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Albo Euro Consult
Paul GisbyManager, Accountancy Europe
Brussels, 8 June 2018
22
• About Accountancy Europe
• SME Audit & Other Assurance Services
• Public Oversight
• NFI Directive, Sustainable Finance
• EU Direct Tax Update
• EU VAT Update (if time)
Today’s presentation
Close to 1 millionprofessionals
28 EUMember States
37 countries51 institutes
66
Influence decision makers
Help the profession shape its future
Facilitate cooperation amongst Members
Our mission
IFRS 9
AUDIT
AND
ASSURANCE
SME
FORUM
FP9
ACCOUNTING
BANKS
PROFESSIONAL
ETHICS AND
COMPETENCES
ANTI-
MONEY-
LAUNDERING
INSURANCEIAASB/
PCAOB
COMMS
MANAGERS
NETWORK
POLICY GROUP
WORKING PARTY
TASK FORCE / GROUP
DISCUSSION GROUPVAT
ESG
ASSURANCE
TAX
BUSINESS
INSOLVENCY
JOINT
CAPITAL
MARKETS
UNION
PUBLIC
SECTOR
CORPORATE
REPORTING
COMPANY
LAW
AUDIT
COMMITTEE
ESG
REPORTING
Our expert groups
8
Who we talk to
8
• European Commission, MEPs and attachés
• Standard setters – IASB, IAASB, IPSASB, GRI
• NGOs – TI, Oxfam, Christian Aid etc
• Other EU organisations & think-tanks – CSRe,
CFE, ETAF, EFAA, EPC, CEPS
• Other accountancy representatives – i.e. ECG,
Egian and other networks
9
What we do
9
• Respond to EU consultations
• Hold informal talks with policymakers
• Respond to consultations from international standard setters
• Inform our members of developments
• Organise events – e.g. Digital Day 19 June
• Produce fact sheets and opinion statements
• Thought leadership projects – Cogito papers on FoCR and FoAA
SME/SMP Audits
1111
• EU: audit all medium & large entities and PIEs
• Member State option: audit all or some small entities
• Audit of small entities based on their needs and those
of users (need for certainty to banks, suppliers,
shareholders, tax authorities), including size of
country's economy and size of entities
• Upward trend in audit exemption thresholds: be
prepared!
• For instance: France: proposal to double them
To Audit or Not to Audit?
1212
Audit exemption thresholdsAudit Exemptions for LL Companies in
EU, Iceland, Norway and Switzerland
(1)
Countries
Maximum thresholds: (Germany, Ireland, Netherlands,
Switzerland, United Kingdom) 5
Balance Sheet total: between € 3.650.000 and 4.837.000
Net turnover: between € 3.700.000 and 10.000.000
(Austria, Belgium, Denmark¹, Greece, Italy, Luxembourg,
Romania & Slovenia)
8
Balance sheet total: between € 1.550.000 and 2.850.000
Net turnover: between € 3.100.000 and 5.700.000
(Croatia, Estonia¹, France (SARL/SNC), Lithuania, Poland
& Spain)
6
¹Audit threshold
1313
Audit exemtpion thresholdsAudit Exemptions for LL Companies in
EU, Iceland, Norway and Switzerland
(2)
Countries
Balance Sheet total: between € 537.000 and 1.500.000
Net turnover: between € 1.600.000 and 3.000.000
(Bulgaria, Czech Republic, Denmark¹, Estonia², Iceland,
Latvia, Portugal & Slovak Republic)
6
Balance Sheet total: between € 0 and 150.000
Net turnover: between € 300.000 and 965.000
(Finland, Hungary, Norway, Sweden)
4
Balance sheet total/ net turnover: € 0
(Cyprus³, France (SA), Malta) 2
¹Threshold for choice between audit or review
²Review threshold
³For tax purposes
14
• Trigger: ISAs suitable to
apply in SME audit?
• Objective: explore the
challenges at stake &
discuss potential solutions
• Target audience: IAASB,
regulators & professional
bodies
Accountancy Europe project
1515
Importance of SMEs in our economic environment
• SMEs are the backbone of the EU economy
• Audit is valuable as it ensures that financial statements are reliable, instilling trust in the economy & its growth
Conflicting pressures
• Development of the regulatory environment → very detailed and complex auditing standards (ISAs)
• Proportionality and scalability difficult to apply
Difficulties encountered by practitioners
Context of the Cogito paper
1616
National guidance and IT tools for SME audit
Upward trend in developing national guidance and IT tools for applying ISAs proportionately
Specific standards for SME audit
• In use only in France
• Standard SASE in the Nordic countries, not in use (yet)
National approaches
year Number of European
countries with national
guidance
Number of European
countries with IT tool
2015 7 4
2018 10 9
Hungary
Slovakia – being developed
1717
• Global
• Consistenti.e. provides same audit
comfort & assurance level
• Technology-oriented
Conditions for a workable solution
1818
1. Build within the ISAs
a) develop guidance to apply the ISAs
b) revise ISAs to apply ‘think small first’ approach
c) revised ISAs to deal with language complexity
d) always: apply information technology to the ISAs
2. Develop a standalone standard – alongside ISAs or not
3. Other routes
Possible solutions
1919
Aim
Exploring solutions to help IAASB find an efficient way to deal with small or non-complex entity audits
Programme
• Presentation of our publication
• IAASB perspectives by Arnold Schilder
• IFAC SMP Committee perspectives
• Discussion with panellists and participants
Accountancy Europe’s event on 30 May
2020
What have we heard?
2121
• Statutory audit financial statements?
• Future in assurance
• Respond to stakeholders’ needs
• IT and innovation
• Skillset and attractiveness
• Exploring value-added services
• Non-financial information (NFI)
• Tax assurance
• For others clients
• For SMEs and public sector
Future of audit & assurance
2222
• A lot of opportunities for the
audit profession
• NFI assurance: on KPIs,
sustainability report, on
systems and controls etc.
• Well placed to provide these
services, but we need to:
• Get to grips with it
• Start conversations with clients
on these issues
Auditor role in assurance on non
financial information
2323
• Reasons for doing the project:
• assurance practitioners approach assurance engagements over NFI differently across jurisdictions and even across firms due to different level of maturity of NFI reporting
• NFI reporting is increasingly important for investors and other stakeholders, but quality is not yet as robust and reliable as could be expected
• Objective: to help streamline NFI assurance practices and stimulate a stakeholder dialogue on technical matters (especially with the International Audit and Assurance Standards Board (IAASB)).
Assurance needs on NFI
2424
• For each of the matters listed below experts were asked to indicate their experience, challenges in practice and any possible solutions to strengthen NFI assurance practice:
• professional standards
• assessing maturity of the company’s reporting processes
• defining the scope of the assurance engagement
• assessing the subject matter
• assessing the reporting criteria
• assessing materiality
• form of the assurance report
Assurance needs on NFI
2525
• Companies moving from aggressive
tax planning to minimising tax risks
• Application of internal control
structures to the tax reporting function
• Profession can assist with:
• Designing and\or implementing controls
• Providing external assurance on the TCF
• Using existing skill sets
• Helps re-position the profession as
being part of the solution
Tax Assurance – Old Skills, New
Services
Public Oversight
2727
• Newly established public oversight bodies in 6 countries
• Advisory committees set up in 10 countries
• Diverging sources of funding of the public oversight bodies
• Level of transparency varies –individual firm quality inspections’ results published in 5 countries
• Different degree of delegation of the key activities across Europe
Our 2018 survey on public oversight
28
Key activities of public oversight
bodies and delegation
28
29
Public oversight: our take on delegation
29
1. Many Members States rely on a certain degree of delegation to
professional accountancy bodies
2. Education & Approval/ registration of auditors, both for PIE and
non-PIE audits been delegated by the majority of Member States
3. Quality assurance for non-PIEs has been delegated by the
majority of Member States
4. Professional accountancy bodies will continue to play an
important role in this area working together with national
competent authorities to enhance audit quality
5. How can professional bodies learn from each other?
3030
• Key objective: standard-setting serves public interest / independent boards
• Implementation over a transitional period
• PIOB public interest framework to follow
• Impact assessment to follow
Key concerns:
• Undue influence by the profession
• Relevance & timeliness of standards
IFAC Monitoring Group Consultation on
international standard setting
3131
MG key proposed reforms
1. Single independent board for audit & ethics
2. 12 remunerated board members + CAG: 1/3 users, 1/3
regulators, 1/3 auditors (part-time/full-time, diversity,
skills, chair leading majority vote)
3. Nominations administered by PIOB
Board
1. PIOB able to veto standards
2. PIOB approving strategy & budget
3. MG nominating committee for PIOB (as before)
PIO
B
1. Increase of permanent technical staff
2. PIOB collecting funding via contractual levy on firms (amount?)
3. Open to other sources if available
Secretariat & Funding
IFA
C n
o lo
nger in
volv
ed?
3232
• Consultation proposal to shift powers of EFRAG &
CEAOB to ESMA not taken forward
• Accounting and NFI Directive brought within scope
of ESMA: unclear what this means or changes
• ESMA’s financial supervision of capital markets
expanded considerably in scope
• Only marginal change in stakeholder consultation
(no additional engagement)
EC on reform of EU Supervisory
Authorities (ESMA, EBA, EIOPA)
Member State
Implementation of the NFI
Directive
3434
• First EU standard for ESG reporting
• High level\minimum standard
• Targeted at the largest EU companies –
6 000 companies, or more
• Perhaps 50% first-time NFI reporters
NFI Directive - Background
“EU Directive on
disclosure of non-
financial and diversity
information: The role
of practitioners in
providing assurance”
“EU Directive on
disclosure of non -
financial and
diversity
information:
Achieving good
quality and
consistent
reporting”
“Disclose what truly
matters:
Model disclosures under
non-financial and
diversity information
directive”
“How to respond to
assurance needs on
non-financial
information”
3636
• Disclose:
• Business model
• Relevant KPIs
• Board diversity policy (affects all PIEs)
• Information on 4 key matters
• Link NFI report to amounts reported in
the FSs
NFI Directive - Basics
3737
• For each of : environmental, social &
employee, respect for human rights,
anti-corruption\bribery - as a minimum -
disclose:
• Policies and due diligence processes
• Outcomes of these policies
• Risks and how they are managed
• “Comply & explain”
What matters?
3838
• The ‘transposition gateway’ covers EU 28, Norway & Iceland
• Looks at transposition of:
• Scope
• Disclosure Format
• Assurance requirements
• Adoption of ‘Safe Harbour’
• Use of reporting frameworks
Publication – Member State
Implementation of NFI Directive
Scope
France
Ireland
UnitedKingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
NetherlandsGermany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• Standard PIE definition12
• Enhanced PIE definition18
Large PIE’s > 500
employees
PIE:
• On a regulated market
• Credit institution
• Insurance undertakings
• Any other body a MS so
designates
Scope
France
Ireland
UnitedKingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
NetherlandsGermany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• Standard PIE definition12
• Enhanced PIE definition18
Large PIE’s > 500
employees
PIE:
• On a regulated market
• Credit institution
• Insurance undertakings
• Any other body a MS so
designates
Romania
also applies to:• Private pension fund
management
• Financial Investment services
co’s
• Companies with majority or full
state ownership
Greece
also applies to:• Large entities in logging and
mining sectors
• Government entities > 500
employees
Greece
Supplementary requirements• For any company larger than
micro
• In management report
• Disclose environmental
performance and social\EE
matters
• Assurance required for
presence of information if
company is MSE
DenmarkFrom 2018, applies to all large (category C&D) undertakings
Previously, companies with <500
employees shall report only on human
rights, climate and environmental issues.
Scope
France
Ireland
UnitedKingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
NetherlandsGermany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• Standard PIE definition12
• Enhanced PIE definition18
Large PIE’s > 500
employees
PIE:
• On a regulated market
• Credit institution
• Insurance undertakings
• Any other body a MS so
designates
Iceland
Applies to any PIE
with more that 250
employees
Sweden
Applies to any
company with more
that 250 employees
Slovakia
also applies to:• Asset & Pension fund
management
• Railways
• Entities of central administrations
preparing consolidated FS
• Municipality > assets > €100 mil or
> 50 000 inhabitants
France
Additionally applies to non-
listed Sociétés Anonymes &
non-listed investment funds
with turnover > €100 million
4242
• Amendments to the scope are often the result of the 2013 Accounting Directive
• i.e. the inclusion of pension funds, financial services providers and local authorities
• Obvious exception is Greece
• Initial impact assessment indicated 6000 companies affected
• Expansion of PIE definition could lead to 12 000 companies being affected
• Impacts country specific – i.e. Latvia expects 10 listed co’s, 5 credit institutions and 2 insurance undertakings
• Lower limits in Sweden expected to result in nearly 1600 reports
• AE’s latest work on PIEs indicates around 18 000 in EEA – 2/3rds could produce NFI reports
Scope – additional points
Disclosure Format
France
Ireland
United Kingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
Netherlands
Germany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• (Consolidated) Management report only
• Separate report published with M’ment report
• Management report and\or Website
• All three options10
9
7
4
Disclosure requirement
• Management report
• MS options:• Separate report
published with MR,
or
• ≤ 6 months, report on
website linked in MR
Assurance
France
Ireland
United Kingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
Netherlands
Germany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• Existence check only
• Existence & consistency check
Assurance
requirement -
existence check that
info is provided.
MS option to extend
scope
17
13
1• External
verification of content
Assurance
France
Ireland
United Kingdom
Sweden
Finland
Estonia
Latvia
SpainPortugal
Belgium
Netherlands
Germany
Italy
Czech RepSlovakia
Austria
Poland
Bulgaria
Romania
Croatia
Hungary
Greece
Denmark
Slovenia
Malta
Lithuania
Luxembourg
Cyprus
Norway
Iceland
• Existence check only
• Existence & consistency check
Assurance
requirement -
existence check that
info is provided.
MS option to extend
scope
17
13
1• External
verification of content
France
Consistency
check if turnover
or balance sheet
total > €100
million
Denmark
Regulators to
select 10-20 % of
reports at random
for ‘full scope
enforcement’
Germany
If a separate
report has been
verified, the
assurance report
must be published
4646
• Directive permits use:
• Of any international, national or EU framework
• Or any combination of frameworks
• Disclose frameworks used
• Directive mentions key frameworks – GRI, ISO 26000, UN Global Compact etc.
• Apart from Bulgaria –specified by Finance Ministry –most MSs have copy\pasted
• EC non-binding guidelines provide more practical guidance on use of frameworks
• Also suggests that the information should be forward looking
Use of reporting frameworks
4747
• Separate section of NFI Directive – applies to all large PIEs
• For admin, management & supervisory bodies –
• Disclose diversity policy in respect of age, gender and
professional background
• How policy implemented & results in reporting period
• Variances in implementation:
• Belgium - specify steps taken to ensure that 1/3rd of the board is a different gender to the remaining 2/3rds
• Netherlands – Diversity policy for supervisory board applies to all companies
Diversity report
4848
• Transposition late, therefore:
• EC’s mandatory review will be late
• Unlikely to see any revision in next few years
• But NFI does play a role in EC’s CR Fitness Check
• Root & branch review of EU CR & impact on single market covering
• Accounting Directive and IAS Regulation• Banks and insurance specific requirements• Integrated reporting• SMEs• Impact of digitalisation
• Deadline 21 July
What Next?
4949
Financing Sustainable Growth8 March 2018 – EC's Action Plan on
sustainable finance
• Builds on the HLEG
recommendations
• Sets out a roadmap for further
work, combining (non)legislative
actions
• 10 actions to facilitate the
transition to a low-carbon
economy
5050
• Reorient capital towards sustainable investment
• Mainstream financial risks originating from climate
change
• Foster transparency and long-termism in
financial and economic activity
First most urgent action – a sustainability taxonomy
What are the objectives?
5151
• Q1 2018: fitness check of the EU legislation of
public corporate reporting
• Q3 2018: EU Corporate Reporting Lab in EFRAG
• IFRS concerns:
• Q4 2018: EFRAG to consider alternatives to fair value
• Q2 2019: IAS Regulation - Flexibility on endorsement
• By Q2 2019: revision of the NFI
non-binding guidelines
Action 9: strengthening accounting
rule-making
5252
• 6 March 2018 Position Paper
• Focus:
• Corporate reporting to accommodate long-term horizons
• Disclosure requirements to
address investors’ needs
• Accounting frameworks to be in
line with long-term investments
Our contribution to sustainable finance
EU Initiatives on Direct Tax
5454
• A legislative response to Luxleaks, PanaLeaks etc
• Political agreement in May – less than 1 year
• National transposition by 31/12/19
• Main provisions effective from 1/7/20
• BUT – any cross-border planning that includes any
of the hallmarks & the first stage takes place from
25 June 2018 must also be reported - by 31/8/20
• AE Factsheet ready to publish
Intermediaries Directive
5555
• All intermediaries must report within 30 days
• Any cross-border transaction that contains one or
more hallmarks
• To the relevant national tax authority
• Who then exchanges it within a month of each QE
• And has an obligation to introduce penalties
• Taxpayer obliged to report in certain circumstances
Intermediaries Directive - basics
5656
• Dependant in full or part on main benefits test
• Generic
• Specific - income to capital, circular transactions etc
• Specific cross-border – double deductions etc
• No Main benefits test
• Specific - concerning automatic exchange of information
• Specific – concerning transfer pricing
Tax Intermediaries – Hallmark
Categories
5757
• Subsidiarity and unanimity principles
• (C)CCTB
• Corporate tax & digitalisation
• Long-term based on Virtual PE
• Using measures such as total revenues, user base, new contracts
• Profits allocated via ‘functional analysis’ using profit split method
• Profits allocated then taxed by MS CIT system
• Short term
• MNEs global t\o >750 mil, EU t\o >50 mil
• 3% turnover tax on advertising, platforms, data from users
Other direct tax initiatives
5858
• Tax service provision is a reputational and political
issue for the entire profession including auditors
• Shift to improving trust by:
o Assessing risk
o Providing independent assurance on tax
o Designing effective tax management systems
o Providing responsible tax advice
Tax & audit debate
5959
• The EC is expected to consider EP Pana Committee recommendations on possible legal separation of multidisciplinary firms -> audit-only firms
• EC informal response:
• evidence (3 years) -> analysis -> potential action
• Earlier EC review of audit reform if other trigger
• We are currently considering how to prepare for this (empirical evidence, constructive proposals, …)
Tax & audit debate
EU VAT Policy Developments
61
VAT – A busy few years
61
• Dec ‘16 – modernising cross-border e-commerce
• Oct ‘17 – stage set for the definitive regime
• Jan ’18 - special schemes for small entities
- liberalising VAT rates
• May 2019 – detailed proposals for definitive regime
62
Modernising cross-border e-commerce
62
• Action plan 1 December 2016 - four key strands:
• MOSS to OSS:+ B2C supplies of goods and more 3rd
country suppliers
• Simplification: 2 thresholds for cross border B2C supplies
• Distance selling thresholds repealed
• €10,000 threshold – account for cross border digital services in
home country
• €100,000 threshold – 1 piece of evidence for digital services
• Cooperation: VAT audits by home tax authority of business
• Reinforcing anti-fraud measures – withdrawal of small
consignment exemption
• Political agreement in Dec’17. Reduced rate for E-books stalled
63
VAT Definitive regime – stage setting
63
• Four cornerstones:
• Re-establish taxation of cross border trade
• Extend OSS to cross-border B2B supplies of goods
• Tax to be charged in the MS of the final consumer
• Invoices can be raised using home rules – but
using customers’ VAT Rates
• Introduce a “good taxpayer” certificate to keep
zero rating
• Agreement a long way off
64
VAT Definitive regime – CTP
64
• CTP = Certified taxable person = ‘reliable
taxpayer’
• Continuation of zero rating by supplier and
reverse charge by customer
• Non-taxable persons ineligible (including flat
rate schemes and SME schemes)
• Qualification criteria
• MSs to provide electronic system for enquiry
65
Special schemes for small entities- intro
65
• What: • MSs can exempt small businesses from VAT
• MSs can apply simplified procedures – i.e. flat rate schemes
• Why: Current simplification measures only
• available to small entities qualifying for VAT exemption
• apply in MS in which they are established
• Objectives:
• reduce compliance costs by 18% pa
• increasing their cross-border trade by 13%
66
Special schemes for small entities- main
provisions
66
• Optional national exemption must be available to all EU qualifying entities• T\O ≤ national threshold or EU threshold of €100 000
• VAT exempt companies relieved from VAT registration (or simplified registration) & from invoicing obligations
• Maximum EU value for national exemption - €85 000
• Transitional period for temporary breaches of threshold• Businesses can breach national threshold by 50% for 1 year
• Simplified VAT obligations for exempt and non-exempt small entities• €2 million revenue threshold across the EU
• Simplifications to registration, record keeping & less frequent filling
67
Liberalisation of VAT rates -main changes
67
• Minimum standard 15% VAT rate & weighted average
VAT rate of at least 12%
• Reduced rates must benefit the final consumer
• For products, member states will be allowed to set:
• Two separate reduced rates of between 5% and the
standard rate (15%) chosen by the Member State
• One exemption from VAT ('zero rate')
• One reduced rate set at between 0% and the reduced rates
• Reduced rate blacklist
• List to be evaluated every 5 years
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