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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