equality Acts 1998
• The work the employee was
The Employment Equality Acts – 2015.
contracted to do has ceased or
1998-2015 also references age as
the requirement for that work has
one of the nine grounds that defines Dismissal
reduced,
discrimination against an employee.
There have been a number of high- • The organisation has decided to In its most recent Annual Report,
profile cases, such as Valerie Cox v carry on the business with fewer, or the WRC states that cases involving
RTE, where the WRC has ruled that no, employees, Unfair Dismissals are the second
the employee was discriminated most common types of complaints
• The work the employee was they are dealing with. Based on the
against because of their age and has
contracted to do is to be figures supplied in the report, Unfair
proved costly for an organisation;
performed in a different way and/ Dismissals accounted for nearly
€50,000 in RTE’s case.
or the employee is no longer 2,000 complaints in 2017 alone1; not
qualified to carry out that work, an insignificant number!
• The employee’s work is to be done
by a different employee who is To protect against claims of unfair
sufficiently qualified and capable. dismissal, organisations should ensure
the termination of an employee’s
contract is as a direct result of one
or more of the “Three Cs”; Conduct,
Competence (or qualification to
perform the job) and Capability or
arising from a genuine redundancy
or that fact that it would contravene
another statutory requirement.
1 Workplace Relations Commission
Annual Report 2017. Total number of
complaints received – 14,001, 14% of
which related to Unfair Dismissal.
Accountancy Plus March Issue 201915
Our experience representing to and reviewed on a regular basis
Protecting your organisation by Derek McKay
LAW & REGULATION
organisations in the WRC has shown given the changes in employment
time and again that it will find in legislation. Our team of experts can
favour of the complainant due to provide the necessary experience
poor processes and procedures being and expertise to support your
followed by the organisation. A recent organisation.
example that was highlighted widely
in the media was the case of a bus Adare Human Resource
driver who shared a photograph of a Management are leading experts
faulty wheel on social media. in Employment Law, Industrial
Relations and best practice Human
The WRC found that it was Resource Management.
inappropriate for the driver to post www.adarehrm.ie
negatively about his employer on
social media, but he had been unfairly
dismissed as the organisation had not
adequately communicated its social
media policy.
Another WRC finding from last year
that demonstrates the importance of
following correct procedure was a
case where an employee had been
dismissed based on an allegation
made by a colleague. However, the
organisation did not investigate the
allegation and, therefore, could not
show that the dismissal was in fact
Derek McKay,
fair.
Managing Director, Adare
Regularly review policies and
Human Resource Management,
procedures
Derek is one of Ireland’s leading
When we work with client providers of Employment Law,
organisations reviewing their Industrial Relations and best practice
practices and policies, we often Human Resource Management
identify shortcomings that can leave Support Services.
them vulnerable to potential issues.
Not only is it important to have
robust policies in place, it is equally
important that they are adhered
CPA FastTrack
CPA FastTrack allows third level students/interns to register
FastTrack
with CPA Ireland and count their internship or work placement
towards the 3 year training requirement with CPA Ireland.
Contact: Caroline Moloney at cmoloney@cpaireland.ie
Accountancy Plus March Issue 201916
The FRC:
“It is time to build a new house”
by Michael Kavanagh
The UK Financial Reporting Council (FRC) is a multi-faceted organisation that
many of us in Ireland are familiar with. Its tasks include setting the UK’s Corporate
Governance Code, financial reporting standards, auditing standards, being the
UK’s financial reporting enforcer, and audit quality inspector.
From the Irish perspective, we use so familiar with their HQ in London Compared to other regulatory bodies,
FRC accounting standards (UK/Irish that they gave me an access card the FRC is seen as unusual. Indeed,
GAAP), companies listed on the Main normally provided to staff and council Kingman even finds its name strange
Securities Market of Euronext Dublin members! In light of that, I don’t feel in that it is still titled a ‘Council’,
are required to comply with the it is appropriate for me to comment not an ‘Authority’ or ‘Regulator’
FRC Corporate Governance Code on the inner workings of the FRC but like European counterparts. He
and, up to recently, we used FRC suffice to say that I found FRC staff therefore recommends that the
auditing standards for Irish audits. and councils to be of the highest new organisation should be
Therefore, it is more than noteworthy quality. However, to paraphrase a named the Audit, Reporting and
that the recent UK government song title - they did it their way - and Governance Authority (ARGA). This
commissioned review of the FRC tended to conduct their business new organisation should have new
(the ‘Kingman review’) is damning differently to how others in Europe leadership, a new mission, new
in its findings and recommends the did. While the extremely blunt and powers and new funding.
abolition of the organisation. almost cutting language used in the
Kingman review came as a surprise Interestingly Kingman also strongly
Before going into some of the detail to me, the overall nature of the criticised the FRC’s propensity for
of the findings contained in the recommendations did not. media leaks, which have led to
76-page review which contains 83 several of its decisions appearing
recommendations, let me declare an Abolition of the FRC in the press ahead of their official
interest. The FRC is an organisation announcement.
that I knew very well. For 12 years, I The main recommendation is that the
was the Irish observer at the meetings FRC be replaced as soon as possible Funding and remit of the
of its Corporate Reporting Council with a new independent regulator
new body
which sets the financial reporting which has clear statutory powers
standards for the UK and Ireland (for and objectives. The language used in The Review finds that the FRC has
those not using IFRS). This included describing the FRC is forthright and ‘no meaningful statutory basis’
giving the Irish perspective and unambiguous. The FRC is a ‘hangover which is extremely unusual for a
input when the new standards were from a different era’. It is, according regulator. For most of its history it
introduced in 2015. I attended, for to Kingman, a ‘ramshackle house has been a private company and
one year, their Audit and Assurance cobbled together with all sorts of not a public regulator and it has
Council which produced auditing extensions over time’. Using the same taken ‘an excessively consensual
standards for the UK and Ireland analogy the Review continues, ‘the approach to its work’. The new
and also worked closely with their house is just serviceable up to a point regulator should have an overarching
financial reporting enforcement but it leaks and creaks sometimes duty to promote the interests of
and audit quality division as part of badly. The inhabitants in the house consumers of financial information,
European initiatives. As CEO of IAASA, sort of patch and mend but in the not producers. It should also have
I negotiated the transition from the end the house is built on weak a duty to promote competition, a
FRC, being the auditing standard foundations and we need to build a duty to promote innovation, and a
setter for Ireland, to IAASA taking over new house.’ duty to apply proportionality to all
that function in 2016. In fact I was its work. Kingman called for the new
Accountancy Plus March Issue 2019You can also read
