Accountancy Plus The Official Journal of CPA Ireland
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December Issue 2019
Accountancy Plus
The Official Journal of CPA Ireland
Finance Bill 2019/
Budget 2020
Also in this issue: Presidents Dinner 2019
Automating your accounts for digital
transformation
Energy efficiency improves the
bottom line
Leadership Insight:
Eamonn Siggins
ACCOUNTING & TAX
1
Editorial President’s Message
PRESIDENT’S MESSAGE
Accountancy Plus Welcome to the December 2019
December 2019 Edition of Accountancy Plus.
December is always a good month for • We have engaged in global research, through
CPA Ireland reflection. For my part, I can reflect on a very our membership of the Edinburgh Group,
positive experience in my first 8 months as which identifies the challenges facing the
President of CPA Ireland. At almost every profession with a particular focus on those
17 Harcourt Street, event I have attended, the word “change” has challenges facing the Small to Medium
Dublin 2, D02 W963 featured somewhere on the agenda. And yes, Practice (SMP) of the Future. CPA Ireland has
we are living in an era of incredible change prioritised support initiatives to address those
T: 01 425 1000 as digitalisation, artificial intelligence and challenges.
F: 01 425 1001 machine learning impact on the nature of work
• We have launched two innovative Diploma
which accountants traditionally complete, the
programmes in Forensic Accounting and in
workforce required to carry out that changing
Unit 3, Data Analytics and we will offer the Leadership
work and the workplace from which work can
The Old Gasworks, programme again in early 2020 to empower
be completed.
Kilmorey Street, CPAs to develop their distinctive human
None of this is new and, in 2016, Richard and strengths and progress to leadership positions.
Newry, BT34 2DH
Daniel Susskind, in their book entitled: “The
• In relation to our online learning, I am very
Future of the Professions: How Technology
T: +44 (0) 28 3025 2771 proud of the acknowledgement received from
Will Transform the Work of Human Experts”,
W: www.cpaireland.ie our peer professional bodies in Accountancy
predicted the decline of today’s professions
Europe where we were given an award at the
E: cpa@cpaireland.ie and describes the people and systems that will
Digitalisation Awards held in Brussels on 19
replace them. One quotation from the book
November 2019. The Digitalisation Awards
Editor appears, to me, to suggest that professions,
are held to recognise the most promising
including accountants, are resistant to the
Patricia O’Neill digitalisation initiatives by Accountancy Europe
change that is occurring in the world around
members.
them.
Chief Executive • The CPA executive team is engaged with
Eamonn Siggins “If we leave it to the professionals themselves to
some of the leaders in artificial intelligence
reinvent the workplace, we are asking the rabbits
solutions for the accountancy profession to
to guard the lettuce”.
Editorial Adviser ensure that CPAs receive the best advice on
Róisín McEntee The reality is something quite different, in that solutions appropriate to their workplace.
artificial intelligence is helping humans to make
So, as we enter into the third decade of the
better decisions in so many ways and will
Technical Adviser 21st Century we must adapt a digital mindset
continue to do so. I have met hundreds of CPAs,
Maureen Kelly nationally and internationally who are meeting
and accept that data entry is history, business
relationships are in real time and technology
change head on and will thrive in the workplace
Advertising will prompt service interventions based on
of the future.
movements in the financial affairs of a business.
Ciara Durham
In November, I was privileged to attend the
T: 086 852 3463 Council meeting of the International Federation
When reflecting on change during 2019, I must
E: accountancyplus@gmail.com acknowledge some senior leadership changes
of Accountants in Vancouver, Canada. This
in CPA Ireland. We marked the retirements of
annual meeting of member bodies brings
both Paul Heaney and David FitzGerald from the
Published by the Presidents and CEOs of professional
Director team, both of whom had given 15 years
Nine Rivers Media Ltd. accountancy bodies from every corner of the
of exemplary service to CPA Ireland. Our Chief
T: 01 667 5900 globe together and provides an ideal opportunity
Executive, Eamonn Siggins, who celebrated
for sharing experiences as to how the profession
E: gary@ninerivers.ie 30 years of service to CPA Ireland in October,
is responding to change.
is now supported by a Director team of Cait
Printed by My sense from meeting international peers Carmody, Deirdre McDonnell, Gillian Peters and
in the profession, and this sense is amplified Patricia O’Neill. Together, this dedicated and
Persona
from meeting with individual CPAs, is that the talented team will deliver on the change agenda
accountancy profession is already embracing facing CPA Ireland.
Distribution a changing world of work, supported by
Lettershop Services Ltd. May I wish all of you a peaceful Christmas and a
technology.
prosperous 2020.
My engagement with peer professional bodies
caused me to reflect on what CPA Ireland has
done and will continue to do to enable CPAs
and CPA students thrive in the new world of
work.
• We are engaged in a complete review of our
curriculum, which is based on research and Gearóid O’Driscoll
stakeholder engagement, to ensure that the President CPA Ireland
CPA qualification underpins a future fit for a
professional cohort of CPAs.
Accountancy Plus December Issue 2019
Contents
Pictured L – R:
Gearóid O’Driscoll, President,
CPA Ireland and Catherine
Page, Counsellor, British
Embassy Ireland.
Institute Financial Reporting Taxation
President’s Message 01 Financial Reporting News 06 Tax News 26
Institute News 44 Financial Reporting in the Finance Bill 2019/
Pharmaceutical Industry 07 Budget 2020 28
Information & Robert Kirk Mairéad Hennessy
52
Disclaimer
Law & Regulation In Practice
CPA Profile
Law & Regulation News 11 In Practice News 31
Brendan McGowan 03
ODCE Investigations – Helping your clients
Áine Collins 05 Managing the risks when create a business
your practice comes into 12 32
succession plan
investigators’ focus Glen Foster
CPD Joe Kelly
Audit Developments in
News & Events 47
the UK 32
Finance & Management Philip Johnson
Student Finance & Management
15
News
Student News 50 IT
Leadership Insight
16 Automating your
Eamonn Siggins
Personal Development accounts for digital
41
transformation
Pursuing opportunities
Making your firm Chris Howard
in a challenging
attractive to job seekers 38
environment - insights
Ed Heffernan 20
from the Food and
Agribusiness sector
David Leydon
Energy efficiency
improves the bottom line 23
Alan Makim
03
Title:
Head of Finance and Assets,
CPA Profile
Brendan McGowan
CPA PROFILE
Agribusiness
Company:
Brendan McGowan Aurivo Co-operative Society Ltd
Qualifications:
CPA & Professional Diploma in
Management Excellence, UCD.
Why did you decide to start out the Co-op and my superiors I began lots of time grinding at the books
on a career in accountancy? my studies and accountancy journey. at home, in 1999 the qualification
I first completed the Accountants eventually arrived. The fact that CPA
When I finished post primary
Technician exams and shortly is a well-recognised and respected
education, I actually had no idea what
thereafter set out in quest of the CPA qualification here in Ireland and
career path I wanted to embark on.
qualification. internationally also swayed my
I was accepted on an Engineering
thinking that this was the accounting
degree course in UCG which I tried
Why did you choose CPA Ireland body that I wanted to be a member
for two years but from early on in this
as your qualification route? of.
venture I realised this was not for me.
I did however enjoy the college life Having decided on what I wanted
Please provide a brief history of
there and participated in the vibrant to do I looked at the various options
your career.
student culture that’s present in available. Returning to full time
Galway. Having left college, I returned education wasn’t an option whilst I have spent all of my working
to my home in Tubbercurry and working full time in a busy and career with the same employer.
commenced work in the local Co- diverse environment. The CPA route That is North Connacht Farmers
op Head Office of North Connacht fitted well into my work and personal Co-op, Connacht Gold Co-op
Farmers Co-op. Working primarily life schedule. The student supports and now known as Aurivo Co-
in the accounts area, I quickly that were on offer were also a operative Society Ltd. I started as an
discovered that this was the road I deciding factor. With a combination accounts clerk and once I got my
should persue. With the support of of weekend education in Dublin and accounting technician qualification I
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Accountancy Plus December Issue 2019
04
was appointed as accounts payable How do you find your CPA knowledge of the business, a
supervisor. I remained in this role for qualification has helped you in relatively seamless transition ensued.
a number of years whilst studying for your role?
my CPA qualification. Following my What do you think are the most
Unquestionably the CPA qualification
CPA qualification, I was appointed pressing issues for Accountants
has been the backbone of my
as accountant for the stores/retail and the Industry you operate in?
journey with Aurivo Co-op. Achieving
section of Agribusiness.
this qualification while working was The primary issue right now for
the spring board for the progression the Agribusiness / Food sector is
Shortly thereafter I took the
towards my current role in the Co-op. undoubtedly the massive uncertainty
accounting responsibility for all of
My managers at the time recognised surrounding Brexit. This is the sector
Agribusiness, 30+ stores/retail outlets
my achievement and the drive and of the economy that will be most
and the Animal Feed processing
commitment I had to achieve that affected by a disorderly exit by Britain
plant, Nutrias, in Ballaghaderreen. This
goal. from the EU. Much forward planning
is a business with an annual turnover
and forecasting has been done in
of circa of €120million, primarily
animal feed, fertiliser and farm inputs. What has been your biggest order to mitigate the fallout, but this
career achievement? period of volatility appears to be set
We also have Hardware, Household
to continue.
offerings and Garden Centres. There have been many notable
landmarks in my 33-year career with
My current role is Head of Finance How do you unwind?
Aurivo. Two that are prominent in my
and Assets for Aurivo Agribusiness. I mind would be the amalgamation / Outside of my professional life
work closely with my fellow finance merger of NCF and Kiltoghert Co- my passion is for Amateur Drama.
colleagues in the other areas of op’s and recently, the introduction Though not an actor, I know my
the business – Dairy Ingredients, of a totally new software system limitations, I’m deeply involved in the
Consumer Foods, Marts and My in our retail and milling business. Amateur Drama world, particularly
Goodness Ltd. The total Aurivo The financial implications of these the Drama Festival movement, locally
turnover is circa €450million. two events posed many challenges and nationally and have served
but with careful planning, the as secretary and chairman of the
co-operation of colleagues and Amateur Drama Council of Ireland.
Accountancy Plus December Issue 2019
05
Title:
Business Development
CPA Profile
Áine Collins
CPA PROFILE
Director
Company:
Áine Collins EFM Ireland
Qualifications:
CPA. IOD
Why did you decide to start out time and worked on transformation the challenges that businesses face
on a career in accountancy? and growth within corporate services every day.
function.
I discovered the value of work and
What has been your biggest
reward from a young age while selling As my working life continued, so did career achievement?
cabbage at local markets in Cork with my passion for politics. In 2011 I was
my Dad. The incentive was you had elected to Dáil Eireann as a Fine Gael Serving as TD for Cork North West.
to pick the cabbage for the day, and I TD for Cork North West. I went on to
could keep any money I made. represent my constituency for 5 years. I found being a member of Dáil Eireann
During that time l lead the policy for an exceptionally fulfilling role, where
Following this, I got my first office job equalisation of the taxation and PRSI I helped make a difference on issues
aged 19, as a legal cashier at Bolton system between the self-employed that were of major importance and
& Lowe, a law firm at Temple Bar in and employees as it had been unequal that had direct effect on our countries
London. for years. I also worked to deliver the policy making and governance. Being
approval of payment of the Kalydeco a CPA accountant and former business
I loved the work, I really enjoyed drug for people who live with Cystic owner, my knowledge base contributed
working with numbers and this Fibrosis as well as making over 5000 significantly to my work as a TD.
provided me with the impetus to study representation from constituents
accountancy, later qualifying as a CPA. during that time on various issues from On a personal bases my greatest
I believe lessons learned in your first business concerns, education issues, achievement is being a mom to 3
job can lay the foundations for the rest medical cards, social welfare, housing, children; one who is now an adult
of your career – and this job certainly etc. living in Toronto and 2 who are still
fuelled my passion to enter the world in National school and of course a
of finance and working in the world of From 2016 to 2019, l worked on a supportive husband in all that l do.
business. project with UCC as well as setting up
my own business Blueprint Consulting What do you think are the most
Why did you choose CPA Ireland – advising on business finance and pressing issues for accountants?
as your qualification route? strategy.
Like many careers today, there is a lot
I worked in a CPA practice in my final of disruptive technologies in the world
In 2017/2018, l returned to study and
year to get more experience with a of Accountancy & Finance. As a result,
completed a Diploma with the Institute
growing firm. I have found CPA Ireland accountants now have to adapt to more
of Directors. Earlier this year I was
to be incredibly helpful with my career of a role in business planning, financial
appointed as Business Development
over the years as well as very flexible and strategic advisory services. As
Director with EFM Ireland who provide
and holistic in their approach. humans, we must become tech fluent
strategic financial and advisory services
and augment artificial intelligence with
to Irish Businesses.
Please provide a brief history of human skills that cannot be digitised
your career. e.g. analysis, scepticism and creativity.
We have a team of highly experienced
Shortly after qualifying as an accountant Finance Directors who are available to
What traits do you admire most
in 1996 l opened an Accountancy offer operational finance and strategic
support on a flexible, part-time basis, in others?
Practice in Millstreet, Co Cork. I spent
the following nine years growing the which offers the benefit of having that Honesty, Fairness, Courage,
practice and I really enjoyed helping expert input, without bearing the full- Openness, Resilience and Loyalty .
my clients manage and grow their time cost of hiring a Finance Director
businesses. in-house. We work with businesses
How do you unwind?
from the ground - up, to support with
In 2005 l joined the SWS Group which growth, development and to effectively I relax by taking time out to enjoy
was a multi sectoral business in the and efficiently scale-up their business. activities such as current affairs, hiking
areas of Forestry, Renewal Energy and particularly in the Kerry Mountains,
Corporate Services. They were growing This role really resonates with me going to the gym, meditation (trying!)
their corporate services operation, following my long career of working cooking and spending time with family
acquiring accountancy practices at the with Irish Business and understanding and close friends.
Accountancy Plus September Issue 2019
06
Financial Reporting News
IAASA publishes review on Common enforcement priorities and supply chains; and
the IFRS 16 Leases disclosures • specific aspects related to the
The European Securities and Markets
within the 2019 half-yearly application of the ESMA Guidelines
Authority (‘ESMA’) has published its on Alternative Performance Measures
financial reports annual priorities statement titled (APMs) to measures modified or
‘European common enforcement included as a result of the new
IAASA, Ireland’s accounting enforcer,
priorities for 2019 annual financial accounting standards.
has published an Information Note
reports’ setting out those topics which
highlighting the findings of a desktop Source: www.iaasa.ie
company directors, Audit Committees
review on the IFRS 16 Leases disclosures
and auditors should particularly
in the 2019 half-yearly financial reports.
consider when preparing, reviewing FRC sets out expectations for
The purpose of this Information Note is and auditing International Financial corporate reporting to improve
to provide readers with: Reporting Standards (‘IFRS’) financial trust in business
statements for the year ending 31
• an analysis of the nature, extent and
December 2019. The Financial Reporting Council (FRC)
impact of the information disclosed
has today called for improvements to
by issuers in relation to the transition The three priorities for 2019, selected
corporate reporting in an open letter
to IFRS 16 Leases in their 2019 half- on the basis of the significant changes
to all Audit Committee Chairs and
yearly financial reports; and that these new requirements introduce
Finance Directors. The letter reflects
and their impact on EU capital markets,
• a comparison of the actual findings from the FRC’s Annual Review
are:
transitional impact of IFRS 16 as of Corporate Reporting 2018/19
disclosed in the half-yearly financial • specific issues related to the (published today) and the scope for
statements with the estimated impact application of IFRS 16 Leases; companies to improve their reporting to
disclosed by the issuers in their prior • follow-up of specific issues related address matters of increasing concern
year annual financial statements. to the application of IFRS 9 Financial to investors and enhance public trust in
Instruments for credit institutions and business.
IFRS 16 is required to be applied to
annual reporting periods beginning IFRS 15 Revenue from Contracts with The FRC expects companies to improve
on or after 1 January 2019. As such, Customers for corporate issuers; and the quality reporting of forward-looking
the 2019 half-yearly financial reports • specific issues related to application information, the potential impact of
are the first financial statements that of IAS 12 Income Taxes (including emerging risks on future business
issuers had to prepare and publish in application of IFRIC 23 Uncertainty strategy, the carrying value of assets
which mandatory IFRS 16 information over Income Tax Treatments). and the recognition of liabilities.
was required, including the impact of Failure to report on these crucial
transition. In its statement, ESMA reiterates areas undermines trust in business
the importance for companies to and can lead to the conclusion that
Overall, IAASA found that issuers
present entity-specific information management is either unaware of their
provided high quality disclosures
in their financial reports and provide potential impact, is being opaque, or is
regarding their accounting policy for
information that aids readers’ not managing them effectively.
leases and the financial impact of
understanding of the company’s
the adoption of the new accounting In times of uncertainty, investors and
financial performance and financial
standard. other stakeholders expect greater
position.
transparency of the risks to which
The most significant impact for
ESMA highlights potentially significant companies are exposed and the actions
issuers’ reported results arising from
implications of transition from one they are taking to mitigate the impact
transitioning to IFRS 16 is that leases
interest rate benchmark rate to of those uncertainties. The FRC expects
previously defined as operating leases
another on financial reporting and the companies to think beyond the period
under IAS 17 and treated as “off-
importance of timely disclosure of its covered by their viability statement and
balance sheet” are now required to be
consequences. identify those keys risks that challenge
recognised in the Statement of Financial
their business models in the medium to
Position as a “right of use” asset and a ESMA’s statement also draws attention longer term and have a particular focus
related lease liability. to some specific requirements on environmental issues.
relating to the sections of the annual
The Information Note is available here
financial report other than the financial The FRC welcomes some improvement
Source: www.iaasa.ie statements, namely: in key disclosures of critical judgements
and estimates and alternative
• the disclosures of non-financial performance measures (APMs) as
information focusing on: reflected in companies’ strategic
• environmental and climate reports. It will continue to press
change related matters; companies who do not clearly report
• key-performance indicators; the specific judgements they have taken
or who do not present APMs clearly in
• the use of disclosure frameworks
accordance with best practice.
Accountancy Plus December Issue 2019
07
Financial Reporting in the
Financial Reporting in the Pharmaceutical Industry by Robert Kirk
FINANCIAL REPORTING
Pharmaceutical Industry
by Robert Kirk
In this issue of Accountancy Plus I have taken the opportunity to investigate how accounting
standards (both local and international) play a unique role in the financial statements of
pharmaceutical companies. Clearly a number of the standards would apply equally to other
industries but the following topics play a central role in this particular industry:
• Research and development expenditure
• Research and development tax credits
• The valuation of inventories
• Product licencing and revenue recognition
Research and development The challenge has been trying markets and recent history has
expenditure to match these generic criteria shown that gaining approval in one
with the actual processes and market is not a guarantee of approval
Under international reporting, IAS risks of pharmaceutical product elsewhere.
38 Intangible Assets, capitalisation development. In the United States
of all development expenditure is a very prudent approach has been How is post launch expenditure to
compulsory from the point when it adopted and all research and be accounted for? There is a strong
becomes probable that attributable development must be written off argument that this is, in substance,
economic benefits will be realised. immediately as an expense. marketing spend and thus should be
The key issue has been what does expensed.
probability mean? Superficially, the Some of the key questions that arise
standard is clear, no expenditure may include: Although the capitalisation of
be capitalised for research, but one development expenditure does
must be recognised for development, • Could costs be capitalised prior
increase the value of intangible
if six criteria are met. These are as to obtaining first major market
assets and (short-term) profitability
follows: approval?
the industry at large usually assesses
• Is there sufficient certainty at any the uncertainties of getting a drug
• It is technically feasible to complete point in the approval process to approved to be too great to justify
the intangible asset for use or sale; support an argument of probable capitalising significant development
• It is the entity’s intention to future benefit? costs. An example of a typical
complete the intangible asset for accounting policy adopted for
• Does recognition have to be
use or sale; Irish pharmaceutical companies is
deferred until final approval has
illustrated by Trinity Biotech Plc as
• The entity has the ability to use or been obtained?
follows:
sell the intangible asset; Given the strong market reactions
• It can be demonstrated that it is to announcements of changes in Trinity Biotech Plc
probable that the intangible asset the status and timing of regulatory
approvals, there clearly is a risk
Notes to the consolidated
will generate future-economic
discount built in by the market for
financial statements December
benefits;
development uncertainty until final 31 2018
• The entity has adequate technical, approval and labelling is cleared. Basis of Preparation and
financial and other resources to
Significant Accounting Policies
complete the development; and What about costs incurred after first (Extract)
• The entity can measure reliably major market approval - is there now
Expenditure on development
the expenditure attributable to sufficient certainty of a product’s
activities, whereby research
the intangible asset during its commercial viability? There is no
findings are applied to a plan or
development. clear-cut answer. Different products
design for the production of new
will have different success in different
or substantially improved products
Accountancy Plus December Issue 2019
08
and processes, is capitalised if the impairment losses (Note 1(viii)). controlled by the company are
product or process is technically recognised as intangible assets when
and commercially feasible and the Expenditure on research activities, the following criteria are met:
Group has sufficient resources to undertaken with the prospect of
complete the development. The gaining new scientific or technical • It is technically feasible to complete
expenditure capitalised includes the knowledge and understanding, the product so that it will be
cost of materials, direct labour and is recognised in the statement of available for use;
attributable overheads and third- operations as an expense as incurred.
• Management intends to complete
party costs. Subsequent expenditure
the product and use or sell it;
on capitalised intangible assets is Under the local standard, FRS 102,
capitalised only when it increases the local companies have a clear choice • There is an ability to use or sell the
future economic benefits embodied as to whether or not to capitalise product;
in the specific asset to which it development expenditure using the
• It can be demonstrated how the
relates. same criteria as IAS 38 but again
product will generate probable
there is a reluctance to do so. Under
future economic benefits;
The technical feasibility of a new the micro standard, FRS 105, all
product is determined by a specific research and development must be • Adequate technical, financial and
feasibility study undertaken at the first expensed immediately so a micro other resources to complete the
stage of any development project. pharmaceutical company may development and to use or sell the
The majority of our new product decide to opt for a higher level of product are available; and
developments involve the transfer of reporting under FRS 102 if they wish
• The expenditure attributable to the
existing product know-how to a new to capitalise development costs.
product during its development can
application. Since the technology is
be reliably measured.
already proven in an existing product Randox Laboratories Ltd in
which is being used by customers, Northern Ireland and Aerogen Ltd Other development costs that do not
this facilitates the proving of the in the Republic of Ireland are two meet these criteria are recognised as
technical feasibility of that same companies that have opted to an expense as incurred. Development
technology in a new product. capitalise development costs under costs previously recognised as an
FRS 102: expense are not recognised as an
The results of the feasibility study asset in a subsequent period.
are reviewed by a design review Randox Laboratories Ltd
committee comprising senior Aerogen Ltd
Notes to the financial statements
managers. The feasibility study occurs
year ended 31st December 2018 Year ended 31st December 2017
in the initial research phase of a
project and costs in this phase are not Accounting policies (Extract) Notes
capitalised. Intangible assets Significant accounting policies
(Extract)
The commercial feasibility of a new Development expenditure:
Intangible assets
product is determined by preparing a
discounted cash flow projection. This Development expenditure relating to Research and development (R&D)
projection compares the discounted diagnostic products manufactured
sales revenues for future periods by the company is written off as Expenditure on research activities
with the relevant costs. As part of incurred, except where the directors is recognised in the profit and loss
preparing the cash flow projection, are satisfied as to the technical, account as an expense as incurred.
the size of the relevant market is commercial and financial viability of R&D tax credits are credited to
determined, feedback is sought from individual projects. In such cases, the administrative expenses as earned.
customers and the strength of the identifiable expenditure is capitalised
proposed new product is assessed and amortised over the period in Expenditure on development
against competitors’ offerings. which the company is expected to activities may be capitalised if the
Once the technical and commercial benefit. This period is typically three product or process is technically
feasibility has been established and years. Provision is made for any and commercially feasible and
the project has been approved for impairment. the company intends and has
commencement, the project moves the technical ability and sufficient
into the development phase. Capitalised development costs resources to complete development,
include external direct costs of future economic benefits are
All other development expenditure materials and services together with probable and if the company can
is expensed as incurred. Subsequent direct labour costs and overheads measure reliably the expenditure
to initial recognition, the capitalised relating to development expenditure. attributable to the intangible asset
development expenditure is carried Development costs that are directly during its development.
at cost less any accumulated attributable to the design and testing
amortisation and any accumulated of identifiable and unique products
Accountancy Plus December Issue 201909
R&D tax credits There are no accounting differences overheads? Having visited a
between companies reporting under number of large pharmaceutical
Financial Reporting in the Pharmaceutical Industry by Robert Kirk
FINANCIAL REPORTING
There is no accounting standard on
IFRS or local accounting standards. manufacturing sites in England over
the topic but it is generally agreed
the years I have been surprised that a
that it is appropriate to consider that
Other operating income number include accountants’ salaries
under IFRS the R&D tax credit is,
in their valuation on the grounds that
in substance, a government grant
everyone on the site is contributing
toward R&D expenditure (having Other operating income
to the manufacturing process and
regard to the government’s expressed 2017 2016 this seems to be acceptable to the
aim of reducing the economic
auditors.
cost of undertaking R&D activity in Government
Ireland, and the method by which grants (market 108,908 175,390
access and R&D) There is certainly a lot of judgment in
the amount of the relief is now
deciding which overheads to include
determined), and, accordingly, it
as well as deciding what the normal
could be presented in the income
There are no accounting differences level of capacity is to absorb the
statement as a pre-tax government
between companies reporting under overheads into the valuation. Most
grant.
IFRS or local accounting standards. companies take the view their current
budget is acceptable as long as it is
However, a number of companies
The valuation of inventories not out of line with previous years.
have chosen to record the tax credit
as a reduction in the income tax
Similar to other manufacturing Another issue is the problem of
charge for the year.
companies all costs required to obsolescence and slow-moving
bring the inventories to their precise inventory which must be reduced to
It is interesting to note that Aerogen
location and condition should be their fair value less costs to sell (net
Ltd have treated the tax credit as a
included in their valuation. The key realisable value) under both IAS 2 and
reduction in administrative expenses
issue is which overheads to include FRS 102.
(see above) rather than as a separate
pre-tax income but they have also and how much overhead.
One company which had problems
recorded grants on research and
Clearly all production overheads a number of years ago was the Elan
development as other income.
must be included but what other Corporation Plc who had to write-
Accountancy Plus December Issue 201910
down €14million inventory when the choose to be vaguer. which provides testing services to
drug Tysabri was withdrawn from the institutional customers and insurance
US market after a medical scare. Under IAS 38, intangibles that companies. In the US, there are rules
are acquired outside a business requiring all insurance companies
Elan Corporation Plc combination are assumed to to be billed the same amount per
be assets, and not an expense. test. However, the amount that
Year ended 31st December 2005. IAS 38 effectively presumes that each insurance company pays for
Notes to the financial statements development risk is factored into a particular test varies according
(Extract) the purchase price and an intangible to their own internal policies and
asset should be recognised. this can typically be considerably
8. Inventory
less than the amount invoiced. We
How about the more complex recognise lab services revenue for
Product inventories at December
arrangements such as when a large insurance companies by taking the
31 of each year consisted of the
pharmaceutical company takes a invoiced amount and reducing it by
following (in millions):
stake in a biotech to gain access to an estimated percentage based on
specific products or technologies? historical payment data. We review
2005 2004 the percentage reduction annually
$ $ It may appear that the company based on the latest data.
has acquired an equity investment
Raw materials 8.3 6.8
which may be a financial asset or As a practical expedient, and in
Work-in-process 9.7 8.2 an associate, joint venture, or even accordance with IFRS, we apply a
a subsidiary. Is this really a purchase portfolio approach to the insurance
Finished goods 7.3 14.0
of R&D and should this amount be companies as they have similar
Total inventory 25.3 29 treated in whole or in part as an characteristics. We judge that the
intangible asset? Questions include effect on the financial statements of
whether the entity is, in substance, a using a portfolio approach for the
During the year ended December 31,
stand-alone enterprise, and whether insurance companies will not differ
2005, we recognised a write-down of
it has the resources to continue on a materially from applying IFRS 15 to
finished goods of $14.0 million related
going concern basis. the individual contracts within that
to Tysabri, as a result of the voluntary
portfolio.
suspension of the marketing and
If the conclusion is that the
dosing in clinical trials of the product.
arrangement is an investment, Conclusion
IFRS 9 requires equity investments
After further testing the drug re- Undoubtedly the pharmaceutical
to be carried at fair value, with
entered the market under strict industry has a number of difficult
changes in value recognised either
conditions of use two years later and accounting issues posed by the
directly in profit and loss or in other
although it is possible to reverse the uncertainty that exists in the industry
comprehensive income, if it is not
write-down it was too late for the as to the success or failure of
held for trading.
company as the drugs were by that their research and development
time out of date. programme together with some
And how about the revenue? A
licensor needs to assess whether the complicated revenue relationships.
Product licencing and
licence is distinct or not. Accounting
revenue recognition for a normal licence should be -
Increasingly, pharmaceutical straightforward if distinct - under IFRS
companies are licensing development 15 and FRS 102 royalties generally are
drugs or entering into collaboration recognised on a straight-line basis
agreements. The accounting is over the life of the agreement. But if
complex if it involves milestone not distinct, under IFRS 15, it will be
payments, equity stakes or ongoing combined with the manufacturing
commitments such as shared R&D or service as a single performance
manufacturing. obligation.
Under FRS 102, if an acquired product Trinity Biotech Plc
is in early stage development, the
Notes to the consolidated Robert Kirk
licence cost typically is written
financial statements December
off - the upfront amounts tend to Robert Kirk, CPA, is professor of
31, 2018
be small and likelihood of success Financial Reporting at the University
considered too low to recognise the Basis of Preparation and of Ulster. Robert is also author of the
value as an asset. But practice for Significant Accounting Policies CPA Ireland Skillnet publication, A New
late stage licence-ins varies. Some xvi) Revenue recognition (Extract) Era for Irish and UK GAAP – A Quick
pharmaceutical companies capitalise The Group operates a licensed Reference Guide to FRS 102.
late stage licence costs while others referenced laboratory in the US,
Accountancy Plus December Issue 201911
Law & Regulation News CRO Credit Notes
Law & Regulation News
LAW & REGULATION
Over many years the CRO has issued credit
notes to customers in place of cash refunds.
Following legal advice received by CRO, and
Data Protection & Brexit as part of CRO`s to intention to move to a
October 2019 full epayments based system for all monies
charged and received from customers, it is the
Brexit, particularly in the ensure an adequate level of CRO`s intention to phase out the acceptance
context of a ‘No Deal’ data protection. of historic credit notes.
scenario, may have a serious
impact on the data protection This FAQ aims to answer This will commence on 1st January 2020 and
obligations of Irish controllers some of the basic questions be implemented on a rolling six year basis.
which transfer personal data as to how that might impact
to the UK (including Northern controllers and what steps Thus, all credit notes issued by CRO dated
Ireland); because, in a situation they should take. prior to 1st January 2014 will not be honoured
where the UK becomes a as payment from customers for either charges
Data Protection and Brexit – for services or customer account receipts,
‘third country’, transfers to the
Frequently Asked Questions from that date.
UK will be considered transfers
outside of the EU/EEA and Source: Source: www.cro.ie
will require a mechanism to www.dataprotection.ie
ESMA Prepares For While, in line with its Strategic consistency in the application
Orientation 2016-20, it will of MiFIDII/MiFIR for secondary
New Responsibilities continue to focus on supervisory markets. It will continue its work
In 2020 convergence, identifying areas on the performance and cost of
for improved consistency of retail investment products, while
The European Securities and supervisory outcomes across the facilitating the development of
Markets Authority (ESMA), the EU including ensuring standardised, its data-driven supervision;
EU’s securities markets regulator, high-quality data and will intensify
has published its 2020 Work work on using its data and 2. Assessing Risks – publication
Programme (WP), setting out its quantitative analysis across all its of its annual statistical report
priorities and areas of focus for activities. series based on EMIR, AIFMD
the next 12 months in support of and MiFID II data and promoting
its mission to enhance investor Finally, one key uncertainty for cooperation on risk analysis;
protection and promote stable 2020 is the UK’s withdrawal from
and orderly financial markets. the European Union and ESMA 3. Single Rulebook - contributing
continues to prepare for both a no- to the implementation of the
The key issue facing ESMA in 2020 deal Brexit scenario, where it will Capital Markets Union, Fintech
is the implementation of its new focus on managing the immediate and Sustainable Finance Action
mandates, and enhanced role, in risks and issues, and the scenario Plans, developing the necessary
areas including direct supervision, where a withdrawal agreement is rules under EMIR 2.2/EMIR Refit
supervisory convergence, investor in place. and reviewing MIFID II/MiFIR;
protection, relations with third and
countries, sustainability and During 2020, in addition to
technological innovation. implementing ESMA’s new 4. Supervision – ensuring
mandates, the key areas of focus effective supervision of credit
This follows the conclusion of the under its activities of supervisory rating agencies (CRA), trade
ESAs’ Review, which will involve convergence, assessing risks, single repositories (TR), entities under
changes to its mission from 2020, rulebook and direct supervision will the Securitisation Regulation
and EMIR 2.2., where ESMA will be: and SFTR and Tier 2 CCPs
build its capacity to supervise Third under EMIR 2.2, along with the
Country Central Counterparties 1. Supervisory Convergence - recognition of third-country
(CCPs) and further promote strengthening the convergence CCPs.
convergence for EU CCPs. powers based on the new ESMA
Regulation, while ensuring Source: www.esma.europa.eu
Accountancy Plus December Issue 201912
ODCE Investigations
Managing the risks when your practice comes
into investigators’ focus
by Joe Kelly
This article sets out some tips for Certified Public Accountants faced with an investigation from the
Office of the Director of Corporate Enforcement (ODCE) into the books and records of clients.
The ODCE and its remit to auditors. For example, the ODCE a. A liquidation or receivership of a
may compel a liquidator or receiver company is being carried out (this
The ODCE was established in
appointed to a company, to produce request is made to the liquidator or
November 2001, charged with the
books in relation to a liquidation receiver)2;
responsibility for tackling offences
or receivership, or indeed all of the
under the Companies Acts, now the b. It is necessary to determine
liquidations or receiverships, they
Companies Act 2014 (the Companies whether inspectors should be
have carried out, within the last 6
Act). appointed to investigate the
years.
company3;
The ODCE’s primary statutory
Most crucial amongst the ODCE’s c. The affairs of the company are
mandate is to encourage compliance
arsenal of investigative powers, being conducted with the intent
with the Companies Act.1 The ODCE
are the powers to: (i) compel the to defraud creditors/creditors of
has responsibility for investigating
production of books and documents another person/the members or
instances of suspected non-
relating to a company under for another fraudulent/unlawful
compliance and/or offences under
investigation; and (ii) to enter and purpose4;
the Companies Act; with the power
search premises and seize material
to prosecute in its own right, d. The affairs of the company are
information.
summary offences (generally taken being conducted in an unlawful
to mean offences which attract manner5;
Production of books and
sentences of less than one year) in
documents e. The affairs of the company are
the District Court or to refer more
The ODCE may issue statutory being conducted in a manner, or
serious (indictable) offences to the
production orders which require the company has engaged in an
DPP for prosecution.
the production of the books of a act or omission, that is unfairly
company or documents relating to prejudicial to some of the creditors/
In addition, and crucially for CPA
a company. “Books and documents” members6;
Ireland members, the ODCE exercises
a supervisory role over the activities potentially covers a wide range of f. The acts or omissions of the
of liquidators and receivers. written, audio or visual documents company or an officer of the
in hardcopy or in electronic form: company are likely to be unlawful7;
including but not limited to emails,
The investigative powers of g. The company was formed for
recordings of phone-calls, text
the ODCE messages and video content. some unlawful/fraudulent purpose8;
The ODCE has extensive powers to h. The company possesses books
investigate suspected breaches of the The ODCE may require the or documents relevant to another
Companies Act, such as fraudulent production of books and records company coming within the terms
trading or providing false statements where: listed at (c) to (g) above9.
1 S.949 Companies Act (1)(a)
2 Sections 446 and 653 of the Companies
3 Section 779(a) of the Companies Act
4 Section 779(b)&(c) of the Companies Act
5 Section 779(d) of the Companies Act
6 Section 779(e),(f), (g)&(h) of the Companies Act
7 Section 779(i) of the Companies Act
8 Section 779(j) of the Companies Act
9 Section 779(k) of the Companies Act
Accountancy Plus December Issue 201913
Of particular relevance to Such a warrant permits a designated An ODCE investigation on your
accountants is the ODCE’s power officer of the ODCE to: premises
ODCE Investigations by Joe Kelly
LAW & REGULATION
to compel third parties to produce
information and/or documents by a. enter the named premises, by force It is crucially important that all
way of a production order, where that if necessary; practices are alert to the “do’s and
third party has relevant information don’ts” in the event that they have
b. search the premises; to deal with an unexpected visit
about a company which is under
investigation by the ODCE10. from the ODCE and/or the Gardaí.
c. require any person found on the
Colloquially, this is often referred to
premises to give their name, home
In such circumstances the third party, as a “dawn raid” though invariably the
address and occupation, and
which may include the company’s raid or visit does not take place at
produce any material information
accountants or auditors, may be dawn.
that is in their custody;
compelled to explain the documents
and to provide reasonable assistance d. seize and retain any material Imagine this scene:
to the ODCE. information found on the premises You get a call from your office as
or in the custody or possession of you make your way into work one
If a scenario arises where the party any person found on the premises; morning. Your receptionist says that
served with a production order and a number of people from the ODCE
claims that the documents requested and the Gardaí are in reception and
contain legally privileged material, the e. “take any other steps that appear that they have produced a District
documents must be provided to the to the officer to be necessary Court warrant.
ODCE. In practice, these documents for preserving or preventing
will be provided in sealed envelopes interference with material When you arrive at work you find an
until the issue of whether or not they information.” ODCE digital forensic specialist in
are privileged has been resolved by your office searching through your
Furthermore, the orders are valid for
the court or by an independent legal files, downloading your e-mails,
a period of 30 days, during which the
professional, as agreed between the asking for your mobile phone, reading
ODCE officers may enter and search
ODCE and the party concerned. your diary and asking you questions
the premises multiple times.
about client meetings from last year.
Entry, search and seizure at a An ODCE forensic accountant is busy
The ODCE, in addition, has “extended
premise at work reviewing and copying your
powers of seizure” which permit it
The ODCE may apply to the District clients’ books and records.
to seize non-material information
Court for a warrant to enter and where it is not immediately practical
search premises to gather material If your practice is not adequately
to establish whether the information
information or documents. In order prepared and every member of your
is material, or where material
to obtain a warrant, the ODCE must business is not properly briefed in
information cannot be separated
satisfy the court that it has reasonable advance, then dealing with such a
from non-material information.
grounds for suspecting that “material regulatory intervention will be all the
information”11 will be found at the more challenging and damaging for
In this scenario the ODCE is obliged
premises12. your business.
to separate the information while
maintaining confidentiality over the
Material information means document and allowing the owner
information or documents which may of the document access to it13. The
be relevant to the commission of an separation of the information should
offence under the Companies Act, or take place within three months or
documents which have been sought such longer period as is permitted
by way of a statutory order which by the High Court14. This scenario in
have not been produced. particular arises where a document
may contain material information but
may be subject to legal professional
privilege or partly subject to legally
privileged.
Joe Kelly
10 Sections 780 - 783 of the Companies Act
11 Section 787(13) of the Companies Act defines material information to include information which is Joe Kelly is a Partner in A&L Goodbody’s
relevant to the commission of a Companies Act offence or documents which were sought by way Litigation and Dispute Resolution practice,
of a production order and not produced. specialising in white-collar crime and
12 Section 787(1) of the Companies Act regulatory investigations.
13 Section 788(2) – (5) of the Companies Act
14 Section 788(7) of the Companies Act
Accountancy Plus December Issue 201914
What to do when the ODCE arrives
IMMEDIATE STEPS THE RAID
Check Investigators’ Co-operate Answer questions
ID/Statutory
Authorisations • Don’t obstruct, conceal or destroy • Investigators can ask questions
documents • Answer routine questions - if
• ODCE must obtain a warrant to
• Don’t fail (unreasonably) to comply appropiate, state that you are
search your premises
with a request answering under compulsion
• Ensure the warrant correctly
• Failing to co-operate may be a • Be truthful and stay on point
identifies your business,
location and the authority criminal offence • If you don’t know the answer, say
• Keep it confidential - by telling so
• Ensure it is a District Court
warrant - not a Production others, you risk committing a • Clarify if necessary
Order “tipping off offence”
• Take notes of questions and your
• Take a copy for your lawyers answers
Be vigilant
Call your legal advisors • Object to investigators seeing Observe what is happening
and tell them: legally-privileged materials
• Observe every investigator
• WHERE you are • Object to investigators seeing
irrelevant materials • Record what they are seeking e.g.
• WHICH body has arrived (the names/dates/key terms
ODCE / other regulator) • If there’s a disagreement, don’t
obstruct - ask for materials to • Take notes of any materials
• WHO is the lead investigator reviewed, copied or taken
be put in a sealed envelope for
• WHAT is being investigated resolution later
The future for the ODCE - In particular, in 2017, the ODCE records of clients and/or to provide
signs of a movement towards hired a digital forensic specialist information within their knowledge
a more active investigative and a forensic accountant.15 Two or custody concerning their practice
enforcement lawyers were also and/or their clients. The ODCE,
force?
added to the staff over the course of and the Gardaí who are seconded
Despite possessing strong 2017 and 2018.16 to the ODCE, can also make use
investigative powers, the ODCE has of extensive powers of search and
not been overly active in using its According to figures from the seizure.
powers to compel the production ODCE’s latest Annual Report, as of
of books and records or to engage 2018 the ODCE’s professional staff While it is not legally possible to
in search and seizure. That may be include three lawyers, seven forensic obstruct an ODCE officer who is
because it may be a better use of accountants, a Digital Forensic legitimately exercising these powers
resources for the ODCE to serve Specialist, seven members of An under the Companies Act, it is always
statutory directions to produce Garda Síochána (seconded from the sensible to contact your legal advisor,
specified books or documents. Garda National Economic Crime to ensure that those powers are
Bureau), assisted by a number of being used correctly and that your
While the ODCE has, for many civil servants of various grades. It is constitutional and statutory rights,
years, been made up of civil also understood that the ODCE is and those of your client are being
servants, law enforcement officers procuring software and hardware respected.
and professionals having a range to enable it to put in place its own
of interdisciplinary expertise, some e-discovery capability. To best prepare for an unexpected
recent changes in the make-up of visit from the ODCE or any other
the ODCE’s staff have suggested an Conclusion regulator, practices should make sure
intention to make greater use of its to have a plan in place for dealing
The ODCE has significant
significant investigative capabilities. with such visits and ensure that
investigative powers including
each member of the practice is fully
the power to compel CPA Ireland
briefed on their role in the event of
members to produce books and
such a visit occurring.
15 ODCE, Annual Report 2017, (Dublin: ODCE, 2018), p.10
16 ODCE, Annual Report 2018, (Dublin: ODCE, 2019), p.10
Accountancy Plus December Issue 201915
Finance &
Finance & Management News
FINANCE & MANAGEMENT
Management
News
Brexit Supports
1. Enterprise Ireland is encouraging businesses to step
into new markets and ensure that their exports are
sufficiently diversified. Find steps to support Irish
companies here
2. This Quick Brexit Guide for Business published
in September 2019 seeks to answer many of the
questions that Irish businesses may have when
assessing their exposure to Brexit and determining the
best course of action to mitigate their likely Brexit-
related difficulties.
It provides information on the practical steps you can
take to deal with issues including: Customs, tariffs and
duties, currency, imports, certification, working capital,
and financing.
https://dbei.gov.ie/en/Publications/Quick-Brexit-
Guide-for-Business.html
3. Links to these supports for Members in preparing for
Brexit can be found on our Brexit Resource page on info@axonoutsourcing.ie 00353 1 5394779
the CPA website.
Source: www.cpaireland.ie
Investors seek clearer reporting on climate-related issues (October 2019)
Companies are falling short report also outlines what by participants, and the UK
of investors’ expectations for investors want to understand, Government expects all listed
clearer reporting on climate- questions companies should companies and large asset
related issues according to a ask themselves, recommended owners to disclose in line with
new report Climate-related disclosures, and a range of the TCFD recommendations by
corporate reporting from the examples of the developing 2022.
FRC Financial Reporting Lab (the practice of climate-related
Lab). reporting. Earlier this year, the FRC
published a statement outlining
As economies increasingly While reporting on climate the responsibility of Boards of
transition towards low carbon change is an evolving practice, UK companies to consider their
and climate resilient futures, the expectations are changing impact on the environment and
Lab’s report highlights the gap rapidly. the likely consequences of long-
between current reporting and term business decisions. Boards
investor expectations and calls The Lab recommends should, therefore, address and
on companies to bridge this gap. companies use the Task Force where relevant, report on the
on Climate-related Financial effects of climate change.
It provides practical guidance Disclosures (TCFD) framework to
about where companies can report on climate-related issues, A link to the Lab’s report can be
improve their reporting. The as this was well supported found here.
Accountancy Plus December Issue 2019You can also read
