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Emerging Issues and Outreach. Gary Hannaford, Chair, Emerging Issues and Outreach Committee IESBA Meeting New York, USA April 7-9, 2014. Background. Emerging Issues & Outreach (EIO) December 2013 – EIO working processes finalized and EIO Committee (EIOC) established
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Emerging Issues and Outreach Gary Hannaford, Chair, Emerging Issues and Outreach Committee IESBA Meeting New York, USA April 7-9, 2014
Background • Emerging Issues & Outreach (EIO) • December 2013 – EIO working processes finalized and EIO Committee (EIOC) established • January 2014 – 1st EIOC teleconference. Issues considered: • MG Rover • Aggressive Tax Avoidance • EU Reform
MG Rover Case • Considered in Dec. 2013 Exec. Session • Presented at March 2014 CAG • Tribunal report unclear on: • Circumstances in which accountants must consider the public interest • What it means to consider the public interest • What constitutes a PIE • How to document public interest considerations • Is additional guidance needed in the Code?
MG Rover Case • CAG Comments: • Consider the totality of issue • Do non-accountants have to consider the public interest • Regulator could be setting a precedent which may warrant further attention • Consider the need for a better explanation of the public interest • Would the public interest have been considered if the transaction had been a success • Consider the political dimension • Would tribunal findings differed under the IESBA Code
MG Rover Case • Matters for Consideration: • Specific actions re. definition of public interest • Public interest – only applicable to PIEs or all entities? • Other matters, e.g. revisiting definition of a PIE
Aggressive Tax Avoidance • Multinational companies, often assisted by accountants, have exploited outdated tax laws and tax mitigation schemes to reduce tax costs • Strong statements from ICAEW and prominent politicians on role of accountants in assisting in aggressive tax avoidance and ignoring public interest concerns • G20 countries exchanging information to tighten loopholes
Aggressive Tax Avoidance • CAG Comments: • European Commission has initiated group to consider tax issues • Could accountants be held liable if don’t provide client with the best tax advice • Advice is not illegal. Governments use tax as an incentive.
Aggressive Tax Avoidance • Matters for Consideration: • Is specific action needed or is monitoring sufficient? • What would that specific action be?
EU Audit Reform • Final vote on adoption in Q2 2014 • Translate in various EU languages and incorporate into official EU text by Q3 2014 • Members then have two years to adopt – i.e. Q3 2016 • Partner rotation - 7yr. Time-on and 3yr cooling-off • Firm rotation must be overlaid with this • UK has bifurcated rotation, but no mandatory firm rotation
EU Audit Reform • At least 2 firms must tender • Recommendation from TCWG needed • Min engagement 1 yr. Members states can increase this • Max engagement 10 yrs. Member states can decrease this • Patchwork implementation between Members likely
EU Audit Reform • Dec 2013, preliminary agreement on audit reform: • Mandatory rotation every 10 yrs. • Can extend tenure for 10 yrs. on tender-hence max 20 yrs. • Joint audits can extend for 14 years (hence max 24 yrs.) • Extraordinary circumstances can increase by a further 2 years (hence max 26 yrs.) • Implementation will be staggered
EU Audit Reform • Rotation requirements for senior personnel, but no definition of senior personnel • Limit on NAS to 70% of audit fees over three years, but no guidance on how to calculate • Restrictions of permissible activities during cooling-off – no indicate in extent of restrictions • Prohibited services list. No leeway on prohibitions.
EU Audit Reform / Other Developments • Matters for Consideration: • Are specific actions needed as relates to EU Audit Developments? • Other international developments for the EIOC to consider?
Outreach • Increased dialogue with profession and other stakeholders • Commitment to dialogue with CAG member organizations • No immediate suggestions from CAG Reps on additional outreach opportunities
Outreach • Matters for Consideration: • Comments in Outreach performed • Possible additional Outreach opportunities