Newswire May 2022

  • Person icon Mercia Group
  • Calendar icon 23 May 2022 00:00

Welcome to our May Newswire, it has been a busy month for us at Mercia. We were thrilled to be one of the exhibitors as Accountex made its return in London. It was great to see so many faces, both new and old, at our stand and have the chance to explain how we can support your practices.

One area where we will be providing support, is the for approaching implementation of the new International Standards on Quality Management (ISQM). With less than a year to go it is vital your practice knows what this means for you. Read our expert’s latest blog on ISQM here.

In our newswire, we look at the details of the Plastic Packaging tax, potential reforms to the UK’s capital allowance regime and upcoming changes to VAT penalties, please see the tax section for details. On the audit side, we examine the new insurance standards endorsed by UKEB, the FRC’s plans for registering auditors of public interest entities and news on sustainability standards.

We’re looking forward to updating you on the latest in the world of tax and accounting.

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AUDIT & ACCOUNTING

UKEB endorse new insurance standard

The UK Endorsement Board has announced that it has approved the adoption of IFRS17 Insurance Contracts for use by UK companies. This is the fust comprehensive international accounting standard that can be applied to all types of insurance contract and aims to ensure that entities provide relevant information that faithfully represents those contracts.

IFRS17 is effective for reporting periods commencing on or after 1 January 2023 with early adoption permitted for entities that apply IFRS9 Financial Instruments.

FRC announces plan to register auditors of public interest entities

The Financial Reporting Council (FRC) has launched a consultation to take responsibility for the registration of auditors of public interest entities (PIEs) from the recognised supervisory bodies (RSBs) such as ICAEW.

Currently, the FRC has insufficient powers to address systemic issues at the firms and must rely on the registration powers of the RSBs. By directly registering audit firms and individuals signing PIE audit reports, the FRC will be able to act decisively when it identifies systemic issues in audit. The FRC will be able to impose conditions, suspensions and remove registration where required.

FRC publishes report which finds Boardrooms must still do more to eradicate modern slavery

The FRC has published research, in conjunction with the UK Anti-Slavery Commissioner and Lancaster University, which has identified significant shortcomings in the quality of companies’ modern slavery reporting.

The research found that one in ten of the major companies did not provide a modern slavery statement despite it being a legal requirement. Where companies did comply, only one third of these statements were considered clear and easy to read.

ISSB published sustainability standards

The International Sustainability Standards Board (ISSB) have released the widely anticipated initial, proposed global sustainability standards:

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
  • IFRS S2 Climate-related Disclosures

The proposed objective of IFRS S1 is to require an entity to disclose information about its significant sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting when they assess enterprise value and decide whether to provide resources to the entity. IFRS S2 ED is the first thematic IFRS Sustainability Disclosure

The ISSB is seeking feedback on the proposals over a 120-day consultation period which closes on 29 July 2022. Click here for links to the two standards.

ICAEW publishes guidance on the disclosure of auditor’s remuneration

The ICAEW has issued Tech 01/22 FRF, updating its guidance on the disclosure of auditor’s remuneration to reflect changes in the underlying legislation that have arisen since it was last updated in 2013. This includes the removal of the requirement for small companies to disclose details of audit fees and reduced scope of the disclosure exemption available to subsidiary undertakings included in group accounts.

Reform of company law

The recent Queen’s Speech announced two new pieces of draft legislation designed to modernise and reform aspects of company law.

Firstly, the Economic Crime and Corporate Transparency Bill makes a number of changes to strengthen the powers of Companies House so that it is better able to tackle economic crime, including the need for those forming, running, owning or controlling a company to verify their identity. The Bill also makes a number of changes to filing requirements for companies.

Separately draft legislation is to be prepared designed to rebuild trust in the UK audit, reporting and corporate governance system, including the creation of a new statutory regulator to replace the FRC, to be known as the Audit, Reporting and Governance Authority (ARGA).

More details on these reforms will follow in future months as these pieces of legislation make their way through Parliament.

ICAEW issues audit guidance in response to Ukraine crisis

The guidance outlines ICAEW Professional Standards support for audit firms to use their judgement to deal with these exceptional circumstances, and signposts guidance to assist firms in making these decisions and working through the consequences in their audit and accountancy work in relation to:

  • audit acceptance and continuance decisions; and
  • key audit judgements and challenges arising from links to affected countries or sanctioned entities, impairment of assets and going concern.

ICAEW guidance on common pitfalls with probate

To help avoid inadvertent breaches of the Probate Regulations, ICAEW have highlighted some of the common breaches they see. These issues can lead to potential regulatory action and interruption of probate services so it’s important that all firms take note to ensure they avoid these common pitfalls.

 

Anti-Money Laundering

Trust Registration service

The Trust Registration Service was introduced by the Money Laundering Regulations 2017 (MLR-2017) and was initially concerned with both UK and non-UK express trusts that were liable to pay relevant UK tax.

However, the scope of the Trust Registration Service is being extended to include UK and non-UK trusts that do not pay relevant UK tax (non-taxable trusts) although implementation has been delayed.

The deadline for registering non-taxable trusts that existed on 6 October 2020 is now 1 September 2022, it previously being 10 March 2022. This deadline applies even if the trust has since been closed.

Further guidance can be found in HMRC Trusts and Estates Newsletter: April 2022.

AASG issues Risk Outlook 2022

The Accountancy AML Supervisors Group (AASG), which comprises all of the accountancy professional bodies such as ICAEW, CIOT, ACCA etc., issued an updated Risk Outlook earlier this month. The accountancy services considered most at risk of exploitation continue to be:

  • company formation and termination,
  • mainstream accounting; and

ICAEW members can access a copy of the April 2022 Risk Outlook here. Members of other professional bodies should be able to obtain a copy from their professional body’s website.

Changes to the law on breach of sanctions

Since April 2017, the Office of Financial Sanctions Implementation (OFSI) has had the power under the Policing and Crime Act 2017 to impose civil penalties for a breach of financial sanctions of 50% of the total breach or up to £1 million, whichever is the greater.

In order to impose a penalty OFSI previously had to be satisfied that it was probable that a person or body knew or had reasonable cause to suspect that a breach had occurred in respect of a transaction to which they were party. However, changes made by the Economic Crime (Transparency and Enforcement) Act 2022 create a 'strict civil liability'. This means that if a breach occurs parties to the transaction are automatically liable to a fine.

This change is of particular significance given the constantly changing sanctions position with Russia. Click here for further information.

Use of UK accountants by Russian businesses is banned

The government announced on 4 May that Russian businesses have been banned from using UK accountants and other professional services including management consulting and PR, in the latest update to sanctions.

It is therefore vital that all firms, if they have not already done so, review their client lists to identify any Russian business or clients with connections to Russia, Russian businesses or individuals so the position regarding sanctions can be assessed. As noted in the article above a fine is now far more likely to be issued where a firm is party to a breach of sanctions.

Further details of Russian sanctions are available on the ICAEW website. Please click here.


TAXATION

Examples of tests and calculations for Plastic Packaging Tax

HMRC has released examples to check if plastic packaging components which businesses manufacture or import are chargeable for Plastic Packaging Tax and if and when they need to register. To read more, please click here.

Potential Reforms to UK’s Capital Allowance Regime

The Government is considering reforms to best support business investment, seeking to work with firms on capital allowances to help foster a new culture of enterprise and growth in the UK. To read more, please click here.

Prepare for upcoming changes to VAT penalties and VAT interest charges

HMRC has issued new guidance about the new VAT penalties and interest charges that will apply to everyone who submits a VAT return from 1 January 2023. To read more, please click here.

 

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