NewsAccounting

8 March 2018

Four out of 10 audit engagements carried out by the world’s largest accounting firms last year had at least one deficiency, according to the International Forum of Independent Audit Regulators (IFIAR) in its sixth annual survey released in March. The report examined 918 audits conducted by 120 firms in 33 jurisdictions. The IFIAR membership consists of 52 independent audit regulators from around the world. Hong Kong is not a member of IFIAR.

According to IFIAR’s report, a common issue identified by member regulators was a failure among auditors to “assess the reasonableness of assumptions, including consideration of contrary or inconsistent evidence,” in other words insufficient skepticism when examining accounting estimates of companies. Another common flaw of audits were their failure to “obtain persuasive evidence to support reliance on manual internal controls,” and to “sufficiently

test controls over, or the accuracy and completeness of, data or reports produced by management.”

IFIAR noted, however, that there has been an incremental improvement in audit inspection results over the years since the survey was first conducted. The percentage of audits that failed to satisfy auditing standards requirements on one or more counts stood at a high of 47 percent in 2014, and 42 percent in 2016. IFIAR also reported that while there was a downward trend overall, a closer analysis reveals that progress was inconsistent across jurisdictions.

In addition to looking at inspections of individual audit engagements, IFIAR’s survey also assessed inspections performed on firm-wide systems of quality control. In this area IFIAR highlighted inspection findings related to the independence and ethical requirements, human resources and monitoring within the firms.

40% of audits don’t satisfy auditing standards: IFIAR

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KPMG launches AI for lease, tax accountingKPMG’s advisory and tax divisions this month unveiled two new cognitive solutions for clients, under its ongoing partnership with IBM Watson to deliver artificial intelligence technology. The first, called KPMG Contract Abstraction Tool, addresses lease accounting related to International Financial Reporting Standards 16 and automates the extraction, cognitive exploration and content analysis of lease contract data. The second, KPMG Research Tax Credit Services with Watson, examines documents to help gather evidence that can be used for credit subsidies related to research and development.

Trump tax reform to drive M&A activity: EYThe Trump administration’s sweeping overhaul of the tax system in the United States will prove a boon for merger and acquisitions, according to a study con-ducted by EY. In a survey of 500 executives of compa-nies with more than US$500 million in annual revenue, 73 percent responded that they planned to “accelerate” deals. Those that have deal-making strategies are “will-ing to pay more for acquisitions in light of tax reform,” the report added. “Companies are going to be more confident due to the tax reform. You have a sweetener here,” Bill Casey, EY Americas Vice Chair of Transac-tion Advisory Services told The Wall Street Journal.

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Hong Kong challenged for IPOsHong Kong’s stock exchange will face stiffer com-petition from the bourses in Shanghai and Shenzhen as the global destination for initial public offerings, reported the South China Morning Post. According to asset managers interviewed, officials from the Shanghai and Shenzhen exchanges have been visiting private equity investors since January, in search of technology and biotech companies in their portfolio that may want to raise funds. The Shanghai exchange has gone so far as drawing up a wish list of so-called Unicorns, start-ups valued at more than US$1 billion, at the behest of the China Securities Regulatory Commission, a source told the SCMP.

Kevin Dancey named IFAC CEOThe International Federation of Accountants (IFAC) has named Kevin Dancey as its next chief executive officer. He will work with outgoing CEO Fayez Choudhury from May, until his predecessor’s term expires at the end of the year. IFAC advocates for three million accountants represented by IFAC’s more than 175 member organiza-tions in over 130 jurisdictions. “Kevin’s deep experience running large and complex membership organizations and an accountancy firm provides outstanding founda-tions to take IFAC forward. His leadership qualities, and his global relationships, will help ensure IFAC continues to grow its leadership role on the world stage,” said IFAC President Rachel Grimes. Dancey is the former president and CEO of Chartered Professional Accountants Canada.

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of whistleblowers in the U.S. said they faced retaliation from their employers, according to a survey

conducted by the Ethics and Compliance Initiative.

44%

A world of numbers

The pay package that Tesla shareholders have approved for Elon Musk, the biggest share-based deal in U.S. corporate

history. Eventually, Musk could earn up to US$55.8 billion, if Tesla’s market cap reaches

US$650 billion.

US$2.6 billion

of CFOs said that they had a succession plan in place for their

role, according to a Korn Ferry survey of 740 finance heads

worldwide.

34%

HK$4.5 million

The penalty imposed on UBS securities unit by the Securities

and Futures Commission for failing to put in place “effective

controls” for some client trading activities.

Kevin Dancey

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HKEX to woo biotech listingsHong Kong’s stock exchange aims to supplant the Nasdaq as the preferred index for Chinese biotechnology companies within five years, Li Xiaojia, Chief Executive of Hong Kong Exchanges and Clearing, told the press this month at the bourse’s inaugural biotech summit. He was speaking a day before a proposal to allow biotech companies to list even before they turn a profit was due to close its consultation exercise. China is second to the United States as the world’s largest pharmaceuticals market, and is predicted to overtake and become a HK$200 billion pharma market by 2020, with innovation encouraged by significant regulatory reforms.

British firms widen pay gap figuresThe Big Four’s British units revised their reports on their gender pay gaps this month. The new figures included high-earning equity partners, and significantly widened the overall pay gap between male and female staff. Deloitte revealed that female staff are on average paid 43 percent less that their male counterparts. Excluding partners, the gap was 18 percent. EY pays its male employees, excluding partners, an average of 20 percent more than female staff, with that gap widening to 38 percent when partners are included. The United Kingdom introduced legislation that requires organizations with more than 250 employees to report on their gender pay gap by 30 March or 4 April, and annually thereafter.

U.K.’s FRC urges probe breaking up Big FourThe Financial Reporting Council (FRC) in the United Kingdom called for Britain’s Competition and Markets Authority (CMA) to investigate whether the Big Four firms should be broken up to create “audit-only” firms in a bid to enhance competition and stamp out conflicts of interest in the industry, the Financial Times reported. “There is a loss of confidence in audit... In some circles, there is a crisis of confidence,” said Stephen Haddrill, FRC Chief Executive. Haddrill has held three meetings with the CMA about the matter, and further talks are scheduled. In response, head of audit at KPMG in the U.K. said the firm believed “multi-disciplin-ary firms deliver more benefits for investors and society.”

Google, Facebook could face EU turnover taxAmerican tech giants such as Google, Facebook, Amazon and Airbnb could facer higher tax bills for the money they earn inside the European Union if a draft proposal by the European Commission is backed by EU lawmakers. In the document seen by Reuters, large firms with worldwide revenues above €750 million and taxable revenues above €50million in the EU annually would be liable to a 3 percent tax on their turnover. The proposals come amid accusations from some EU countries that U.S. companies are not paying their fair share of tax within the union, by diverting income to member states with lower tax regimes.

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Stephen Haddrill