Financial Controllers’ Club · 2021. 1. 10. · tracked changes versions from current IFRS and UK...
Transcript of Financial Controllers’ Club · 2021. 1. 10. · tracked changes versions from current IFRS and UK...
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
The community for Financial Controllers and senior financial executives
Thursday, 14th May 2015
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
A few facts
• Established in May 1997 as the Financial Controllers’ Club, and renamed
Deloitte Finance Club in 2013
• Provides an annual programme of technical updates and hot topic briefings
• Connects our members to relevant experts as well as over 2,200 members
across the country
Deloitte Finance Club – Summer finance checklist (14 May 2015)2
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Deloitte Finance Club
Upcoming programme
Our post-Summer programme is currently in development – send any
requests or suggestions to us at [email protected]
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Deloitte Finance Club
Agenda
• Accounting update Phil Barden
Amanda Swaffield
Peter Westaway
• Corporate accounting Sarah Waddington
• Tax update Stephanie Hurst
• Risk management and the Tracy Gordon
longer term viability statement Hans-Kristian Bryn
• Executive remuneration and reporting David Cullington
• Planning, Budgeting & Forecasting – Simon Barnes
our next global survey
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Deloitte Finance Club
Accounting update
Phil Barden
Amanda Swaffield
Peter Westaway
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Accounting update
Agenda
• Revenue – what’s the latest? Phil Barden
• New UK GAAP – what is coming up in practice Amanda Swaffield
• Integrated reporting – a reminder Amanda Swaffield
• Interim reporting and other news Peter Westaway
Deloitte Finance Club – Summer finance checklist (14 May 2015)6
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Revenue
What’s the latest?
Phil Barden
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Revenue
What’s the latest?
• IFRS 15 as issued effective for periods beginning on or after 1 January 2017
• FASB tentative decisions re US standard:
‒ Defer effective date by one year (periods beginning on or after 15 December 2017)
‒ Allow early adoption from original effective date (15 December 2016)
• IASB tentatively decided to defer to 1 January 2018 with early adoption permitted
• Positive endorsement advice issued by EFRAG – EU endorsement expected Q3
2015
Deloitte Finance Club – Summer finance checklist (14 May 2015)8
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Revenue
What’s the latest?
• Transition Resource Group (TRG) – four meetings so far
• FASB and IASB reactions to issues discussed
• Will the US and IFRS standards diverge?
• Plans for IASB exposure draft
• Future of TRG
Deloitte Finance Club – Summer finance checklist (14 May 2015)9
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Revenue
What’s the latest?
• Background to FASB and IASB reactions
• Impact assessment by US GAAP and IFRS reporters – devil is in the detail
• Challenges around IFRS 15:
‒ Is it clear how to interpret specific requirements?
‒ How might they apply to my circumstances?
‒ Do I need to apply judgement – and what will others do?
‒ What are the practical challenges?
• Timescale for addressing uncertainties / problems
Deloitte Finance Club – Summer finance checklist (14 May 2015)10
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Revenue
What’s the latest?
• How much impact analysis have you done to date?
• Given uncertainties over timing and possible changes to the standard, should you
wait?
Deloitte Finance Club – Summer finance checklist (14 May 2015)11
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New UK GAAP
In practice
Amanda Swaffield
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New UK GAAP
In practice
• The new regime – now effective
• Accounting considerations
• Common pitfalls on transition
• Looking forward
Deloitte Finance Club – Summer finance checklist (14 May 2015)13
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New UK GAAP – in practice
The new regime – now effective• FRSs 100-102 mandatory for periods beginning on/after 1 January 2015
• Same choice for all entities?
Deloitte Finance Club – Summer finance checklist (14 May 2015)14
• Application of financial reporting requirements• Which standard to apply; application of SORPs; Statement of compliance; effective date; meaning of ‘equivalence’ FRS 100
• Reduced disclosure framework• List of disclosure exemptions from full IFRSs for ‘qualifying entities’
• IFRS with reduced disclosures for most parents and subs in company-only accountsFRS 101
• The Financial Reporting Standard applicable in the UK and Republic of Ireland• Operational FRS derived from the IFRS for SMEs; list of disclosure exemptions from this FRS for ‘qualifying entities’
• New set of UK GAAP standards but with reduced disclosures for most parents and subs in company-only accounts
FRS 102
• Insurance Contracts• Accounting requirements for insurance contracts
• Applies to entities reporting under FRS 102
• Relevant to any entity with insurance contracts, not just insurance businesses
FRS 103
• Interim financial reporting• Accounting requirements for interim financial statements
• Applies to entities reporting under FRS 102
• Broadly consistent with IAS 34
FRS 104
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)15
New UK GAAP – in practice
Some accounting considerations
Operating lease incentives
• Spread over full lease term
• Transitional provision
Pension schemes
• No multi-employer exemption
• Allocate group DB pension scheme
Use of deemed cost as carrying value on
transition
• Transitional provision
• Investment property, PP&E, intangible assets
• Uplift to FV and then revert to accounting at cost
Derivatives
• Non basic – FVTPL
• Used for hedging?
• Generous transitional provisions for hedge accounting
Intercompany loans
• Contractual terms?
• Non-market rate of interest?
Fixed asset investments
• FV reliably measurable?
• Investment in subs, associates and JCEs –accounting policy choice (by class)
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)16
New UK GAAP – in practice
Some accounting considerations
Business combinations
• Cost of acquisition approach
• More intangibles – no longer have to be separable
• Deferred tax on FV uplifts
• Merger accounting still available
• Transitional exemption
Goodwill
• No indefinite life
• Only in rare cases would assumed maximum life of 5 years be used
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Transition pitfalls –lessons learned so far
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Common transition pitfalls
Lessons learned so far
Earlier planning =
easier transition
Impact
assessments
Early auditor
conversations
Need to use
experts?
Opening b/s work
Identify items that
may not have been
previously
accounted for
Continuation of
accounting
policies
More than
accounting
Careful analysis
necessary
Think about
transactions in the
year after
transition date
Business
combinations?
Debt
restructuring?
Accounting under
new GAAP will be
required in
comparatives
©2015 Deloitte LLP. All rights reserved.
• GAAP 2015 – comprehensive
financial reporting manuals on FRS
102 (and IFRS)
• Model accounts for IFRS, UK GAAP,
FRS 101 and FRS 102, including
tracked changes versions from
current IFRS and UK GAAP to FRS
101/FRS 102
• UK GAAP in your pocket – A guide
to FRS 102
• Changing your GAAP – Planning
your conversion to the new financial
reporting regime
• Old UK GAAP to IFRS conversion
guide
• News, publications and newsletters at
www.ukaccountingplus.co.uk
Deloitte Finance Club – Summer finance checklist (14 May 2015)19
UK GAAP Resources
Tools and resources
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• A closer look – Transition to FRS
102 for financial instruments
• GAAP 15:Section 11 - Chapter B12
• www.ukaccountingplus.co.uk
Deloitte Finance Club – Summer finance checklist (14 May 2015)20
UK GAAP Resources
Recently published
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Future developments
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Future developments
Impact of new IFRSs?
Future developments
1 Jan 2016: Relaxation in use of
Companies Act formats
Triennial review of FRS 102 (2018)
Annual updates to FRS 101 (FRED 57)
1 Jan 2016:UK implementation of EU
Accounting Directive
1 Jan 2016: Removal of FRSSE
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• Three FREDs
‒ FRED 58: Draft FRS 105 – The
Financial Reporting Standard applicable
to the Micro-entities Regime
‒ FRED 59: Draft Amendments to FRS
102 – Small entities and other minor
amendments
‒ FRED 60: Draft Amendments to FRS
100 and FRS 101
• FRS 104 Interim Reporting
‒ Applies to entities adopting FRS 102
e.g. many investment trusts
Deloitte Finance Club – Summer finance checklist (14 May 2015)23
Future developments
News from the FRC
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Integrated reporting
A reminder
Amanda Swaffield
©2015 Deloitte LLP. All rights reserved.
Covers:
• Drivers of integrated reporting
• What integrated reporting is
• The real benefits businesses have
seen
www.ukaccountingplus.co.uk
Deloitte Finance Club – Summer finance checklist (14 May 2015)25
Integrated reporting
New Deloitte guide
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Interim reporting
Peter Westaway
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Interim reporting reminders
Existing requirements
Important events in first six months
Principal risks and uncertainties for
remaining six months
Related party transactions
Responsibility statement
Condensed set of financial statements
Two months to disseminate in
unedited full text
Set to increase to 3 months
before the end of the year
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)28
Interim reporting reminders
What has changed?
Quarterly IMSs abolished but not half-yearly reports
Debt issuers ten year transitional provision
finished (TP 19 remains)
No substantive corporate governance
disclosure changes
No IAS 34 amendments
mandatorily effectiveDiverted profit tax
Few changes to underlying accounting
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)29
Interim reporting reminders
New accounting standards in 2015Title IASB effective date
(periods commencing)
EU effective date
(periods commencing)
Annual Improvements 2010-12 Generally 1 July 2014 1 February 2015
Annual Improvements 2011-13 1 July 2014 1 January 2015
IAS 19 Amendments – DB plans:
Employee contributions
1 July 2014 1 February 2015
IFRIC 21 – Levies 1 January 2014 17 June 2014
FRS 104 Interim Financial Reporting available for UK GAAP reporters –
based on IAS 34 but with modifications
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)30
Round-up of other news
©2015 Deloitte LLP. All rights reserved.
Round-up of other news
Size limits for small companies change
Limits for accounting, directors’ report contents and exemption from strategic report
– change effective 6 April 2015
• Applies financial years commencing on or after 1 January 2016
• Early adoption for financial years commencing on or after 1 January 2015
• Companies in a group with an unlisted PLC no longer ineligible
BUT: Still some debate about if and when audit exemption limits will go up
Deloitte Finance Club – Summer finance checklist (14 May 2015)31
Old criteria New criteria
Total assets <£3.26m <£5.1m
Turnover <£6.5m <£10.2m
Number of employees <50 <50
©2015 Deloitte LLP. All rights reserved.
FRC survey of first year
• Entity-specific risk reporting
• Findings and magnitude of
unadjusted errors unsurprisingly
popular with
investors
• Engaging layouts, visuals, charts
• Linkage
Deloitte Finance Club – Summer finance checklist (14 May 2015)32
Round-up of other news
Extended auditor’s reports
©2015 Deloitte LLP. All rights reserved.
IFRS developments and reminders
What’s new? Amendments and proposals
Amendments
• Amendments to IAS 1: Disclosure Initiative
• Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the
Consolidation Exception
Exposure drafts
• Proposed amendments to IAS 7: Disclosure Initiative
• Proposed amendments to IAS 1: Classification of Liabilities
Deloitte Finance Club – Summer finance checklist (14 May 2015)33
©2015 Deloitte LLP. All rights reserved.
IFRS developments and reminders
Investment entity amendments
• Exemption from preparing consolidated
financial statements for an intermediate
parent entity is available to a parent
entity (B) that is a subsidiary of an IE (A),
even if that parent entity (A) measures
all of its subsidiaries (B, D and E) at FV
• NB: UK COMPANY LAW OVERRIDE
• Amends to IAS 28 regarding equity accounting for an IE associate or JV to permit
retaining FV measurements used for its subsidiaries
• Requirement for an IE to consolidate a subsidiary providing services to its IEs
applies only to subsidiaries that are not themselves investment entities
• Applies retrospectively for p/c 1 Jan 2016, with earlier application admitted
Deloitte Finance Club – Summer finance checklist (14 May 2015)34
B
A(an IE)
C
D E
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IFRS developments and reminders
Colour coding for endorsement slides
Name
Already endorsed – can be adopted now
Not yet endorsed – but can be adopted prior to endorsement because no
conflict with existing requirements
Not yet endorsed – might be possible to adopt associated accounting early but
care needed over some requirements (e.g. typically any transitional reliefs will
not be available, consider whether any predecessor requirements must still be
applied)
Not yet endorsed – cannot be adopted early because conflict with existing
requirements
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)36
New and revised Standards
Effective for March 2015 year ends
Name Effective Application Endorsement
IFRS 10 – 12, IAS 27 (2011), IAS 28
(2011)
01/01/13
01/01/14
Largely retrospective, subject to
transition requirementsYes
IFRS 10 – 12 Transition Guidance01/01/13
01/01/14On transition Yes
IFRS 10 – investment entities 01/01/14Retrospective, subject to
transition requirementsYes
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)37
Amendments to Standards
Effective for March 2015 year ends
Name Effective Application Endorsement
IAS 32: Offsetting 01/01/14 Retrospective Yes
IAS 36: Recoverable amount
disclosures01/01/14 Retrospective (disclosure) Yes
IAS 39: Novation of derivatives 01/01/14 Retrospective Yes
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)38
IFRIC Interpretations
Effective for March 2015 year ends
Name Effective Application Endorsement
IFRIC 21 Levies01/01/14
17/06/14Retrospective Yes
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)39
New and revised Standards
Effective for later year ends
Name Effective Application Endorsement
IFRS 9 Financial Instruments 01/01/18Specific transitional
requirementsH2 2015?
IFRS 14 Regulatory Deferral
Accounts01/01/16
Only applies to first-time
adoptersTo be decided
IFRS 15 Revenue from Contracts
with Customers01/01/17 Options available on transition Q3 2015?
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)40
Amendments to Standards
Effective for later year ends
Name Effective Application Endorsement
IAS 19: Employee contributions01/07/14
01/02/15Retrospective Yes
Annual Improvements 2010–1201/07/14
01/02/15Mixture Yes
Annual Improvements 2011–1301/07/14
01/01/15Mixture Yes
IFRS 11: Acquisitions of interests
in joint operations01/01/16 Prospective Q4 2015?
IAS 16 / IAS 38: Acceptable
methods of depreciation01/01/16 Prospective Q4 2015?
IAS 16 / IAS 41: Bearer plants 01/01/16 Retrospective Q4 2015?
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)41
Amendments to Standards
Effective for later year ends
Name Effective Application Endorsement
IAS 27 Equity method in separate
financial statements01/01/16 Retrospective Q4 2015?
IFRS 10 / IAS 28 Sale or
contribution of assets to associate
/ JV
01/01/16
To be
postponed
Prospective Postponed
Annual Improvements 2012–14 01/01/16 Mixture Q4 2015?
IAS 1 Disclosure Initiative 01/01/16 Retrospective Q4 2015?
IFRS 10, IFRS 12, IAS 28
Investment entities: Applying the
consolidation exception
01/01/16 Retrospective Q1 2016?
©2015 Deloitte LLP. All rights reserved.
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Smarteca
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Smarteca
More information
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Deloitte Finance Club
Corporate accounting
Sarah Waddington
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New UK GAAP Conversion (2015)
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UK overview
Why think about this now?
Goodwill &
intangibles
Borrowing &
development
costs
Financial
instrumentsOperating leases
Financial
guarantees
Defined benefit
pensions
Presentation &
disclosure
Business
combinations &
consolidation
Foreign currency Deferred taxInvestment
property
Intercompany
balances
©2015 Deloitte LLP. All rights reserved.
Mandatory transition date
Quiz
What is the mandatory transition date for a 31 May year end?
a) 1 June 2014 4
b) 1 June 2015 8
c) 31 May 2016 8
d) 31 December 2015 8
47 Deloitte Finance Club – Summer finance checklist (14 May 2015)
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31 May 2015 31 May 2016
IFRS / ‘New’ UK
GAAP
First accounts
prepared under
‘New’ UK GAAP
/ IFRSIFRS / ‘New’ UK
GAAP
comparatives
1 June 2014
Implementation project
Transition
date
Example
Transition timeline
Year ended 31 May 2015
Deloitte Finance Club – Summer finance checklist (14 May 2015)48
©2015 Deloitte LLP. All rights reserved.
Practically speaking
Early adoption
Are entities early adopting?
• Yes, but this is not common
Why chose to adopt early?
• Incorporation of new companies
• Significant new transactions which would have large GAAP differences
• Taxation benefits
Difficulties encountered?
• Valuations
• Financial instruments
• Defined benefit pension schemes
• Elections/documentation/administration
Deloitte Finance Club – Summer finance checklist (14 May 2015)49
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IFRS 15: Revenue from Contracts with Customers
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Deferral of effective date of IFRS 15
International Accounting Standards Board (IASB)
Why?
Considering proposing some limited
clarifying amendments to IFRS 15, so
a degree of uncertainty regarding what
IFRS 15 will finally look like exists until
the IASB decides to either finalise, or
not proceed with, these amendments
What happened?
The IASB tentatively decided to defer
the effective date of IFRS 15,
following a proposed deferral by the
FASB of its new revenue standard
Until When?
1 January 2018
And early adoption?
Still permitted
©2015 Deloitte LLP. All rights reserved.
Technically speaking
Quiz
What is the missing step?
a) Involve a financial accountant 8
b) Identify the separate performance obligations 4
c) Identify the separate stages of completion 8
d) Identify the date risks and rewards transfer 8
Deloitte Finance Club – Summer finance checklist (14 May 2015)52
1. Identify the
contract(s)
with the
customer
2.
3. Determine
the
transaction
price
4. Allocate
the
transaction
price to the
performance
obligations
5. Recognise
revenue when
(or as)
performance
obligations
are satisfied
?
©2015 Deloitte LLP. All rights reserved.
Practically speaking
Impact of IFRS 15
Consider the impact of IFRS15 on:
• Existing revenue contracts, e.g. standard long-term contract clauses
• EBITDA and KPIs
• Disclosures
• Business processes
Next steps?
• Consider the impact of IFRS 15 now
• Are contracts currently being negotiated which will be accounted for under
IFRS 15?
Deloitte Finance Club – Summer finance checklist (14 May 2015)53
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Tax update
Stephanie Hurst
©2015 Deloitte LLP. All rights reserved.
Tax Transparency
There are many – often connected – perspectives
on tax transparency
Fair Tax
Mark
Deloitte Finance Club – Summer finance checklist (14 May 2015)55
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More, more, more…
What informs those perspectives and what is their
influence?
Information• Financial
statements
• Other external publications
• Research and analysis
• ‘Whistle-blowers’
• Personal experience
Influencers• Analysts
• Industry bodies
• Media
• Non governmental organisations, including charities
• MPs / committees
Stakeholders• Investors
• Lenders
• Government
• Customers
• Suppliers
• Employees
Your
business
©2015 Deloitte LLP. All rights reserved.
Tax Transparency
Other mandatory reporting requirementsRule Public? Scope Timing Data reported –
overview
EU CRD IV
country by
country
reporting
Yes Mandatory for
regulated EU credit
institutions /
investment firms
In effect
from 1
January
2014
Activities, turnover,
number of employees,
profit before tax (PBT),
tax and public subsidies
EU
Accounting
Directive and
Transparency
Directive
Yes Mandatory for listed
EU and large
extractive
companies / those
involved with logging
Enforced by
20 July 2015
at latest
Payments to
governments over £100k
(country by country but
may also be project by
project)
OECD –
Action 13 –
country by
country
reporting
No – to
tax
authoritie
s only
Mandatory for all
corporates
A.P.s
beginning 1
Jan 2016
onwards
Activities, turnover (third
party and intragroup),
PBT, tax charge, assets,
capital and earnings,
number of employees
Other developments include: Extractive Industries Transparency Initiative and Dodd Frank
Act s.1504
Deloitte Finance Club – Summer finance checklist (14 May 2015)57
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What are the FTSE100 disclosing? (overview)
Latest published accounts as at 30 July 2014
• 78 (2013: 62) provide narrative disclosure explaining why the effective tax rate differs from the expected statutory rate and/or explains variances year-on-year
Effective Tax Rate (ETR)
drivers
• 64 (2013: 60) make some disclosure of tax-related governance. Of these:
• 7 (2013: 8) make partial reference (e.g. mentioning that the Audit Committee has reviewed tax accounting judgment areas)
• 57 (2013: 52) provide fuller details, setting out processes for setting and monitoring adherence to tax policies and strategies
Governance
• 46 (2013: 32) disclose total taxes paid / tax ‘contribution’. Of these:
• 6 (2013: 12) make partial disclosure, setting out total taxes paid with no further analysis
• 40 (2013: 20) disclose the split between various categories of tax
Taxes paid / ‘contribution’
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)59
What are the FTSE100 disclosing? (examples)
Narrative explanations of Effective Tax Rate
“The effective tax rate on profit before tax in FY13 was 27%.
This rate reflects depreciation on non-qualifying assets and
overseas earnings being taxed at a higher rate.”
“The Group’s effective tax rate was 31 per cent, up from 27 per
cent in 2012, primarily due to the impact of non-deductible
goodwill impairment and change in profit mix.”
“The Group’s underlying effective tax rate of 17% is below that of the
prior year, and reflects a favourable underlying profit mix, the
continued benefits arising from the utilisation of certain tax incentives
available to us, most notably in Poland, and further tax incentives
received during the year related to our investment project in
Slovakia.”
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)60
What are the FTSE100 disclosing? (examples)
Governance and strategy
“Xplc seeks to effectively manage its taxation obligations worldwide in compliance with
all applicable tax laws and regulations. Therefore, the Group monitors the tax
contribution by the individual businesses to ensure it meets local tax requirements, that
available global tax incentives and allowances are recognised and any material tax risks
are properly and promptly addressed, as well as appropriately provided and disclosed in
the Group’s accounts and tax returns.
Xplc aims to build positive working relationships with tax authorities around the world by
full co-operating in an open, constructive and timely manner. As tax laws are often
complex and sometimes ambiguous, tax outcomes are inherently uncertain. Accordingly,
it is recognised that there will be areas of differing legal interpretation with tax
authorities and when this occurs Xplc will engage in proactive discussion to obtain early
resolution and seek to remove uncertainty and controversy.
Xplc tax policy requires compliance, fairness, value and transparency in the management
of the Company’s tax affairs. This approach has been approved by the Board, fully
communicated to the subsidiary businesses and is regularly reviewed to ensure
responsible business practices across the Group are maintained.”
©2015 Deloitte LLP. All rights reserved.
What are the FTSE100 disclosing? (examples)
Tax ‘contribution’
Deloitte Finance Club – Summer finance checklist (14 May 2015)61
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What are the FTSE100 disclosing? (overview)
Latest published accounts as at 30 July 2014
• 44 (2013: 32) comment on uncertain tax positions, either those for which a provision has been recorded, or those deemed to be a contingent liability
Uncertain tax positions
• 16 (2013: 8) split tax payment disclosures on a geographical basis. Of these:
• 8 disclose payments on a regional basis
• 8 disclose payments on a jurisdictional basis
Geographical split
• 7 (2013: 4) make reference to the use of tax havens. Of these:
• 2 make oblique reference to overseas operations being trading in nature
• 2 specifically state that they do not undertake tax planning which involves the use of havens
• 3 groups mentioned they had operations in countries that would commonly be described as tax havens.
Tax havens
Deloitte Finance Club – Summer finance checklist (14 May 2015)62
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What are the FTSE100 disclosing? (examples)
Geographic split
Deloitte Finance Club – Summer finance checklist (14 May 2015)63
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What are the FTSE100 disclosing? (overview)
Latest published accounts as at 30 July 2014
• 3 groups disclose their UK Tax authorities risk rating in their financial statements.
• All have achieved a ‘Low’ risk rating
UK Tax authorities risk
rating
©2015 Deloitte LLP. All rights reserved.
Observations and conclusions
Based on review of FTSE100 latest published
accounts as at 30 July 2014
• The year-on-year trend is to disclose more around taxes than
required by the accounting standards
• Consumer / household brands generally disclose more detail
concerning their tax affairs as compared to B2B (business to business)
groups
• Large increase in the number of groups disclosing their tax
‘contribution’ in 2014 as compared to 2013
Deloitte Finance Club – Summer finance checklist (14 May 2015)65
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Tax Transparency
Practical considerations
• Some evidence of explicit disclosure of legislative measures that exempt profits from tax (e.g. substantial shareholdings exemption for capital gains on sale of shares in the UK)
• Examples: research and development credits or intellectual property regimes, participation exemptions, etc.
More information in required disclosures
• Balance is important – information which is not required by GAAP and company law should not overshadow the position given by the GAAP and company law requirements
GAAP disclosures versus non-GAAP disclosures
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)67
Tax Transparency
Practical considerations
• Are the disclosures consistent with the prior year?• Additional disclosure now will set expectations that similar
disclosures will be made in future.• Would omission of such disclosures in future cause stakeholders
to make unwelcome inferences?• Implications for long-term costs and resources?
Consistency
• Are the disclosures being made clear and unambiguous?
Clarity of disclosure
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)68
Tax Transparency
Practical considerations
• Substantial effort to provide right level of assurance for financial statement disclosure
Validity of disclosures
©2015 Deloitte LLP. All rights reserved.
New UK GAAP and Tax – a reminder
Lessons learnt so far
Cash Tax
• Assess cash tax impact of transitional adjustment
• First instalment payments due for December 2015 year ends on 14 July 2015
• Stakeholder management
Tax accounting
• Watch out for onerous tax requirements of IFRS / FRS 101 e.g. deferred tax on:
• Share based payments
• Non qualifying fixed assets acquired on a business combination
Tax compliance
• Tax elections and deadlines e.g. Disregard regulations – elect in 6 months after accounting period starts – 30 June 2015 for December year ends
• Budget for conversion e.g. iXBRL
Tax operations
• Resource capacity and capability
• Training
• Information systems sufficient for needs
• Transition timeline –plan ahead
Deloitte Finance Club – Summer finance checklist (14 May 2015)69
©2015 Deloitte LLP. All rights reserved.
BEPS – a useful source of information
www.BEPS.tax• The BEPS timeline of key milestones and news releases, past, present and
future
• Country scorecards, providing a high-level summary of different countries'
perspectives of the BEPS Actions (28 countries at present)
• An archive of relevant articles and papers from the OECD, other regulatory
authorities, plus thought pieces and presentations from Deloitte
• More information on each of the 15 Actions being considered and worked on
by the OECD, including
‒ an overview of what each Action is intended to address,
‒ the expected timing of releases by the OECD for each Action, and
‒ links to all of the documents already released by the OECD
• A list of Deloitte contacts for each country
Deloitte Finance Club – Summer finance checklist (14 May 2015)70
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Risk management and the longer term viability statement
Tracy Gordon
Hans-Kristian Bryn
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)72
Risk management, internal control & future viability
Code amendments & new guidance now effective
A new, integrated approach
Going concern
Future viability
Principal risks
Internal control
reporting
Auditor reporting
“The ability of the board
to understand and
address the risks facing
the company is itself a
major risk factor.”
FRC consultation paper
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)73
Risk management, internal control & future viability
Status of Code versus FRC Guidance
UK Corporate Governance
Code Provisions
“Comply or explain”
Guidance on Risk
Management, Internal
Control and Related
Financial and Business
Reporting
Best practice guidance only
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)74
Changes to the UK Corporate Governance Code
‘Comply or explain’ regime
The board is responsible for determining the nature and extent of the principal
risks it is willing to take in achieving its strategic objectives. The board should
maintain sound risk management and internal control systems.Code Principle C.2
The directors should confirm in the annual report that they have carried out a
robust assessment of the principal risks facing the company – including those that
would threaten its business model, future performance, solvency or liquidity –
describe those risks and explain how they are being managed or mitigated.
Taking account of the company’s current position and principal risks, the directors
should explain in the annual report how they have assessed the prospects of the
company, over what period they have done so and why they consider that period
to be appropriate. The directors should state whether they have a reasonable
expectation that the company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, drawing attention to
any qualifications or assumptions as necessary.*NEW* Code Provisions C.2.1 and C.2.2
The board should monitor the company’s risk management and internal control
and, at least annually, carry out a review of their effectiveness, and report to
shareholders that they have done so. The monitoring and review should cover all
material controls, including financial, operational and compliance controls.Code Provision C.2.3
Just a slight change to the Main
Principle from “significant” to
“principal” to bring the
terminology in line with Strategic
Report disclosure requirements
A new provision in addition to the
existing Code Provision requiring
a statement from the board that
the business is a going concern
which has been amended to
make a clearer link to the going
concern basis of accounting.
This provision has been changed
to reflect that the board’s review
should not just be a one-off,
annual exercise but an on-going
monitoring responsibility
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)75
Board responsibilities
The FRC’s best practice guidance suggests the
following responsibilities…
Determining the risk appetite
Design & implementation of risk
management and internal control systems
Agreeing how principal risks should be
managed
Monitor and review of the risk management and internal control
systems
Ensuring appropriate culture & reward
systems
Ensuring sound internal and external
information and communication
But remember it is the Audit Committee’s responsibility to review the company’s
internal control and risk management systems unless expressly addressed by a separate
board risk committee comprised of independent directors, or by the board itself.
– Code provision C.3.2
©2015 Deloitte LLP. All rights reserved.
Reporting on risk
Enhanced disclosures for investorsThe board should provide succinct, meaningful, information that is tailored to the
specific circumstances of the company, and should avoid using standardised
language which may be long on detail but short on insight.
Deloitte Finance Club – Summer finance checklist (14 May 2015)76
Sufficient specific detail that a shareholder can understand why they are important to the
company
A description of the likelihood of the risk
An indication of the circumstances in which the
risk might be most relevant to the entity and its possible
effect
Details of any significant changes in principal risks, such as a change in the
likelihood or possible effect or new risks added
A high-level explanation of how the principal risks and
uncertainties are being managed or mitigated
For a more generic risk or uncertainty, a description of how that risk or uncertainty
might affect the entity specifically
Including these disclosures in the Strategic Report will ensure that you are covered
by the safe harbour provision in the Companies Act 2006
Should include…
Might include…
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)77
Reporting on risk
There is a significant new recommendation
‘hidden’ in the guidance
The board should summarise the
process it has applied in reviewing the
effectiveness of the system of risk
management and internal control. The
board should explain what actions have
been or are being taken to remedy any
significant failings or weaknesses.
Section 6: Related Financial and Business
Reporting
Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting
• The existing guidance just requires a
board to confirm that necessary
actions have been or are being taken
• The proposal represents more
onerous disclosure and is required
even when a significant failing or
weakness has been fully resolved by
the end of the year
• Any disclosure which would be
prejudicial to business interests does
not have to be made
There is no definition
of “significant” – that
is left to board
judgement
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)78
Connecting longer term viability & risk management
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)79
The longer term viability statement
Key considerations when making this statement
Reasonable
expectation and
period covered
Assessing the
prospects of the
company
Ability to continue in
operation and meet
liabilities as they fall
due
Qualifications or
assumptions
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)80
The longer term viability statement
Connecting risk management & longer term
viability
Reach consensus on the
risk appetite framework at
the board
Assess the impact of
principal risks
Integrate business planning
and forecasting with
quantification of principal
risks & scenario testing
Confirm effectiveness of
internal control assessment
processes
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)81
The longer term viability statement
Practical steps for assessing the prospects of the
company
2. Agree level of quantitative
rigour:
• Qualitative assessment;
• Scenario approach; or
• Risk modelling.
3. Select the principal risks to
include in the assessment:
• Number of risks
• Impact/likelihood
• Correlation/inter-dependency
4. Determine a methodology for
combining/aggregating the impact
of risks
1. Agree the time horizon (in line
with business planning periods)
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)82
Step-by-step through the disclosure
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)83
The longer term viability statement
Step-by-step through the disclosure
StartThe three P’s
How have these prospects been assessed and what are the
key risks to them – how has the board assessed the nature
and extent of the principal risks (cross-refer to the principal
risk and going concern disclosures)?
2
Remember:
Presenting the viability
statement within the
Strategic Report gives
the board the safe
harbour protection
under the Companies
Act
Position Performance Prospects
Link clearly to what you have said on these
earlier in the annual report.
There should be reference back to
discussions on strategy, objectives, the
business model and KPIs.
1
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)84
The longer term viability statement
Step-by-step through the disclosure
The period
Risk
management
• Explain how the business is managed on a forward looking
basis - what forward period(s) is the board planning over?
Explain short, medium and long term planning cycles.
• Which of those periods is the viability statement provided over
and why is that the appropriate period?
Remember: For the purposes of this disclosure, ‘viability’ is defined as the board having a
reasonable expectation that the business can continue in operation and meet liabilities as
they fall due.
3
• Explain how the board has prioritised risks over the period and
describe the activities in place to manage those risks (cross
reference as appropriate and refer to forecasting and stress
testing techniques used)
• What are the key judgements, assumptions and estimates the
board has made over that period (specific detail)?
• How does the board ensure the effectiveness of management
and mitigation activity?
4
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)85
The longer term viability statement
Focus on processes and procedures
The disclosures do not need to include…
Quantification of impact
of principal risks
A quantified and specific
risk appetite statement
Boards need to focus their disclosures on the processes and procedures
around risk management and the assessment of the longer term prospects
of the business
Quantification is for internal use only
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)86
The longer term viability statement
Remember this about helping investors to…
Understand how boards
are managing and
mitigating risks
Judge whether a company
will deliver value in the
future
Assess the stewardship of
the company
Have transparency on the
risks to their capital
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)87
Observations from December year-end reporters
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)88
The longer term viability statement
Little appetite to go early
70 FTSE 350 December year-
ends reviewed – just one
example of early adoption
Some make reference to the
2014 Code and the intention to
report on new requirements
next year
Barclays has confirmed that
their lookout period will be three
years
Ocado’s going concern
disclosure has been amended
to reflect more of the
considerations suggested in the
guidance
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)89
The longer term viability statement
Derwent London plc Report & Accounting 2014
• Included immediately under the principal risks table in the strategic
report
• Looking forward 5 years
• No reference elsewhere in the annual report
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)90
Auditor reporting requirements
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)91
Corresponding changes to auditor reporting
FRC using the auditor as the last line of defence
on new reporting requirementsThe auditor must report by exception if they do not agree
with the board’s statement that the annual report, taken as a
whole, is Fair, Balanced and Understandable.
The auditor must report by exception if they do not
agree with the audit committee’s list of significant issues
considered.
Fair, Balanced
and
Understandable
Audit committee
significant issues
A statement in the
audit report as to
whether the
auditor has
anything material
to add or draw
attention to in
relation to:
The directors’ statement that they have carried out a
robust assessment of the principal risks facing the
company, including those that would threaten its solvency
or liquidity
The disclosures in the annual report that address
how those risks are being managed or mitigated and
which, if any, are material uncertainties in relation to the
company’s ability to continue to adopt the going concern
basis of accounting
Already
in place
NEW!
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)92
The longer term viability statement
What your auditors will be assessing
Is it Fair, Balanced and
Understandable?
Consistency with the
knowledge the auditor has
acquired during the audit
(including the assessment of
going concern)
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Executive remuneration and reporting
David Cullington
©2015 Deloitte LLP. All rights reserved.94
Executive remuneration and reporting
Disclosure
Current reporting season
Policy report
• Significant minority had new vote
• Many companies reprinting full Policy
Annual bonus disclosure
• Generally improved
• Outliers getting increasingly criticised
Single figure
• Press fixated on total figure not the
logic underlying it
Ahead?
Shareholder Rights Directive
• Ratio between average remuneration
of directors and average remuneration
of full time employee and why this ratio
is appropriate
Equal pay
• Businesses with more than 250
employees to disclose information
showing whether there are differences
in the pay of male and female
employees
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.95
Executive remuneration and reporting
Issues
Executive Pay Structures
Clawback & Malus
Holding periods
Shareholding guidelines
Notice periods
Getting incentives
to work “better”
Key 2015 AGM issues
• Large salary rises
• Large bonus payouts &
poor disclosure
• Recruitment awards
• Use of discretion
• Currency issues
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Planning, Budgeting & Forecasting – our next global survey
Simon Barnes
©2015 Deloitte LLP. All rights reserved.97
Planning, Budgeting & Forecasting
2014 global survey and research
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.98
Planning, Budgeting & Forecasting
Key findings – ownership
In over a third of
organisations
PBF is seen as a
largely financial
exercise.
Forty-two per
cent take two-to-
three months to
complete their
budget while 32
per cent of
respondents take
up to six months.
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.99
Planning, Budgeting & Forecasting
Key findings – forecasting
Sixty-seven per
cent of
respondents
execute a
forecast in under
two weeks.
Forty-seven per
cent of
respondents
believe they
confuse
forecasting with
targets and
commitments.
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.100
Planning, Budgeting & Forecasting
Key findings – technology
Spreadsheets
remain ubiquitous
in both large and
small
organisations.
Over a third of
survey
respondents still
use spreadsheets
as their main tool.
Deloitte Finance Club – Summer finance checklist (14 May 2015)
©2015 Deloitte LLP. All rights reserved.
Management Information – 2015 global survey
Get your teams to participateQuestions the survey addresses:
• How can Finance deliver accurate and timely reporting that is also insightful and
actionable?
• What technologies can be easily implemented to aid reporting and analytics?
• What skills and behaviours are needed to generate insight and communicate it to
stakeholders?
Support you can expect:
• Customised benchmark report comparing your results with your peers
• Thought-leadership report providing analysis of global trends
• Industry-specific data cuts for comparison
101 Deloitte Finance Club – Summer finance checklist (14 May 2015)
Have your say
To take part in the upcoming
Management Information survey,
email: [email protected]
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)102
Discussion
©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)103
Deloitte Finance Club
Upcoming programme
Our post-Summer programme is currently in development – send any
requests or suggestions to us at [email protected]
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Contacts and resources• James Bates +44 20 7303 0094 [email protected]
• Philip Barden +44 20 7007 0023 [email protected]
• Amanda Swaffield +44 20 7303 5330 [email protected]
• Peter Westaway +44 20 7007 9024 [email protected]
• Sarah Waddington +44 20 7007 9157 [email protected]
• Stephanie Hurst +44 20 7007 4305 [email protected]
• Tracy Gordon +44 20 7007 3812 [email protected]
• Hans-Kristian Bryn +44 20 7007 2054 [email protected]
• David Cullington +44 20 7007 0899 [email protected]
• Simon Barnes +44 20 7007 6376 [email protected]
Resources:
• Deloitte Finance Club home page: www.deloitte.co.uk/financeclub
• UK Accounting Plus (formerly IAS Plus): www.ukaccountingplus.co.uk
• Annual report insights 2014: www.deloitte.co.uk/annualreportinsights
• Future of UK GAAP: www.deloitte.co.uk/futureofukgaap
• BEPS.tax portal: www.beps.tax
Deloitte Finance Club – Summer finance checklist (14 May 2015)104
©2015 Deloitte LLP. All rights reserved.
Deloitte Finance Club
Recent seminars• Business Partnering: better decision-making through Finance insight –
Wednesday, 29 April 2015
• The rise of omnichannel: what it means for Finance – Wednesday, 25 March
2015
• Holiday finance checklist 2014 – Wednesday, 10 December 2014
• All change! Key trends and developments in the UK insurance market –
Wednesday, 19 November 2014
• Managing pensions risks and costs and a Tax update –
Wednesday, 22 October 2014
• Football Finance and Fraud: an inevitable cost of doing business? –
Wednesday, 1 October 2014
• Summer finance checklist – Thursday, 17 July 2014
• Finance IT systems – Wednesday, 7 May 2014
• Accounting for real estate and a Tax update – Wednesday, 23 April 2014
• Revenue recognition and the TMT sector – Wednesday, 26 March 2014
Deloitte Finance Club – Summer finance checklist (14 May 2015)105
©2015 Deloitte LLP. All rights reserved.
©2015 Deloitte LLP.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is the United Kingdom member firm of DTTL.
This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon
the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this
publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP
accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
Deloitte Finance Club – Summer finance checklist (14 May 2015)106