Headline Verdana Bold Savoy Hotel, Limerick€¦ · © 2019 Deloitte. All rights reserved Deloitte...

Headline Verdana Bold

Savoy Hotel, Limerick20 November 2019

WelcomeCathal Treacy, Partner, Audit and Assurance

Brexit and the implications for business

Deloitte Financial Reporting Plus 4© 2019 Deloitte. All rights reserved Deloitte Financial Reporting Plus 4© 2019 Deloitte. All rights reserved

Brexit is a business risk


1

2

3

5

4

Supply chain

People

Financial environment

Regulatory, legal and data

Market access and trade


Brexit Lead

David Carson

Supply Chain

David Hearn

People

Daryl Hanberry

Financial Environment

Brian Fennelly

Regulatory legal data

Sean Smith

Market access and trade

Pascal Brennan

Clients & Industries

Karen Frawley

Deloitte Private

Anya Cummins

Brexit go to market partner team

mailto:[email protected]?subject=Brexit

mailto:[email protected]?subject=Brexit%20-%20Supply%20Chain

mailto:[email protected]?subject=Brexit%20-%20People

mailto:[email protected]?subject=Brexit%20-%20Financial%20Environment

mailto:[email protected]?subject=Brexit%20-%20regulatory%20legal%20data

mailto:[email protected]?subject=Brexit%20-%20market%20access%20and%20trade



Thinking about last year and the 2019 impactsNiamh Keating, Deirdre Geaney and Oliver Holt

Deloitte Financial Reporting Plus 9© 2018 Deloitte. All rights reserved

Headline Verdana BoldIFRS 15 Revenue from contracts with customers


IFRS 15 – Thinking about last year As a recap

Replaces all existing standards and interpretations (IAS 18, IAS 11, IFRIC 13, IFRIC 15, IFRIC 18

and SIC 31)

Effective for periods commencing on or after 1 January 2018

IFRS 15 is largely consistent with US GAAP ASC 606

FRC has confirmed that there will be no major changes introduced

to FRS 102 as a result of the introduction of IFRS 15 until 1 January 2022 at the earliest


The Five Step Model Framework

IFRS 15 – Thinking about last year

Step 1:Identify the contract with the customer

Step 2:Identify performance obligations

Step 3:Determine the transaction price (including discounts)

Step 4:Allocate the transaction price based on the fair value of the performance

obligations

Step 5:Recognize revenue as performance obligation transferred

High impact – More judgement required

Some impact/change expected

Low or no impact expected


Areas where judgements are necessary…

IFRS 15 – Thinking about last year

Topic IFRS 15 requirement General impact

Sales

commissionsContract costs Decrease in expenses due to their capitalisation and amortisation

RoyaltiesVariable consideration / Performance obligations

Revenue recognition may be accelerated due to requirement to estimate royalties each month end/year end rather than wait until royalty report is received

Upfront feesPerformance obligation / Recognition

Usually at or near inception and non-refundable. The key question is whether the fee relates to a transfer of promised goods or services or not?

Warranties Performance obligation

The IFRS 15 v IAS 37 dilemma!

Is there a separate performance obligation, i.e. where the customer has option to acquire separately or if deemed an additional service?

SoftwarePerformance obligation / Transaction price / Recognition

Generally lead to increase in upfront revenue, once the fair value of the license was determined

TaxationImpact of prior year adjustment (re change in accounting policy) generally spread over 5 years for tax purposes


Corporation Tax perspective IFRS 15 – Thinking about last year


DisclosuresIFRS 15 – 2019 Impacts

Disaggregation of revenue

Information about contract balances

Information about performance obligations

Remaining performance obligations

Disclosures About Contracts with Customers

Contract costs

Policy decisions –time value of money & costs to obtain a

contract

Other Required DisclosuresDisclosures about Significant Judgments and Estimates

Description of significant judgments

Transaction price,

allocation methods and assumptions


Disclosures

IFRS 15 – 2019 Impacts

Continual reassessment of

contracts

Best disclosures give information over and above

required by Standard


Assess if there is a change to Revenue Recognition under new standard

Allowable under Section 23 FRS 102?

Section 10 requires retrospective application

FRS 102 Considerations

IFRS 15


Resources

Our IAS Plus page dedicated to all matters IFRS 15: https://www.iasplus.com/en-gb/collections/revenue

Model Financial statements with illustrative IFRS 15 disclosures

Good disclosure examples – Deloitte’s annual report surveyAnnual report insights 2019 — Surveying FTSE reporting

IFRS 15 eLearnDeloitte’s e-learning on IFRS 15

https://www.iasplus.com/en-gb/collections/revenue

https://www.iasplus.com/en-gb/publications/global/models-checklists/2019/mfs-2019

https://www.iasplus.com/en-gb/publications/uk/other/annual-report-insights-2019-surveying-ftse-reporting

https://www.iasplus.com/en-gb/publications/e-learning/ifrs-15

© 2018 Deloitte Ireland LLP. All rights reserved.

IFRS 9 Financial Instruments

18


Scope

IFRS 9 Impairment Model

AC FVTOCI

FVTPL/FVTOCI Option for certain equity instruments

Within the scope of the impairment model

Outside the scope of

the impairment model

Financial assets in the scope of IFRS 9

Written loan

commit-ments (unless

@ FVTPL)

Financial guarantees

within scope of IFRS 9

(unless @ FVTPL)

Lease receivables

Contract assets (IFRS 15)

Subsequent measurement…


Expected credit loss (ECL) model

IFRS 9 Impairment Model (cont’d)

Loss allowance:

Apply effective interest rate to:

Initial recognition

Stage 2

Lifetime expected credit

losses

Gross carrying amount

Stage 3

Lifetime expected credit

losses

Net carrying amount

Stage 1

12-month expected credit

loss

Gross carrying amount

Objective evidence of impairment?

Significant increase in credit risk?

Change in credit risk since initial recognition


Expected credit loss (ECL) model

IFRS 9 Impairment Model (cont’d)

Probability

of Default

(“PD”)

X%

Loss Given

Default

(“LGD”)

X%

Exposure

at Default

(“EAD”)

€X

the likelihood that the borrower would not be able to repay

the percentage loss that occurs if the

borrower is unable to repay

the outstanding balance at the point

of default


IFRS 9 includes some operational simplifications available for certain common financial instruments, such as:

Operational simplifications

Impairment

Simplified model

Stage 2 Stage 3

Accounting Policy Choice

Stage 1

Trade receivables/Contract assets

(without a significant financing component)Lease receivables

Low credit risk asset


Practical Experience

23



Provision matrix example

IFRS 9 Simplified impairment model

A Closer Look — Applying the expected credit loss model to trade receivables using a provision matrix

The following steps are a suggested process for developing a provision matrix:

1. Determination of appropriate groupings

2. Determine the period over which observed historical loss rates are appropriate

3. Determine the historical loss rates

4. Consider forward looking macro-economic factors and conclude on appropriate loss rate

5. Calculate the expected credit losses


Expected Credit LossIFRS 9 Intercompany Loans

Nature

of the

transaction

Accounted

for as

Investment

in Subsidiary

in scope of

IAS 27

Accounted for

as

Intercompany

Loan under

IFRS 9

Contractual

Cash Flows

Test (SPPI)

and Business

Model Test

Held at Amortised

Cost/FVTOCI and therefore

in scope of IFRS 9 general

impairment model

Capital Contribution

Intercompany Loan

Cash

Transferred


Expected Credit Loss example

IFRS 9 Intercompany LoansProbability

of Default

(“PD”)

Loss Given

Default

(“LGD”)

Exposure at

Default

(“EAD”)

Intercompany

Loan

Does the borrower

have enough

unrestricted cash

to repay the loan?

Does the lender

expect to recover

the loan in full?

The ECL is

immaterial, no

further

consideration

The ECL is

immaterial, no

further

consideration

Calculate the

expected cash

shortfall

No stated terms (on-demand)

Yes

Yes

No

No

Follow the full general

impairment model for

either 12 month/lifetime

PD and consider LGD and

EAD

If the loan is interest-

free discount rate should

be prevailing market

interest rate for a similar

interest with a similar

credit rating

Calculate the

expected cash

shortfall

discounted to PV

at EIR

Documented Fixed Maturity

Date


Expected Credit Loss example

IFRS 9 Intercompany Loans Probability

of Default

(“PD”)

Loss Given

Default

(“LGD”)

Exposure at

Default

(“EAD”)

Intercompany Loan

No stated terms

(on-demand)

Does the borrower

have enough

unrestricted cash to

repay the loan?

Does the lender expect

to recover the loan in

full?

The ECL is

immaterial, no

further

consideration

The ECL is

immaterial, no

further

consideration

Calculate the

expected cash

shortfall

Yes

YesNo

No


Expected Credit Loss exampleIFRS 9 Intercompany Loans Probability

of Default

(“PD”)

Loss Given

Default

(“LGD”)

Exposure at

Default

(“EAD”)

Intercompany

Loan

Documented Fixed

Maturity Date

Follow the full

general impairment

model for either 12

month/lifetime PD

and consider LGD

and EAD

If the loan is

interest-free

discount rate

should be prevailing

market interest rate

for a similar

interest with a

similar credit rating

Calculate the

expected cash

shortfall

discounted to

PV at EIR


Useful Links

• IAS Plus IFRS 9 resources page (https://www.iasplus.com/en-gb/standards/ifrs-en-gb/ifrs9 )

• A Closer Look – Measurement of expected credit losses for intercompany loan assets with no documented contractual term (https://www.iasplus.com/en-gb/publications/global/a-closer-look/intercompany-loan-assets?id=en-gb%3Atwitter%3Adlvr_it%3Apersonal )

• A Closer Look — Applying the expected credit loss model to trade receivables using a provision matrix (https://www.iasplus.com/en-gb/publications/global/a-closer-look/provision-matrix?id=en-gb:email:cm )

IFRS 9 Practical Links

https://www.iasplus.com/en-gb/standards/ifrs-en-gb/ifrs9

https://www.iasplus.com/en-gb/publications/global/a-closer-look/intercompany-loan-assets?id=en-gb:twitter:dlvr_it:personal

https://www.iasplus.com/en-gb/publications/global/a-closer-look/provision-matrix?id=en-gb:email:cm


Accounting Enforcers have all recently set out their expectations as to how IFRS reporters will improve on their IFRS 9 accounting and disclosures:

• IASSA observations – 2019 https://www.iaasa.ie/Publications/Financial-Reporting-Supervision/Annual-Observation-Documents/Observations-2019

• FRC Thematic Review IFRS 9:

• Press release https://www.frc.org.uk/news/october-2019/frc-reviews-of-disclosures-relating-to-revenue-rec

• IFRS 9 thematic review https://www.frc.org.uk/getattachment/4998f20e-30e1-47a8-a9e7-f15654fa0e03/IFRS-9-thematic-final.pdf

• In connection with IFRS 9 the FRC found that there was still room for companies to improve disclosures by analysing the credit quality of trade receivables by non-banking companies; and providing details of the indicators of a significant increase in credit risk particularly by the smaller banks.

IFRS 9 Links

https://www.iaasa.ie/Publications/Financial-Reporting-Supervision/Annual-Observation-Documents/Observations-2019

https://www.frc.org.uk/news/october-2019/frc-reviews-of-disclosures-relating-to-revenue-rec

https://www.frc.org.uk/getattachment/4998f20e-30e1-47a8-a9e7-f15654fa0e03/IFRS-9-thematic-final.pdf


Accounting Enforcers have all recently set out their expectations as to how IFRS reporters will improve on their IFRS 9 accounting and disclosures:

• The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting 2018/2019, which provides the FRC's assessment of corporate reporting in the UK based on evidence from a variety of sources, including the work of the FRC's own Corporate Reporting Review (CRR) team https://www.iasplus.com/en-gb/news/2019/10/frc-corporate-reporting-review-2018-19

• The European Securities and Markets Authority (ESMA) has announced the priority issues that the assessment of listed companies' 2019 financial statements will focus on https://www.iasplus.com/en-gb/news/2019/10/esma-enforcement

• The IFRS model financial statements illustrate the presentation and disclosure requirements of IFRSs for the year ended 31 December 2019 by an entity that is not a first-time adopter of IFRSs. https://www.iasplus.com/en/publications/global/models-checklists/2019/mfs-2019?id=en:email:cm

IFRS 9 Links

https://www.iasplus.com/en-gb/news/2019/10/frc-corporate-reporting-review-2018-19

https://www.iasplus.com/en-gb/news/2019/10/esma-enforcement

https://www.iasplus.com/en/publications/global/models-checklists/2019/mfs-2019?id=en:email:cm

Headline Verdana Bold

IFRS 16 refresher and interaction with other standards


Key Points

6

• Effective for periods beginning on or after 1 January 2019

• Supersedes IAS 17

• IFRS 16 can either be applied fully retrospectively or alternatively comparative information can be left unadjusted with any cumulative effect of initial application recognised as an adjustment to opening retained earnings.

• A contract is, or contains, a lease if it conveys the right to control an identified asset for a period of time in exchange for consideration.


Key Points

6

• For lessees the distinction between operating and finance leases is replaced by a single model.

• A right-of-use asset is recognised on lease commencement at the amount of the liability for future lease payments, plus initial direct costs. The right-of-use asset is subsequently accounted for by applying IAS 16 Property, plant and equipment, at cost less depreciation and impairment.

• The liability is measured at the present value of the future lease payments, using a lease term that includes periods covered by extension options if exercise is reasonably certain. Variable lease payments are only included in the liability if based on an index or rate.

• The discount rate is the rate implicit in the lease if readily determinable, or if not the incremental borrowing rate.


Key Points

6

A lessee can elect to keep the following leases off-balance sheet and typically straight line the expense:

• leases with a lease term of 12 months or less and containing no purchase option – this election is made by class of underlying asset; and

• leases where the underlying asset has a low value when new, such as personal computers or small office furniture – this election is made on a lease-by-lease basis.


Impact

Majority of operating leases on balance sheet

Significant impact on income statement & KPIs

Assets: Right-of-Use Asset

Liabilities: Financing

Finance costs

Operating costs

EBITDA

Example KPIs Impacted:

Gearing Ratio

Asset turnover

Current ratio

6


The interaction of IFRS 16 with other standards

IAS 36?

IFRIC 21?

IFRS 3?

IAS 12?


IAS 36 Impairment

Right of use (“RoU”) Assets

Are they impaired?

Is there an indicator of impairment?


IAS 36Cash Generating Units

RoU assets grouped within a CGU for impairment testing

Goodwill?Indefinite-life intangible assets?Intangible assets not ready for use?


IAS 36

Value in use calculations

VIU –

Financing cash flows excluded from VIU calculations

RoU asset is included and the lease liability is excluded

Fair value less costs to sell –

Include the lease liability if that’s what market participants would do.


IAS 12Deferred tax and leases

• Temporary difference on initial recognition

• Initial Recognition Exemption• No DT over the lives of the asset

and liability

Accounting policy choice

1. Separately 2. Single transaction

Two approaches seen in practice to the deferred tax accounting for lessees

• No net temporary difference at inception

• Differences may emerge over time resulting in DT


IFRS 3 – Business combinationsLeases as an exception to the fair value principle

Lease liability assumed:• PV of the lease payments at the acquisition

date• Lease term and discount rate will likely be

different to the acquiree• Accounting for the lease will be different in the

separate FS of the acquiree

RoU asset acquired:• Recognised in line with the lease liability• Adjusted for favourable or unfavourable market

terms• Low value and short term exceptions


IFRIC 21

VAT on leases

Impact regardless of VAT status:

• IFRIC 21 says you only account for levies when you are obliged to pay them.

• The lease liability calculation excludes VAT


Reminder: IFRS 16 – Deloitte materialLease modifications extending the lease term

1. What constitutes a lease modification? 2. When should a lease modification be

accounted for? 3. What is the impact of a lease

modification on the lease term? 4. How do the modification requirements

interact with transition reliefs?


https://www.iasplus.com/en/publications/hong-kong/lease-modifications


Reminder: IFRS 16 – Deloitte materialA guide to the incremental borrowing rate

1. Three step approach, determining:i. Reference rateii. Financing spread adjustmentiii. Lease specific adjustment

2. Timing considerations3. Transition considerations4. Financial reporting and disclosure

considerations


https://www.iasplus.com/en-gb/publications/global/guides/ifrs-16-discount-rates


Guides/latest developments

IAS Plus IFRS 16 page https://www.iasplus.com/en-gb/collections/ifrs-16-resources-1

2019 IFRS Model Financial Statements – find here

The IFRS model financial statements illustrate the presentation and disclosure requirements of IFRSs for the year ended 31 December 2019 by an entity that is not a first-time adopter of IFRSs. They illustrate the impact of the application of IFRSs that are mandatorily effective for the annual period beginning on 1 January 2019 – including the new Leases Standard, IFRS 16

FRC publishes the results of its IFRS 16 thematic review 06 Nov 2019

The Financial Reporting Council (FRC) has published the results of its thematic review looking at the interim disclosures made by companies in the first year of application of IFRS 16 “Leases”.

FRC publishes findings on the quality of corporate reporting in 2018/2019 30 Oct 2019

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting 2018/2019, which provides the FRC's assessment of corporate reporting in the UK based on evidence from a variety of sources, including the work of the FRC's own Corporate Reporting Review (CRR) team.

ESMA announces enforcement priorities for 2019 financial statements 22 Oct 2019

The European Securities and Markets Authority (ESMA) has announced the priority issues that the assessment of listed companies' 2019 financial statements will focus on.

https://www.iasplus.com/en-gb/collections/ifrs-16-resources-1

https://www.iasplus.com/en/publications/global/models-checklists/2019/mfs-2019?id=en:email:cm

https://www.iasplus.com/en-gb/news/2019/11/thematic-review-ifrs-16-leases-interim

https://www.iasplus.com/en-gb/news/2019/10/frc-corporate-reporting-review-2018-19

https://www.iasplus.com/en-gb/news/2019/10/esma-enforcement

The Governance UpdateJimmy Crowley, Senior Manager, Risk Advisory


The Charities Governance Code

High profile failings in sector

60% of charities not disclosing sufficient information in annual reports

Specified role of charities trustees

2019 - learning and preparation

2020 - comply

2021 - report compliance

‘Comply or explain’ Reasons for Charities non-compliance:

In the process of winding up; Newly established and need

additional time to comply.

Principles 1.Advance charitable

purpose2.Behave with integrity3.Lead people 4.Exercise control 5.Work effectively 6.Be accountable and

transparent


The 2018 UK Corporate Governance CodeSome far-reaching measures reflecting the UK social reform agenda

A new-style, shorter and sharper version of the UK

Corporate Governance Code

Revised Guidance on Board Effectiveness

Applies for periods commencing on or after 1 January 2019.

Purpose,

values, culture

& s172

Board

composition &

independence

Remuneration

Workforce

policies &

practices

Emerging risks

& internal

assurance

Headlines….


The 2018 UK Corporate Governance CodePurpose, values, culture & s172

Board to establish and

align company purpose,

strategy, values and

culture

PRINCIPLE A

A successful company is led by an effective and

entrepreneurial board, whose role is to promote the

long-term sustainable success of the company,

generating value for shareholders and contributing to

wider society.

All directors must act with

integrity, lead by example

and promote the desired

culture

Board should assess and

monitor culture and

ensure management take

corrective action

Describe how the interests

of key stakeholders and

other matters in s172

impacted board decisionsThink about

your sources of

culture

insights – not

just employee

related


The 2018 UK Corporate Governance CodeWorkforce policies & practices

Explain the approach to

investing in and

rewarding the workforce

PRINCIPLE E

The board should ensure that workforce policies and

practices are consistent with the company’s values and

support its long-term sustainable success.

Workforce should be able

to raise ANY matters of

concern

One, or a combination, of the following methods to be

used for engagement with the workforce:

• a director appointed from the workforce;

• a formal workforce advisory panel;

• a designated non-executive director.

If not one of these methods, explain what arrangements

are in place and why effective.

Think about

link to long-

term

sustainable

successWhistleblowing

elevated to

board agenda

Be careful…

Mechanism(s) must

be meaningful AND

effective

They will be quickly

exposed if not


The 2018 UK Corporate Governance CodeBoard composition & independence

Chairman

independent on appointment

BUT a nine year maximum

tenure is imposed (from

date of joining the board)

PRINCIPLE H - Non-executive directors should have sufficient time

to meet their board responsibilities.

PRINCIPLE K – Consideration should be given to the length of

service of the board as a whole and membership regularly refreshed

Independence of non-

executives reverts to being a

matter for board judgement

BUT clearer explanations

called for where

independence may appear

impaired

Greater emphasis on the

quality of the external board

evaluation including clarity of

outcomes and level of

interaction with the board

Strengthening

consideration

of ‘over-

boarding’

This period

can be

extended for

a “limited

time” to help

succession

planning

Appointments and succession

plans should promote

diversity of gender, social

and ethnic backgrounds,

cognitive and personal

strengths


The 2018 UK Corporate Governance CodeEmerging risks & internal assurance

Internal audit

Where there is no internal audit

function, an explanation for the

absence, how internal

assurance is achieved, and

how this affects the work of

external audit

Emerging risks

The board should carry out a

robust assessment of the

company’s emerging and

principal risks. The board should

confirm in the annual report that

it has completed this

assessment, including a

description of its principal risks,

what procedures are in place

to identify emerging risks,

and an explanation of how these

are being managed or mitigated.


The 2018 UK Corporate Governance CodeRemuneration

PRINCIPLE P

Remuneration policies and practices should be designed to support strategy

and promote long-term sustainable success. Executive remuneration should

be aligned to company purpose and values, and be clearly linked to the

successful delivery of the company’s long-term strategy.

Share awards to be subject to a

total vesting and holding period of

five years or more

Remuneration schemes should

promote long-term shareholdings

Schemes to enable the use of

discretion to override formulaic

outcomes

Alignment of pension arrangements

with those for the workforce as a

whole


What can we offer to help you?

Governance in brief

FRC issues new UK Corporate Governance Code

Updated supplementary material for audit committee report templates

Need to know on the new reporting requirements

https://www.iasplus.com/en-gb/publications/corporate-governance/governance-in-brief/gib-frc-new-uk-cg-code

Cyber Risk – back to basicsPaul Hare, Director, Risk Advisory


Change will never be this slow again

• Office computing

• Mini-computers

• Word processing

• Spreadsheets

T E C H N O L O G Y C O R E

T E C H N O L O G Y E N A B L E M E N T

T E C H N O L O G Y C O L L A B O R A T I O N

T E C H N O L O G Y E N G A G E M E N T

D I G I T A L

E X P O N E N T I A L

• Mainframes

• Core computing

• PC revolution

• Network computing

• Email

• Relational databases

• Client-server applications

• Internet revolution

• Customer engagement

• Intranet applications

• Broadband

• Mobile connectivity

• Cloud computing

• Big data –analytics

• Social media

• Sensing

• Home automation

• Digital cars

• Digital money

• 3D printing / manufacturing

19701980

19902000

2010

2020



Future of risk in the digital era - Transformative Change, Disruptive Risk


Why increase the focus on IT controls?

Cybersecurity – Focus on Financial Information

Effective controls in operations, compliance with laws and regulations are fundamental to well-managed entities

Information is relied upon by management to manage the business and key decision-making

Regulators expect enhanced reliability of information, and customers are looking for more specific information and transparency

Cyber security risk is a broad business risk to be managed

Cyber incidents are increasing in frequency and complexity

Automation is becoming increasingly important given the reliance on automated controls


IT controls are a critical component of business operations and financial information controls. They provide the foundation for reliance on data, reports, automated controls, and other system functionality underlying business processes.

The security, integrity, and reliability of financial information relies on proper access controls, change management, and operational controls.


General IT Risks and Controls – The Basics

Application

Databases

Operating Systems/Network

Technology Elements

User Access Administration System Configuration Change Management Physical Security Backup Management Job Management



RISK: Users have access privileges beyond those necessary to perform their assigned duties

User Access Administration

Control:

• Access request authorisation

• Timely access revocation

• User access review

• Privileged-level access

• Logging and Monitoring

Application

Databases




RISK: Systems are not adequately configured to restrict system access to properly authorised users.

System Configuration

Control:

• Unique user IDs and password configurations

• Security configuration key attributes

Application

Databases




RISK: Inappropriate changes are made to systems

Change Management

Control:

• Change approval and testing

• Segregation of development and implementation functions

Application

Databases




RISK: Systems and data may not be available in a timely manner in the event of a disaster.

Backup Management

Control:

• Backup schedule configuration

• Data restoration test

Application

Databases




RISK: Inaccurate, incomplete, or unauthorised processing of data.

Job Management

Control:

• Access restriction to manage batch jobs

• Monitoring of batch job processes and error resolution process

Application

Databases




RISK: Individuals gain inappropriate access to datacenters and buildings.

Control:

• Restrict access, via controlled and monitored swipe cards, pin access, biometrics.

Application

Databases


Physical Security


Privileged Misuse

• A privileged identity has the ability to exploit the system with out being noticed

• These Identities can perform multiple anonymous actions

• Impact the confidentiality, integrity and availability of systems

If a threat actor gets into the environment and enumerates the privilege identities, which is easy to do,

they can make a lot of damage very quickly with low chance of discovery.


Control Activities – IT Environment

IT

Third Party

Management

IT Policies

Data Management

and Protection

Security

Awareness

and Trainings

71© 2019 Deloitte Ireland LLP. All rights reserved.

Tone from the top Risk Management People

Control Activities – IT Governance


• Diverse range of non-executive directors

• Understanding of digital technologies

• Ability to ask the right questions

• Bring insights and constructive challenge on cyber agenda


Tone from the Top


• The Board and Senior Management are responsible for setting and overseeing the firm’s business strategy

• IT risk management framework facilitates an effective assessment of the IT risks

• Board and Senior Management are sufficiently informed on IT operations and cyber risks


Risk Management


• Adequate level of IT Security Awareness training of staff

• Awareness of company security policies

• Adequate processes in place to monitor user activity


People


Benefits of Effective IT Controls

• Fewer vulnerabilities to be exploited as part of a cyber breach

• Greater chance of discovering issues early, before they can become a big problem

• Increased reliability of information used for reporting, and the achievement of business objectives

• Easier compliance with laws and regulations

• Improved management decision making through high quality information

Headline Verdana BoldSavoy Hotel, Limerick20 November 2019

Headline Verdana BoldNon-financial reportingEileen Healy, Partner, Risk Advisory


Sustainability as a hot topic

Agenda

Emerging legislation and reporting frameworks

Directive 2014/95/EU

Global Reporting Initiative (GRI)

Taskforce on climate related financial disclosures


Hot topics

• Significant spotlight is being put on organisations in relation to their holistic impact.

• Management, boards, and wider stakeholders are broadening their awareness and placing increasing focus on sustainability, environmental impact and social impact of organisations.

• The immediacy of social media is heightening public awareness of events as soon as they occur


Why the focus on Non Financial Reporting?

In today’s turbulent business environment, the impact of environmental or social controversies along with a lack of a company’s focus on sustainability, can become ahuge issue for any company.

The focus on social and environmental impacts coupled with the greater need for transparency have caused companies to be even more environmentally and socially aware.

Companies have to remain vigilant with their social and environmental impact as a negative non-financial incidentcould, with the new-age speed of communication, become a global issue in a matter of minutes.

The public are becoming increasingly concerned with businesses’ impact on the environment, on stakeholders (e.g. employees & customers)and on society.

Impact Awareness

Vigilance Public concern



In recent years, a number of new non-financial reporting frameworks and standards have been released.

Non-Financial Reporting Regulations

The Government has enacted Regulations implementing the EU Non-Financial Reporting Directive (EU NFR Directive). The Regulations apply to financial years beginning on or after 1 August 2017 and are relevant to all public interest entities (PIEs) that have over 500 employees, on average, in the financial year.

A non-financial statement is required on environmental matters, employees, social matters, respect for human rights, and anti-corruption and anti-bribery matters.

Gender pay gap reporting

The UK Government has introduced legislation requiring employers with 250 or more employees to publish statutory calculations every year showing how large the pay gap is between their male and female employees.



Global Reporting Initiative (GRI) Standards – replaced G4 from 1 July 2018.

They include 3 universal Standards applicable to all organisations and topic-specific Standards organised into economic, environmental, and social series.

Task Force on Climate-related Financial Disclosures (TCFD)

Established by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, key stakeholders.

The TCFD has developed four widely adoptable recommendations on such disclosures, covering governance, strategy, risk management and metric and targets.


Non-Financial reporting regulations – Directive 2014/95/EU

• Adopted by the EU on 22 October 2014 and is part of a wider strategy to promote Corporate Social Responsibility in the EU.

• Transposed into Irish law through S.I. No. 360 of 2017 on 31 July 2017. The S.I. came into operation on 21 August 2017 and will affect financial years commencing on or after 1 August 2017.

• Applies to large public-interest entities.

• Requires:

• a “Non-Financial Statement” to be included in the company’s directors’ report

• Covering at least the following matters:

Environmental

Social and employee

Respect for Human Rights

Bribery and Corruption


Non-Financial reporting regulations – Directive 2014/95/EU

The Directors of a large traded company shall include in its corporate governance statement a diversity report.

• A description of the diversity policy applied in relation to the board of directors.

• Objective of the diversity policy

• How the policy has been implemented

• The results of the policy in that financial year

Where there is no diversity policy, the directors shall include in the corporate governance statement an explanation why.


Global reporting Initiative (GRI)

• The Global Reporting Initiative (GRI) is an international not-for-profit organisation, with a network-based structure.

• The main objective of GRI is to enable all companies and organisations to report their economic, environmental, social and governance performance, GRI produces free Sustainability Reporting Guidelines.

• GRI helps businesses and governments worldwide understand and communicate their impact on critical sustainability issues such as climate change, human rights, governance and social well-being.

• This enables real action to create social, environmental and economic benefits for everyone.

Diagram: GRI 101 Foundation, 2016


GRI Reporting Principles

Reporting principles for defining report quality

• Accuracy

• Balance

• Clarity

• Comparability

• Reliability

• Timeliness

Reporting principles for defining report content

• Stakeholder inclusiveness

• Sustainability context

• Materiality

• Completeness


Taskforce on climate-related financial disclosures (‘TCFD’)

The scale of investor endorsement and adoption of the TCFD by financial institutions has accelerated, with over 500 organisations worldwide expressing their support.

• Applicable to all organisations, aiming to encourage market-led, industry-focused initiatives.

• Responds to systemic risk in the financial system related to climate change.

• Over 250 companies. Including CFOs of British Land, Burberry, M&S, National Grid, Tata Steel, Tesco, Unilever

• This is an area of increasing interest, activity and engagement from active institutional investors.

Context and applicability

Governance:

Risk integration:

Risks:

Reporting and assurance:

Metrics and

TargetsMetrics

and

Targets

Risk Management

Strategy

Governance

Configure robust structures to management climate related risks.

Your organisation’s governance around climate-related risks and opportunities.

Relates to Approach

Identification of physical, transitional and liability climate risk to both identify and quantify risks.

The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.

Strategy development and financial risk integration and implementation, including scenario analysis and risk modelling.

How your organisation identifies, assesses, and manages climate-related risks.

Align reporting with international and industryrecognised frameworks in addition to externalassurance.

The metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.


Assurance

• An organisation can use a variety of approaches to enhance the credibility of its report.

• The use of external assurance for sustainability reports is currently not mandatory in Ireland.

• However it can be more impactful to have external confirmation.

• In some jurisdictions external assurance over certain disclosures is mandatory.

• GRI Disclosure 102-56 covers external assurance.

• GRI Requirements:• Independent and therefore able to reach and publish an objective and impartial conclusion• Demonstrably competent• Apply quality control procedures and implement a systematic, documented, and evidenced-based

approach• Assess whether the report provides a reasonable and balanced presentation of performance• Assess the extent to which the GRI Standards have been applied in the preparation of the report• Issue a written report that is publicly available and includes a set of conclusions.


Summary

Definite move to non-financial reporting

Increased pressures from stakeholders/investors including closer and immediate public scrutiny of actions and their impacts

Basis for decision-making moving away from purely profit-based information

Increasing legislative demand

Future: integrated reporting

FRS 101/FRS 102 Statutory Reporting Niall Gleeson, Audit Director


What version of FRSs to use?

For accounting periods commencing on or after 1 January 2019 currently must use the FRC’s March 2018 publications

https://www.frc.org.uk/accountants/accounting-and-reporting-policy/uk-accounting-standards/standards-in-issue

FRS 101 Reduced Disclosure Framework (March 2018)

Only applies to parent’s separate financial statements and the entity

financial statements of subsidiaries. Never consolidated financial

statements!

Incremental Improvements and clarifications

Disclosure reductions for IFRSs 15 & 16

Requirement to notify shareholders has been removed



FRS 102 Triennial review – mandatory for periods beginning 1 January 2019 – main changes

Financial

instruments – basic

versus other

Investment

property

Cashflows -Net

debt reconciliation

Intangibles

Definition of a

financial institution

Loans from directors to small entities

Intangibles

Prospective change only

Criteria to separately recognise an intangible asset separate to goodwill

as a result of a business combination has been changed

Required to recognise intangible assets separately from goodwill if they

meet the recognition criteria, are separable and arise from contractual or

other legal rights.

If they meet all the criteria and are separable or arose from contractual or other legal rights you have a choice to separately recognise the intangible or not.


Financial Institution

The definition of a financial institution has been amended to remove

references to ‘generate wealth’ and ‘manage risk’.

The fair value hierarchy disclosure in FRS 102 was aligned to the IFRS 13 –

but this disclosure only applies if the reporting entity is a financial

institution or a pension scheme.


Investment Property

Section 16 - The undue cost or effort exemption in relation to fair value

measurement of investment property has been removed. All investment

property must be measured at fair value with the exception of investment

property rented to another group company.

If previously at FVTPL investment property rented to another group company may now be accounted under the cost model in Section 17 of FRS 102 with a one-time choice at transition between:- historical cost or- fair value at transition date as deemed cost but with a revaluation

surplus on face of balance sheet; deferred tax on the capital gain, and legally required historical cost disclosures in notes.


Cashflows

Clarification that any small entity (not just 1A) can take an exemption from preparing statement of cashflows

Entities that prepare a cashflow are required to present a reconciliation

of net debt from the beginning of the financial period to the end of the

financial period showing separately:

• the cash flows of the entity;

• the acquisition and disposal of subsidiaries;

• new finance leases entered into;

• other non-cash changes; and

• the recognition of changes in market value and exchange rate movements.



Example Cashflow – net debt reconciliation

Example – Deloitte Accounting Research Tool GAAP in UK – B7 Statement of cash flows

https://dart.deloitte.com/UKGAAP/obj/4651a995-30b9-11e8-9cec-bff220c10b33

https://dart.deloitte.com/UKGAAP/obj/4651a995-30b9-11e8-9cec-bff220c10b33

Classification of Financial Instruments

A new principle based approach has been implemented so that in addition to those debt instruments that meet the existing conditions set out in Section 11, a debt instrument will be classified as basic:

‘if it gives rise to cash flows on specified dates that constitute repayment of the principal advanced, together with reasonable compensation for the time value of money, credit risk and other basic lending risks and costs’


Director’s loans to small companies

The directors’ loan amendment allows companies that qualify as small and only small entities to account for certain directors’ loans without having to discount the amount received. This measurement concession is only available where the director or close family member is a shareholder.



Amendments to Section 1A of FRS 102 will drive the following changes:

Triennial review 2017Section 1A – Small Companies Regime

Requirement UK reporters Irish reporters

Present a statement of compliance with FRS 102

UK companies do not need to present this statement.

Irish small entities are required to comply with the requirements of paragraph 3.3.

Presentation of Profit or Loss & Balance Sheet, references to definitions and legislation

Schedule 1 to the Small Companies Regulations or Schedule 1 to the Small LLP Regulations.

Schedule 3A & 4A to the Companies Act 2014.

Notes to the financial statementsUK companies provide, as a minimum, the note requirements of Part 1A.C.

Irish companies provide, as a minimum, the note requirements of Part 1A.D.

Disclosures in the consolidated financial statements (when prepared) set out in Para 9.23

UK companies are encouraged to provide these disclosures.

Irish companies are required toprovide certain of the disclosures in paragraph 9.23.


Transition to FRS 102 (March 2018)Triennial Review 2017

Reminder: Changes in accounting policies are retrospectively applied as per Section 10 - Accounting Policies, Estimates and Errors

Disclosure requirements for changes in accounting policies are required to be included in the notes:

• Nature of the change

• Line items affected by the change (current and prior periods)

• Adjustment relating to periods before those presented, to the extent practicable

• If impracticable to determine the line items affected or the adjustment before prior and current year, disclose the fact and the reason.

Exceptions:• Investment Property• Change in accounting policies for intangible assets


FRC have published a number of factsheets1: Triennial Review 2017 Amendments2: Triennial Review 2017 Transition3: Illustrative Statement of Cash Flows4: Financial Instruments5: Property: Fair Value Measurement6: Business Combinations7: Transition to FRS 102

FRS 101 will continue to be reviewed annually

Subject to “emerging issues”, now intended to review FRS 102 every 4-5 years rather than “triennially”

Need to know publicationhttps://www.iasplus.com/en-gb/publications/uk/need-to-know/2018/ntk-frs-102-triennial-review-2017

FRS 102 Triennial review

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-1-frs-102-triennial-review-2017-amen

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-2-frs-102-triennial-review-2017-tran

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-3-frs-102-illustrative-statement-of

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-4-frs-102-financial-instruments

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-5-frs-102-property-fair-value-measu

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-6-frs-102-business-combinations

https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2018/fact-sheet-7-frs-102-transition-to-frs-102

https://www.iasplus.com/en-gb/publications/uk/need-to-know/2018/ntk-frs-102-triennial-review-2017

Tax UpdateCarmel Marnane, Director, Private Clients & Corporate Tax

Finance Bill 2019 –

Key measures

Extension of Transfer

Pricing Rules

R&D Credit Improvements

Stamp Duty Rate Increase

DWT Increase Employer PRSI

Increase

KEEP

DAC6-Mandatory Disclosure

New Transfer Pricing Rules 2020

Broadens the scope

of TP

Adopts 2017 OECD

guidelines (DEMPE)

Removes pre July

2010 grandfatheringExtends TP to SMEs

Enhanced TP

documentation

Extends to non-

trading income

Extends to capital

transactions > €25m

Master

file

€250m

Local file

€50m

Exceptions

between 2

Irish

resident

companies

Certain

exemptions

New Transfer Pricing Rules 2020

Small = Exempt

Headcount <50

AND

Annual turnover <€10m

Or

Balance sheet <€10m

Transfer Pricing for SMEs

Transfer Pricing for Medium Enterprises1 January 2020

Headcount <250

And turnover <€50m or balance sheet <€43m

Applies to relevant arrangements

Relevant Arrangements?

Schedule D type transactions with a foreign counterparty

Consideration >€1m

Capital transactions with foreign counterparty >€25m

Reduced documentation requirements

Stamp Duty on non-residential property increases from 6% to

7.5%

Dividend Withholding Tax -From 1 January 2020 rate increases from

20% to 25%

PRSI - additional 0.1% employer contribution to the National Training Fund Levy

Budget 2020New Measures

Full income tax relief (40%) to be provided in year investment is made

Annual investment limit increased from €150,000 to €250,000 per annum

Increased to €500,000 per annum for minimum investment period of 10 years

Budget 2020Employment and Investment (“EII”) – Main Changes

Increase in credit from 25% to 30% for small and micro businesses

Enhancements to the method of calculation for small and micro businesses

Pre-trading expenses qualify for R&D credit for small and micro businesses

Outsourcing limit (Universities/Institutes of Higher Education) increasing from 5% to 15%

Grants from State/EU must be deducted from qualifying spend

New notification requirements when outsourcing to third parties

R&D Credit Regime Changes

Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on disposal of the shares, in place of the current liability to income tax, USC and PRSI on exercise.

Available for qualifying share options granted between 1 January 2018 and 31 December 2023.

Share-based remuneration incentive for unquoted SME companies to attract key employees.

Key Employee Engagement Programme (“KEEP”)

KEEP - New Measures

Amendments to qualifying companies & holding companies definitions to allow group structures to qualify

Existing shares to qualify?

Amendments to qualifying employee definition to reflect part-time and flexible working arrangements and movement within group structures

Mandatory disclosure of certain information in relation to reportable cross border arrangements where the arrangements contains specific broadly defined criteria (“hallmarks”).

Penalties will be imposed on intermediaries that do not comply with the transparency measures.

If the taxpayer develops the arrangement in-house, or is advised by a non-EU adviser, or if legal professional privilege applies, the taxpayer must notify the tax authorities directly.

Where the first step of the arrangement happens in the period beginning on or after 25 June 2018 and ending on 30 June 2020, the arrangement should be reported by 31 August 2020.

DAC 6

Hot topics for 2019 annual reportsOliver Holt, National Director of Financial Reporting Services



120



121



122



123



124




Climate: Financial statement impact

No industry is immune – we are all on the same one planet!

May need to consider a number of scenarios

Not impossible that changes in public mood/investor demands/technology/tax/regulations on climate could impinge on long term viability/going concern of entities that are not (or are not seen as) aiming to be climate/resource friendly


Climate: Financial statement impact

Climate could impact on:

Asset impairment/ECL Provisions

Asset useful lives Contingencies

Residual values Onerous contracts

Valuations Pension obligations



Companies Act 2014 disclosure considerationsClimate change: Narrative reporting

Required in the directors’ report:

Description of the principal risks and uncertainties facing the company (or if group accounts are prepared, the group)

The business review, where appropriate, includes information relating to environmental matters

Non Financial Information Reports supplemented by non-mandatory EU guidelines have more specific requirements


Advice from the Accounting Enforcer in the UK – annual letterClimate change: Narrative reporting

The organisation’s governance around climate-related risks and opportunities;

The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning;

The processes used by the organisation for identifying, assessing and managing climate-related risks and how they are integrated into the organisation’s overall risk management; and

The metrics and targets used to assess and manage climate-related risks and opportunities in line with its strategy and risk management process.


Climate change: Narrative reportingAdvice from the Accounting Enforcer in the UK

https://www.frc.org.uk/getattachment/22ee8a43-e8ca-47be-944b-c394ecb3c5dd/Climate-Change-v8.pdf



Brexit: Companies Act 2014 disclosure considerations –Directors’ Report

Description of the principal risks and uncertainties facing the company (or if group accounts are prepared, the group)

Indication of likely future developments in the business

IASSA:

….disclose entity specific impacts of Brexit on the judgements and sources of estimation uncertainty that reflect the specific facts and circumstances applying and the risks and uncertainties [arising]…


IAASA expects management, Directors and Audit Committees to ensure that they apply medium and long-term assumptions that reflect changes in the current market expectations for the products, services, markets and countries in which they operate or on which they rely. Issuers’ medium and long-term key assumptions need to reflect on-going market uncertainty and possible future market disruption.

Observations on selected financial reporting issues – years ending on or after 31 December 2019Issued: 17th September 2019


Brexit: financial reporting considerations are not pretty

May need to consider a number of scenarios with impacts on:

Foreign exchange Derivatives

Asset impairment Provisions

Asset useful lives Contingencies

Residual values Onerous contracts

Valuations Pension obligations



New standard: IFRS 16 Leases

New Interpretations:

IFRIC 23 Uncertainty over Income Tax Treatments

Annual Improvements 2015-2017 Cycle

IFRS 3 Business Combinations and IFRS 11 Joint Arrangements

IAS 12 Income Taxes

IAS 23 Borrowing Costs

New IFRSs for 2019



OutcomeEstimatedadditional amount €

Probability %Estimated

expected value €

1 - 5% -

2 200 5% 10

3 400 20% 80

4 600 20% 120

5 800 30% 240

6 1,000 20% 200

100% €650

Unit of account (separate or together)

Tax authority acceptance

Accounting tax position

Recognizes and measures current tax liability based on taxable profit that includes €650 to reflect effect of uncertainty

€650 additional taxable profit not reported in the reporting entity’s income tax filing

138

First applies using:- Full retrospective approach;

or- Modified retrospective

approach


New standard: IFRS 16 Leases

New Interpretations:


Annual Improvements 2015-2017 Cycle

IFRS 3 Business Combinations and IFRS 11 Joint Arrangements

IAS 12 Income Taxes

IAS 23 Borrowing Costs

New IFRSs for 2019


New Interpretations continued:

• Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)

• Prepayment Features with Negative Compensation (Amendments to IFRS 9)

• Amendment, Curtailment or Settlement (Amendments to IAS 19)

New IFRSs for 2019


Amendments (with 1.1.2020 effective date) waiting endorsement:

• Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018)

• Amendment to IFRS 3 Business Combinations (issued on 22 October 2018)

• Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018)

IFRSs in the pipeline


Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

Amendment published 26th September 2019:

Effective for annual periods beginning on or after 1 January 2020, with earlier application permitted

Accelerated EU Endorsement likely

Current work plan: 32 projects - https://www.ifrs.org/projects/work-plan/

IFRSs in the pipeline continued

https://www.ifrs.org/projects/work-plan/




Thank youCathal Treacy, Partner, Audit and Assurance

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