Artificial Intelligence Comes to Financial Statement Audits

Only human beings, such as the auditor, can tell the true story behind the data.

Can we trust Artificial Intelligence (AI) to audit financial statements? Perhaps.

Artificial intelligence advocates speak of a time to come when these systems will be capable of auditing 100% of a company’s financial transactions. These visionaries foresee the day when AI will enable auditing that is a continuous and real-time process, not a prolonged exercise requiring large teams of accountants working overtime after the close of a fiscal year. Leer más

Key business success priorities outlined by ACCA

A checklist has revealed three key priorities for accountancy profession success in 2017.

The ACCA (the Association of Certified Chartered Accountants) has published a checklist to tackle the fresh political uncertainties of 2017 including Brexit negotiations in the spring.

The checklist for policy-makers, business leaders and professional accountants includes securing the skills of accountants; promoting transferable skills within apprenticeships; and for accountants to address rapidly changing business needs. Leer más

European Union: Country-by-Country Reporting Data—Accounting or Tax Information?

Bloomberg BNA has highlighted an issue of enormous public significance, even if it might seem to be deeply technical and inconsequential to most people. The matter in question is whether country-by-country reporting (“CbCR”) data is accounting or tax information.

The European Commission and the European Union (“EU”) Parliament both think it accounting data. They want, in varying degrees of detail and geographic spread, that information to be published for public use. The European Council of Ministers has obtained legal opinion that the information in question is tax data. The difference of opinion has enormous consequences. That is because accounting data is subject to Commission and Parliamentary control by majority decision. Tax data is, on the other hand, a devolved responsibility of Member States, and so subject to a requirement of unanimity when it comes to decision making at an EU level. Perhaps unsurprisingly many of the EU’s tax havens are desperate to oppose public CbCR for all large multinational companies. You would almost think these places really do want to be considered secrecy jurisdictions—and they have realized that the only way they can beat the Commission and Parliament is by securing this opinion in the Council.

So, who is right? The simple answer is, of course, that legally no one knows as yet. The only way to resolve the impasse if negotiation cannot do so is by referral to the Court of Justice of the European Union (“CJEU”) for them to decide. But that does not stop me offering an opinion, and as the creator of the CbCR concept I think I have some right to do so.

In my opinion CbCR is now, always has been, and was always intended to be, accounting data. I cannot by any stretch of the imagination think it could be classified as tax data. Let me offer the arguments.

Tellingly my very first version of CbCR data was written as a draft accounting standard. Published in 2003  it had the title ‘A Proposed International Accounting Standard: Reporting Turnover and Tax by Location’. The similarity between what I proposed and what became the OECD CbCR tax template and so the EU’s DAC 4 (4th Directive on Administrative Cooperation) proposal is almost uncanny. But that is not surprising. My intention was unambiguous: what was desired was an accounting standard to ensure that the public had the data required to hold multinational companies to account for the payments they made to individual tax authorities, as well as sufficient further accounting data to indicate whether or not the profits declared and tax paid in a location were reasonable in the overall context of its economic activities as a whole.

The idea was quite quickly taken up by civil society. The Publish What You Pay coalition was first to adopt it as part of its campaign to hold companies to account for payments of tax that they made. Quite explicitly, though, this was not in the context of assessing tax due. It was in the context of beating corruption relating to tax payments in the extractive industries.

So they, and I, campaigned for this data to be included in accounting standard IFRS 6 on the extractive industries, and when that failed we demanded that it be included in IFRS 8 on segment reporting. This failed when an IFRS board member in open session said that CbCR looked as though it might relate to transfer pricing, and felt that was something they did not want to go near.

More importantly though, in the extensive discussions on IFRS 6 and IFRS 8 that took place with the International Accounting Standards Board, I do not recall anyone saying this was not accounting data: it was simply agreed that this was accounting data that accountants really did not want their clients to have to publish, which is something quite different.

What no one said then was that this was tax data, which it is not. That is because no one, anywhere, will tax a company in CbCR data. No one has said they should. All that anyone including the OECD says, is that CbCR data is accounting data that can, among other uses, be used for the purposes of tax risk assessment: and it’s only indicative and not definitive for that purpose. It’s just an accounting tool. A tool which can also, importantly, also be used to analyze supply chains, geopolitical risk, employment patterns, investment patterns and a great deal more, none of which are in any way related to tax—making the claim that this is tax data almost impossible to sustain, but making the case that this is accounting data that should be in the public domain if multinational corporations are to be held to account for their actions almost unanswerable, at a time when this is a near universal political demand capable of rocking democracy to its core.

So let’s stop the nonsense: information extracted from a company’s general ledger that is not used for tax assessment purposes and never will be cannot be tax data. It’s accounting data and to argue anything else, just because the OECD were persuaded to share the NGO view that this was enormously useful for tax risk assessment purposes, is absurd—or incredible—or just wrong. In which case there is only one decision the CJEU could ever make in this issue, in my opinion. 

Source: Bloomberg BNA

What Oreos can teach accountants about growing their firms

Accountants who want to grow revenue by adding new services should look to the Oreo cookie for a few lessons, according to Katie Tolin, a member of the Association for Accounting Marketing’s Hall of Fame and founder of CPA Growth Guides.

Tolin, who recently led a webinar for accountants on launching new services, noted that the Oreo cookie has been around for many decades, and it has probably been in the mature stage of its life cycle for a while.

Tolin noted that accountants offer several key services that are in the mature stage too. “Your accounting, audit and tax services, they’re all pretty much mature services”, she said.

Mature products and services often see slowing sales and more competition willing to discount prices, a scenario that typically leads to lower profits and eventual consolidation as the product or service is indistinguishable from competitors, Tolin noted.

And in the same way that most people know what to expect from a basic Oreo (two thin chocolate wafers sandwiching a creamy filling), they typically know what to expect from an accountant providing audit, tax or general accounting services. Many accounting firms are in a “sea of sameness” with their core services, Tolin said.

But Oreo’s parent company (Mondelez International and all of its predecessors, including Nabisco) has been able to create excitement and new revenue for the Oreo brand by taking the mature product and spinning off new products. Oreo has dozens of spin-off products, including Golden Oreos, fudge-covered, Double Stuf, reduced fat, mint-flavored, birthday cake, mini Oreos, Triple Double Chocolate and even Candy Corn Oreos around Halloween.

The lesson for accounting firms, according to Tolin, is they should take advantage of the numerous opportunities they have to innovate their existing services and create entirely new services, new packages of services or new methods of delivering their services.

“We can’t change the tax forms, but it’s in how we deliver the tax services that could easily be a differentiator”, Tolin said.

Innovation can take many forms, but it is what will differentiate your firm, she pointed out. Some firms are innovating by launching advisory services, such as business valuations or financial services. Other are acquiring firms that provide services outside of tax and accounting to provide more options under one roof for their clients.

Innovation may involve adding value to a service, reducing costs, or both. For example, technology has completely automated tax services. Technology can also be used to automate more of the audit process, which can reduce costs if staff have to spend less time on site conducting fieldwork and can add value if the automation results in the firm having fewer requests of the client. Tolin said some of the best ways to generate ideas for innovative solutions include asking staff, asking clients, evaluating complaints and watching the competition.

One option for innovation is to consider ways to “productize” services. Productization involves making an intangible tangible—providing something that helps the client understand a complete offering that is focused on benefits and easier to market.

For example, Ohio CPA firm Rea & Associates has created a specialized valuation product, Know & Grow Your Value, to give business owners a cost-effective way to determine their company’s worth and to help them plan for the future. Other firms create products around risk management or technology consulting.

Tolin said during the webinar that packaging existing services into new offerings that include bundled, tiered or free value-add services can help the firm market the services more effectively.

Tolin said accountants have many examples to review when it comes to companies that have innovated and found new ways to grow revenue from existing products or services. Starbucks, for example, took a commodity— coffee—and created an entire experience around the act of drinking a cup of coffee. People are willing to pay $4 or $5 for that experience, and the company sells all kinds of products related to drinking coffee or loving coffee.

“Starbucks started the trend of differentiating that cup of coffee”, Tolin said. “And the company continues to mix it up. They continue to create an experience around their cup of coffee”.

Source: Accounting today

How accountants can save world business

Paul Druckman is stepping down after five years as CEO of the International Integrated Reporting Council (IIRC). But before he goes, he couldn’t resist issuing a challenge to UK practitioners.

For the past five years the former ICAEW president has been moving among the profession’s global elite, for whom integrated reporting is fast becoming a template for the future of financial reports. At the top level, there is a recognition that if accountants are to stay relevant, the information they prepare needs to be relevant to business managers and shareholders and tell a story about where the business is going, why and how far it has travelled down its intended path. Leer más

New IAESB Guidance Promotes Awareness and Proper Application of International Accounting Education Entry Requirements

The International Accounting Education Standards Board™ (IAESB™) today released new materials in support of its recently revised International Education Standard™ (IES™) 1, Entry Requirements to Professional Accounting Education Programs (2014). In addition to an overview document, the following support materials are now available:  Leer más