Bad News: The Recession hasn’t really gone away at all

Technical Stuff:

Law Society: give accountants more guidance on breaches

In the Law Society Gazette, Monidipa Fouzder wrote about a consultation by the Solicitors Regulation Authority which closed last week. Accountants scrutinising law firm figures should be given reporting guidance to avoid the ‘considerable’ confusion that has arisen for compliance officers on reporting material breaches, the Law Society has said.

In the consultation,  the regulator set out a list of accounting issues that would need to be ‘substantive deficiencies’ to require accounts to be sent to the SRA. Warning signs include the lack of segregation of client and office monies, controls and checks to protect against fraud and effective oversight by management.

The Society said in order for the proposal to be effective, accountants would need guidance on what might qualify as a ‘serious deficiency’.

In its response, the Society said: ‘Lack of guidance for COLPs (compliance officer for legal practice) and COFAs (compliance officer for finance and administration) on reporting material breaches has led to considerable confusion and a variation in reporting practices. We would not want to see this repeated for reporting accountants.’

The SRA also needs to carefully consider the potential costs to firms of changes, the Society said – both in terms of the cost of the report to firms and any wider costs for firms in gearing up to comply with changes. It was ’essential’ the SRA undertakes, and publishes, an impact assessment on the likely level of costs.

The Society described the current Accounts Rules as ‘complex’, with the lack of flexibility causing difficulties for firms, and said it would welcome the opportunity to work with the SRA on a forthcoming review of the rules as a whole.

Tips for reducing professional liability risk in business valuation

From the USA, written by Frank Vinluan, in CPA2biz.com:  Using engagement letters and adhering to AICPA valuation standards are among the best practices that can help CPAs (US accountants) protect themselves.

The risk of a lawsuit can start with the most innocent of questions. Take, for example, a client asking an accountant, “How much do you think my business is worth?”  Even if the accountant initially declines to answer, the client may persist. After all, says Mark S. Warshavsky, CPA/ABV/CFF, the client may believe that who else but the company’s CPA, someone who has worked with the company’s financial records for years, would know the value of the business. With more prodding, an accountant may relent and provide a number—without performing the due diligence required by AICPA Statement on Standards for Valuation Services No. 1 (SSVS No. 1). If the client uses that off-the-cuff valuation on a financial statement, tax return, or loan application, or for some other financial transaction, the CPA could be held liable for failing to comply with the professional standards and face a professional liability claim.

Business valuation claims are not as common as other litigation risks facing accountants. The majority of professional liability claims brought against CPAs in the AICPA Professional Liability Insurance Program emanate from tax work.

Even when a practitioner follows proper due diligence in conducting the valuation, a party who relies on a valuation may later be unhappy about what was paid—and then blame the accountant, Sterna says. These situations can arise when an asset underperforms after the transaction.

Five common VAT MOSS misconceptions

In AccountingWEB, written by Les Howard – A lot of material has appeared online about the Mini One Stop Shop (MOSS) in the past few weeks – much of it misguided, writes Les Howard, the founder of vatadvice.org. New websites, blogs, and Facebook groups have sprung up, trying to cancel MOSS, defer its introduction, and help small businesses to mitigate its impact.

During December, HMRC actually relaxed some aspects of the new regime, apparently in response to the efforts of groups representing small businesses. But the actual content of the available material is decidedly patchy.

At the risk of attracting some criticism, the author offers five misconceptions about MOSS that he has come across.

FASB considers delay to revenue recognition rules

In AccountancyAGE, written by Richard Crump: US standard-setters are considering whether to delay the date by which companies must shift to new rules around revenue recognition, one of the biggest changes to accounting standards in more than a decade.

Last year, the global accounting standard setter the IASB and US counterpart FASB agreed a converged accounting standard that will overhaul the way businesses record revenue on their books, allowing investors to better compare how much companies from countries around the world earn.

Companies using IFRS will need to apply the new standard for reporting periods beginning on or after 1 January 2017, while for US public companies the standard is scheduled to take effect for reporting periods beginning after 15 December 2016.

New error and wrongdoing tax penalties bite

Posted by Rebecca Cave in AccountingWEB: If you exceed the road’s speed limit in front of a traffic camera, you expect to receive an automatic speeding fine, and possibly points on your driving licence: Many tax penalties work in a similar fashion – if a taxpayer is slow in paying tax or submitting a tax form, the HMRC computer spits out an automatic penalty. In some cases one free pass is allowed, but the principle is straightforward: Act too slow and you get a penalty.

However, when the structure of HMRC powers and penalties was re-drawn in 2009, the circumstances in which tax penalties could arise were expanded considerably. Now there are potential penalty traps in all of these situations:

• failure to notify HMRC of a chargeability to tax
• error or mistake on a return
• failure to keep or retain records
• failure to submit a return online
• wrongdoing relating to VAT or excise duties

Some of these new penalties are starting to be challenged in the tax tribunals, and the results are quite shocking.

Rebecca Cave is the author Tax Rates and Tables 2014/15 published by Bloomsbury Professional.

Threat from accountants spurs legal ‘merger mania’

From Pat Sweet in AccountancyLIVE: Law firms are set for a period of ‘merger mania’ over the next two years in the face of growing competition in the sector, with increased pressure coming from accountancy firms who have added  a legal services arm after adopting an alternative business structure (ABS).

Research conducted by legal communications specialists Byfield Consultancy and partnership law advisers Fox Williams shows 95% of managing partners at the UK’s leading law firms, some of which have merged recently and others which have not, forecast major consolidation at the top end of the sector in future.

In addition, 45% of firms which have yet to merge said they would consider doing so over the next two years. According to the survey, growth is the key driver for mergers cited by 81% of merged firms and 73% of non-merged firms, well above the need to increase financial stability.

Anthony May, partner at executive search firm Hedley May, says the stampede to merge is caused in part by the need for law firms to face ‘the elephant in the room in the legal market’, which is the advent of alternative business structures. PwC, EY and KPMG all set up legal practices last year.

Small companies’ threshold set at £10.2m for new EU accounting rules

Posted by Sara White and Diane Tan in AccountancyLIVE: Small companies will be able to report under the new EU Accounting Directive from 1 January 2016 with companies up to a turnover threshold of £10.2m able to use the new accounting regime. The directive is set to come into force in the Companies, Partnership and Groups (Accounts and Reports) Regulations 2015 which will be passed on 6 April 2015 according to the parliament.co.uk site.

As the rules are considered affirmative regulation, as they are part of an EU directive, although they are subject to parliamentary debate, this is procedural and the SI will come into force on 6 April 2015, after parliament has been dissolved prior to the election.

Meantime, the Financial Reporting Council has confirmed that it will release the response to its consultation into the new FRSSE (Financial Reporting Standard for Smaller Entities) 2015 in March. It is not clear at this stage whether the EU Accounting Directive would effectively make the FRSSE 2015 redundant. The legislation will permit companies to access the new financial reporting regime ahead of the mandatory application date. This responds to concerns from stakeholders that companies might have to report under two accounting systems in consecutive years if a company applying FRS 102 for the first time in 2015, which then qualifies as small in 2016 under the new thresholds, had to apply the small company accounting regime in their 2016 accounts.

The new accounting rules see adoption of the EU’s recommended maximum threshold of £10.2m in net turnover for small company accounts, a balance sheet of £5.1m and maximum 50 staff. This means that an additional 11,000 companies will be able to report their annual accounts under the new regime, despite overwhelming opposition to the use of abbreviated accounts, particularly as they would not show a true and fair view.

Auto Enrolment

Have you heard the word?

In the event that you have missed all reference to the ‘we’re all in’ advertising campaign from the Department for Work & Pensions (DWP) then the latest advertising campaign, recently launched, by the Pensions Regulator (TPR) will be just what you need to catch up.

Alongside the DWP’s message with the friendly faces of employees and business giants, which has proved so successful for the large and medium sized business, is a very clear and stark message from the TPR for SME’s and their advisers, which is ‘ Act now, it’s the law’.

Designed for SMEs, this article focuses on how your business can ensure a smooth transition to auto enrolment by communicating effectively with your clients and adapting existing software.

Topics covered:

• The staging date.
• So what needs to be done now?
• What will your payroll service look like with automatic enrolment?
• How does your software need to adapt and how much will it cost?
• Assessment and communications.

Accountants need to up their game: Don’t say you weren’t warned

Posted by Julia Irvine in ICAEW Economia: Accountants are likely to miss out on a “fantastic” opportunity to become preferred adviser to small businesses over the coming year if they don’t up their game on auto enrolment.

A major survey from the National Employment Savings Trust, the trust-based pension scheme set up by the government as part of the automatic enrolment reforms, shows that accountants are more popular as a choice of intermediary than payroll professionals or IFAs – 59% of employers overall and 70% of those employing one to four workers said they were likely to ask an accountant for help and guidance.

Yet accountants are the least prepared. The survey found that 90% of IFAs and 92% of payroll bureaus claimed to know a lot or a fair amount compared to 67% of accountants.

Accountants were the least aware (40%) that employers will need to complete a declaration of compliance with the appropriate government body (v 87% of IFAs). They were also the least likely to know their clients’ staging dates (23%).

It’s not as if the accountants haven’t had enough warning: the same survey last year found that, as far as building an auto enrolment proposition (a key indicator of readiness) was concerned, accountants (22%) were far behind payroll bureaus (56%) and IFAs (46%).

This year the new rules will apply to around 45,000 small and micro employers and to more than 1m in 2016 and 2017.