Address fraud
There is a recent trend for fraudsters and money launderers to use the registered office of an accounting practice without the firm’s knowledge to form companies, or to use a temporary rental property to register business addresses.
Company formation agents (trust and company service providers) need to be alert to the risks and ensure they conduct due diligence and risk assessment in accordance with the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021, which updates the 2010 legislation.
Accountants and other designated persons also need to be aware of the issue. It is not sufficient simply to accept a utility bill and photo identification without taking a moment to consider the appropriateness of the information.
Scarp restructures
The Small Company Administrative Rescue Process (Scarp) will assist some struggling small businesses in restructuring their debts and becoming viable. It complements the existing examinership process, which, although a worthwhile piece of legislation, has not always been suitable for small businesses, due to the significant costs of that court-driven process. A factsheet with Scarp eligibility criteria, checklists and example documentation is available.
If the Scarp is unsuccessful, the company will most likely end up in liquidation. Unsecured creditors rarely receive a dividend in a liquidation, so they are likely to prefer a Scarp, as they will at least receive something. The legislation is expected to be brought into force by the minister in mid-autumn.
SME Covid recovery
The European Bank for Reconstruction and Development (EBRD) has launched a business guide for micro, small and medium-sized enterprises in responding to new challenges following the Covid-19 pandemic. The website offers owners and managers expertise and resources for dealing with suppliers, customers and employees, meeting operational and financial challenges and navigating a restructuring process.
The platform also provides businesses with guidance in corporate, employment and insolvency law, areas in which there is a strong demand from small businesses for know-how and information.
The website resource is structured around the following six modules or entry points:
- Developing your business strategy
- Managing your people
- Running your business
- Taking your business online
- Keeping your business’s finances healthy
- Restructuring your business finances.
Templates and cases studies support the guidance and help users to apply the concepts to their day-to-day operations.
Accounting for mica
Micas are a group of minerals whose outstanding physical characteristic is that when used in construction, they can expand and cause cracks and structural damage, frequently requiring a complete rebuild or demolition of the structure. While there are some government redress schemes offering 90% compensation, these are available only for principal private residences. For non-principal private residences and commercial buildings, the presence of mica presents considerable accounting issues.
Accounting standards will not allow an entity simply to accrue the estimated repair costs; this can be done only when the repair contracts have been signed. A revenue auditor would be entitled to disallow a provision for repair where signed contracts were not in place by the year end.
However, the presence of mica clearly impairs the value of buildings. The standard impairment process would be to start by looking at market value. Unfortunately, there is simply no market for such buildings, other than site value.
The impairment review therefore will be based on a review of the ‘value in use’ of the building – ie the cashflow the building will generate over its life. The value-in-use calculation allows the preparer to include cashflows that are ‘necessarily incurred to generate the cash inflows from continuing use of the asset (including cash outflows to prepare the asset for use)’. The preparer may schedule out the cash inflows and outflows and include the repair costs in those projections. Effectively, the cost of the repair will be reflected in the carrying value of the asset through an impairment, but not as a provision for repair.
Talent gap
ACCA recently had a meeting with the Minister of State for Trade Promotion, Robert Troy, to discuss expanding the pipeline of accountants from schools, apprenticeships and returners. ACCA stressed the staffing crises in accounting practices in Ireland, pointing out that there are currently 600 Irish job vacancies on the ACCA jobs board. We also called for reform of the accounting syllabus. The meeting followed on from a submission to the Department of Education on the appropriateness of the current leaving certificate accounting syllabus and exam as a tool to attract, enthuse and educate the next generation of accountants.
