In the face of immutable technology, auditors could face a disrupted future where they are replaced by computers. So news like this one would certainly do the profession no favors.
"KPMG audits had shown an "unacceptable deterioration" and will be subject to closer supervision, the Financial Reporting Council said.
Since the Carillion collapse earlier this year, public sentiment towards the Big Four in the UK has been very poor and there are calls for them to be disbanded. One wonders if this finding could be the straw that finally breaks the camel's back.
Stepping out from last week's Singapore Accountancy and Audit Convention, the message is clear and loud : Go digital or be left behind. But in this bid to go digital, I often wonder if we run the risk of making ourselves obsolete in the end.
Or, at the very least, become less useful and relevant.
For example, with the software available nowadays, it is quite possible to generate a financial statement with ease. Gone are the days when your balance sheet don't balance and you spend hours trying to find that missing dollar to balance it.
But when we were trying very hard to balance the books manually, we were also developing a skill set. Our attention to detail skills and our analytical skills were not only being honed, but they were put to the test as well. If this was taken away, can we truly develop these skills to our fullest? One might argue, yeah but with the time freed, you can look for other avenues to hone those skills.
While that might be true, I am skeptical that other avenues can provide the same level of training and discipline.
Even now, an auto-generated financial statement is not guaranteed to be 100% in compliance with accounting standards. But if a novice never learned how to prepare one without just pushing a few buttons, how would he or she know if the end product contains any errors?
And think about it; if the future is that financial statements can be generated error-free with a single click of a button, where does this leave the profession?
Similarly, if everything we do as accountants now can be generated with a single click of a button, we will be easily replaced by robots who can be easily programmed to just push that button.
The big argument for automation is that we make use of technology to do away with the menial tasks. And by doing so, we free up time to do the more value added stuff. This is all well and good, but we must be careful not to treat all menial tasks as non-essential to the development and training of a capable accountant.
I often tell our new audit hires that our training process is like an apprenticeship. Just like a master chef has to start his training cutting vegetables and other prep work in the kitchen before he actually does any cooking. Just like a blacksmith starting his apprenticeship working the furnace before even pounding on his first metal. Can a chef become a Michelin star chef if he relied on machines doing the prep work right from the start? I highly doubt so.
So it is the same with our profession. We too need to hone the skills that will one day enable us to gain mastery in our profession.
The danger is not just the skills but also basic knowledge as well.
Today, most accounting software can do the bank reconciliation for you with a single click of the button. And many accountants who have used such software seems to no longer know how to perform them. So much so that a recent trainer revealed to me that he was surprised that there is actually demand for his bank reconciliation seminars.
Many accounting software out there also do not rely on you knowing double entry to use them. So similarly, it is quite possible for a novice to lose this basic knowledge just months after graduating!
Don't get me wrong, I'm a big advocate of technology. Here at Echtual, we pride ourselves in utilizing the latest technological innovations. But only where it doesn't dull the skills we deem important to be an awesome public accountant.
The biggest challenge in going digital must be not allowing it to be our crutch. Only by doing so can we stand ready to deliver when technology fails and not face the specter of being displaced by it.
Our founder, Vincent Lee was invited by Novum Capital to share his insights on how cryptocurrencies can be taxed in Singapore under the current regime.
More than a hundred participants signed up for the event held at Mox on 31 May 2018 to hear how tax authorities here have caught up with the burgeoning blockchain industry.
To know more about accounting for cryptocurrencies and taxation of cryptocurrencies, please contact us today!
Our Managing Director, Vincent Lee will be sharing his insights on tax treatment on crypto-assets in this event : https://lnkd.in/f5qbejN #crypto #tax
With today's focus on big data and data analytics, it is perhaps surprising to know that it is possible to fight against the monopolization of data.. As this article (Why the Web 3.0 matters and you should know about it) relates,
"The next web, they envisaged, would take nostalgic turn to the vision of the web 1.0: more ‘human’ and more privacy. Rather than concentrating the power (and data) in the hands of huge behemoths with questionable motives, it would be returned the rightful owners."
The article then highlights the new apps that are poised to take over the existing ones :
With the brouhaha surrounding Facebook and Cambridge Analytica, China's social credit score system, such developments are heartening news indeed. As much as all things internet are now very much a part of the fabric in society, to know that we can avoid being slaves to the system is a very big deal.
How is this done? The answers seems to be this :
"For access to the decentralized web, people will only need a seed. This will be a single asset which enables the interaction with dApps and other services. Individuals will still use a web browser to access the internet, and visually it will be Web 2.0 user-friendly."
But at present the decentralized apps, wallets, platforms, and other digital assets that make up Web 3.0 are scattered. And accessing these interfaces calls for separate seeds, logins, and identities — much like the existing Web 2.0. So the author, the founder of Essentia.one, offers to be the provider of the single seed.
The irony is, while having a single key to access all things internet is great for the user, we are back to the original issue of monopoly. If there is only one provider providing these seeds, then all power will be concentrated on the one providing the seeds.
Wouldn't we be just replacing the current behemoths with just another version?
Came across this interesting article today and am guilty of quite a few of them. The first 7 relate to office productivity and the rest is more on the personal level. In summary, here's the 12 poor decisions you could be making on a day to day basis :
Even as some companies are still reeling from the adoption of FRS 115, the next big standard to affect the accounting landscape is FRS 116. This will be a major accounting standard to adopt for lessees.
In a nutshell with this new standard, there is no more distinction between operating and finance lease accounting for lessees. What this means is that leased assets and liabilities that were off balance sheet under FRS 17 (the previous standard) will now have to be recognised.
Needless to say, the impact on the financial statements as a result of this change could be potentially huge, especially if the company has lots of operating leases.
Impact on Statement of Financial Position
The company’s assets and liabilities will increase and this would affect ratios like current ratio and gearing ratio negatively.
In all likelihood, the current ratio will decrease as the lease liability recognise would affect both current and non-current liabilities but the lease asset recognised will only affect the non-current asset section.
Gearing ratio would also increase as financial liabilities is increased and equity is decreased due to increased expenses recognised (depreciation and lease interest).
Companies relying on these ratios to determine or maintain debt covenants would do well to pre-empt these changes and negotiate with their bankers now to avoid breaching their debt covenants.
Impact on Income Statement
As mentioned above, ceteris paribus, a company’s overall profits would decrease upon adoption of FRS 116. This is due to increase in depreciation and interest expense, which would likely outweigh the effect of the absence of the now disallowed rental expense.
An interesting consequence, however, is that EBIT and EBITDA would increase as the additional depreciation expense should be lesser than the disallowed rental expense.
Companies that use these ratios for staff incentive programs would need to take note of these impact and revise their KPIs accordingly. Similarly, companies who report these ratios to their investors should also inform them of these impacts and decide if their current benchmark needs to be revised.
Impact on Cash Flow Statement
The impact on operating cash flow would be positive as the rental expense amount is no longer in this section and the newly included interest payment would be much smaller in comparison. This is because the bulk of the cash outflow is now the principal payment and that would belongs to the financing section.
Companies may wish to educate their investors that the increase in operating cash flows does not really indicate any vast improvement in the business as the net cash flow is unaffected.
Even though the effective date for this Standard is 1 January 2019, companies that have heavy operating lease commitments should start assessing the impact now rather than in 2019., In particular, companies in the co-working and service office industry like WeWork and Regus could be very much affected by this standard, especially if they don't own the properties they operate in.
For companies with debt covenants tied to gearing ratios, they should start negotiating with their financial institutions to avoid situations where those covenants would be breached.
Companies who are using the affected ratios for benchmarking should also assess the impact of these changes and make their own revisions accordingly.
If you need assistance in assessing the impact of adopting this Standard on your Company, we can help!
Contact us today!
So says Ravi Menon, M.D of MAS on cryptocurrencies becoming mainstream in the future.
“Perhaps, (it could happen) if an algorithm can mimic the reaction function of a central bank and preserve the value of the cryptotokens better than central banks can do with respect to fiat (legal tender) currencies.”
Sounds like he has just pointed the way forward with that quote.
Just came across an interesting read with an alternative point of view on the fanfare surrounding blockchain and distributed ledger technology.
The article dissects the perceived uses of blockchain and highlights the impracticality of its current functionality in respect to existing systems in these areas :
And the author puts it succinctly towards the end,
"Blockchain enthusiasts often act as if the hard part is getting money from A to B or keeping a record of what happened. In each case, moving money and recording the transaction is actually the cheap, easy, highly-automated part of a much more complex system."
Perhaps the key to developing the killer app for blockchain lies with really understanding how things are being done today and what the end user truly values.
Interesting bit on cryptocurrencies and blockchain from our favourite talkshow :
While the impending GST hike is on everyone's mind, less fanfare is made about how our effective corporate tax rate, for some companies, has actually risen.
Honeymoon period over for start-ups
Having encouraged entrepreneurship for almost a decade by giving generous tax breaks, these have now diminished quite a bit for start-ups.
Where a start-up used to enjoy tax exemption on 100% of it's first $100K, this is now reduced to 75% instead, from YA202 onwards. The maximum exemption threshold has also been reduced from $200k to $125K.
Basically all start-ups that have been incorporated this year would be affected. For example, if your first YA is YA2019, you will still enjoy the pre-Budget 2018 tax reliefs. However, your second YA, which is YA2020, would be subjected to the new changes.
TIP : For start-ups that have been incorporated this year and expect to be profitable in the first year, do take note of your financial year end. Any financial year-end ending in 2019 would would be considered as YA2020 onwards.
Non start-ups not spared either
The partial tax exemption for companies has also decreased with Budget 2018, although this only affects companies having more than $200K chargeable income. The exemption is now capped at $200K chargeable income compared to $300K previously.
These changes, together with the expiry of the PIC scheme, does seem to increase business costs going forward. But at least the Wage Credit Scheme has been extended, so it's not all doom and gloom for businesses in this Budget.
Wishing all our clients and friends a very prosperous and successful Year of the Dog!
Our office will be closed from 15 February 2018 to 19 February 2018.
We are pleased to announce that we have reached Xero bronze partner status. We like to thank you, our clients, for your wonderful support and we look forward to continue our partnership with you well into the future.
In recent years, Big Data and the ability to analyse and use those data is touted as the Next Big Thing.
In the accounting industry, it is also becoming increasingly relevant. So much so the Big 4 has invested heavily and are setting up teams of data analysts and scientists to try and make core services like assurance become more efficient. But when it comes to financial data, most data scientists are not accounting professionals and while they can extract the data for you, they are most certainly not the right people to analyse it. In fact, data analytics team often have to work with the finance professionals to co-ordinate their efforts and make sure the output is relevant and useful to them. This not only is an inefficient allocation of resources but also a costly process for the client.
Connor (from Disruptive Outcomes LLP) in his article here, raised a very valid point: We, as accountants, are the people best equipped to analyse this data. And in order to lead the next wave of disruption, we should be training our accountants to be data scientists as well instead of looking to hire from outside the profession.
Singapore Financial Reporting Standards (FRS) 115 comes into effect this year and IRAS has just published an e-guide on the income tax treatment on the revenue recognised by the adoption of this accounting standard.
Generally, the accounting revenue, as determined in accordance with FRS 115, would be accepted as the revenue for tax purpose in most cases. However, there are two main exceptions to this rule, namely :
a) where specific tax treatment has already been: - (i) established through case law; or (ii) provided under the law ; and
b) in exceptional circumstances where the accounting treatment deviates significantly from tax principles, in the case of contracts with significant financing components
The first exception would mostly apply to property developers, who might have to use percentage of completion method of recognising revenue. They will be glad to know IRAS would still only tax them when the project is substantially completed regardless of the revenue recognition method adopted.
The second exception would mostly apply when there are significant financing components present in the contracts and adjustments to either interest revenue or interest expenses have to be made in accordance with the accounting standard. IRAS will ignore these adjustments as they are accounting constructs and do not represent actual receipt or payment.
Please refer to Annex 1 of the guide for examples.
As it is with any adoption of a new accounting standard, there would likely be prior period adjustments. IRAS has made the tax effect of these adjustments simpler by allowing the upward or downward transitional adjustments that are revenue in nature to be taxed, deducted against exempt income or allowed a deduction in the initial Year of Assessment (YA). For further ease of compliance, the transitional adjustments would also be taxed at the rate applicable to trade income being taxed in the initial YA.
If you require more information on the adoption of FRS 115 or would like to know how this new standard affects your current revenue recognition method, do reach out to us for more information.