Category Archives: Technical News

RSM Reporting: Reducing the clutter in corporate reports and accounts

The latest issue of RSM Reporting, our quarterly newsletter covering technical developments in the area of global financial accounting and reporting, looks at a valuable initiative by the UK Financial Reporting Committee (FRC) which is likely to have a significant impact on our profession worldwide.

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As the IASB and EFRAG intensify their efforts to clarify accounting standards and issue interpretations of those standards, the UK FRC has launched the Financial Report Lab. The Lab will provide more opportunities for investors and preparers to voice their concerns and suggestions, and to help remove redundant information from companies’ reports.

Stephen Hadrill, CEO of the UK Financial Reporting Committee said:

“We have been spending a lot of time in the last few years trying to enhance the quality of corporate reports and accounts, particularly addressing whether we have too much clutter and inaccessible documents.

“It’s hard for preparers to identify what they should cut and what they should keep. Also the lawyers advising firms often convince them to include everything possible. In this context we felt we should proactively help people to bring about change.”

The Lab will be producing guidance to help companies change the way they report, particularly by highlighting best practice, and providing the needed confidence to preparers who are simply aiming to get investors the right information in a clear and accessible manner.

The IASB and FASB convergence is noted as one of the causes of clutter as companies try to create reporting to cater to two separate regimes.

Stephen Hadrill continues: “In the UK we believe in the principle based approach, whereas the US has a different legal tradition. We certainly encourage the IASB to maintain as far as possible the principle based approach.

“There is also the fact that in an increasingly globalised world the companies are paying more attention to the fact their reports are written for the US market as well as for a European market.”

Bob Dohrer, Global Leader – Quality and Risk for RSM said:

“We are hopeful that the work of the FRC’s Financial Reporting Lab will facilitate preparation of more clear and more easily understandable financial reports for the users of those reports.  The timing of this work is certainly appropriate given the calls for more transparency in financial statements and auditor’s reports coming from the European Commission’s audit proposals and the need for this work reflects the increasingly global nature of financial reporting.”

The Financial Reporting Lab is clearly valuable initiative which will likely influence reporting standards globally. We’ll be keeping you posted of its activity on this blog.

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Guest post: Financial Transaction Tax: Learning crucial lessons from Sweden’s misadventure…

For many years Europe has struggled to introduce financial transaction tax (also known as FTT and Tobin tax). In 1984 when Sweden first installed FTT, it set off a chain reaction of events which effectively strangled its domestic financial markets until the tax was eliminated, six damaging years later.

The introduction of an FTT has recently been added to Hungary’s policy makers’ agenda. Zsolt Kalocsai, the Managing Partner of RSM DTM Hungary, RSM’s Hungarian member firm, believes that we should look at the case of when Sweden brought in an FTT back in the 1980’s…

The key development was in 1986 when Sweden erroneously doubled the tax, driving 60 percent of the turnover of its 11 most actively traded shares to move to London. By the 1990’s 50 percent of the Swedish stock exchange’s former turnover was traded in London, and most dramatic of all – futures trading fell by 95% and bond trading fell by 85%.

Key elements:
1. Foreign investors reacted to the tax by moving their trading offshore

2. Domestic investors reacted by reducing the number of their equity trades

3. Tax revenues from FTT were almost entirely absorbed by the drastic reduction of the personal income tax on the capital gain of transactions

4. Markets hated the FTT – The Stockholm stock exchange dropped by almost 5.5 percent and later, in response to the news of the increase of tax, shares fell a further 1 percent.

5. FTTs are not guaranteed to earn – the actual revenue from FTT for government securities in Sweden was a dismal 4 percent of the predicted tax revenue.

Sweden’s misadventure teaches us that the introduction of an FTT can clearly have dramatic implications for financial markets, with the potential to do long term damage.

These are important lessons and highly relevant today. The risks of the FTT are clear. But would these risks be mitigated by the introduction of regional or global FTTs? Probably yes, but the likelihood of such happening is remote.

If applied to Europe, transactions would (by their nature) move to the American continent or to Asian financial markets immediately.

So it is no coincidence that many EU member states are clearly against the introduction of FTT including the United Kingdom, Italy and, no surprise, Sweden.

Introducing an FTT is not a simple decision for policymakers as the historical evidence points to the risks almost certainly outweighing the benefits.

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Filed under Europe, Tax, Technical News

RSM Reporting: Latest newsletter covering technical developments in global financial accounting and reporting

I am very pleased to share with you our latest issue of RSM Reporting, our quarterly newsletter covering technical developments in global financial accounting and reporting. It is edited by Dr Marco Mongiello, Director of the MSc Management Programme at Imperial College Business School in London. Marco holds a PhD in Accounting and is a Chartered Accountant and Certified Auditor.


RSM Reporting showcases technical thought leadership from around our network and beyond, with valuable contributions from experts in academia and industry organisations.

Each RSM Reporting has three sections: “Accounting and reporting this quarter” is an update on news from the IASB and EFRAG; “The point of view of…” offers a selection of opinions and insightful reflections of professional experts and guests; and the “Hot topics in accounting” examines the most compelling challenges of practical applications of IAS/IFRS.

In this edition of RSM Reporting:

- Andy Simmonds (Guest Contributor, Chairman of the ICAEW Financial Reporting Faculty) reports on Consolidation
– Gil Rosenstock (RSM Shiff, Hazenfratz & Co) and Shlomi Shuv (IFRS Consultant) examine IFRS for SMEs – Hierarchy to establishing accounting policy (3 of 3)
– Paule Bouchard and Katell Burot (RSM Richter Chamberland) discuss their views on Business impacts of IFRS developments on leases
and finally
– Joelle Moughanni (RSM Executive Office) comments on Emission Trading Schemes under IFRS, in the Hot topics in accounting section.

Please download it here… RSM Reporting, March 2012

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Filed under Audit, RSM Reporting, Technical News

Austria’s taxation dilemma

The Financial Times published a thought-provoking article this morning that looks at a new tax introduced by the Austrian government last year. The new 25 percent levy on capital gains from stocks, bonds and other financial instruments aims to reduce the country’s deficit by increasing state revenue.

Today’s FT article takes a look at the industry’s reaction to the new levy and suggests that although the objective of the tax levy is widely accepted, the details of implementing it have so far been operationally very complex.

Stefan Walter, Managing Partner at RSM Exacta, the RSM member firm in Vienna, told the FT that he has a similar take on the issue. Stefan says, “The stated objective was a fair, easy-to-administer and widely acceptable solution for taxing capital gains, and that goal was unfortunately missed.” Stefan thinks that Austria should persuade domestic investors to bring more of their assets into the country, through beneficial terms, in order to bring more revenue from wealth tax.

Read the full article on Austria’s taxation dilemma on FT.com

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Filed under In the news, Technical News

Less, not more, red tape

The amount of non-financial information in annual reports has grown substantially in the past ten years with questions being raised regarding the reliability of the information that companies include at the front of these reports. More recently, there have been calls to expand the information provided with further reporting on Corporate Social Responsibility (CSR), Sustainability and the risks faced by the business.

The benefits of increased communication of non-financial information are well-publicised with perhaps the most important being it satisfies user’s demand for more information about the non-financial performance of companies and their future prospects.

This increased demand for reliable information could see the financial auditor’s role expand to give greater assurance on the narrative content of annual reports, including assessing CSR reporting and whether the statements made reflect the policies and procedures adopted in practice by the entity.

All things being equal, increasing the responsibilities of the auditor to assess the reliability of these narrative disclosures will inevitably result in an increase in the cost of an audit. Moving into new non-financial areas will require the use of specialists in these fields and additional training for existing personnel. There is also a significant issue around the sharing of risk between the auditor and external specialists. Then there’s the classic bugbear of such changes adding another level of regulation at a time when businesses want less, not more, red tape.

Despite these challenges, we think it is important to flag reporting on non-financial information as a difficult, but increasingly important, area that requires more clarity around the auditor’s role. RSM International provided feedback to the European Commission regarding the non-financial reporting in its submission on the EC Green Paper: Audit Policy – Lessons from the Crisis and will continue to actively participate in this debate as it develops.

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Filed under Audit Proposals, EU, Technical News

Challenging Audit Market Dominance

There is a growing consensus amongst government, regulators and the profession that, amongst other issues, something needs to be done about market concentration. I support measured change to allow RSM and other networks to thrive and compete for market share. It would be a mistake to enforce punitive measures against the largest firms, who have been successful over many years in developing services for large listed companies. However, the present level of market concentration reduces choice and in most major economies has created a degree of systemic risk to their capital markets. Ultimately it is about what is good for clients.

I was pleased to hear yesterday Commissioner Barnier confirm that the status quo is not an option. It is clear from the proposals announced that the EC is determined to actively tackle market concentration. This should be supported by our profession globally. Commissioner Barnier’s proposals in the areas of mandatory periodic competitive tendering, possible ceilings on market share and the introduction of joint audits do go beyond our response to the Green Paper. However, I welcome the debate within the profession as these proposals are considered in the context of what is in the public interest.

I am concerned about further restrictions on the provision of non-audit services and the introduction of mandatory rotation of auditors. The IFAC Code of Ethics already places appropriate restrictions on the provision of non-audit services and mandatory rotation of auditors may merely result in audits rotating between the largest firms. I would rather see international consistency in line with the IFAC Code of Ethics and transparency over the regular assessment by audit committees of audit appointments.

I would also like to see an end to lenders using restrictive covenants to limit choice to the largest firms and consideration be given to requiring regulatory approval for further acquisitions of established audit firms within the EU by the largest firms, in order to protect against further market concentration.

Audit networks like RSM International have the global reach, resources and technical capability, including common audit methodology, needed to serve larger listed companies.  Our member firms and similar networks should no longer have to fight what is essentially a two tier system, which significantly favours the largest firms. 

It is vital that the momentum for change that has been generated by the Green Paper consultation not be lost and RSM International will look to be actively involved in the further development of the EC proposals.

To read the full speech given by Commissioner Barnier please click here.

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Filed under Audit Proposals, EU, Europe, Technical News