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This month’s stories include a converged accounting standard on revenue recognition, an EC investigation into countries’ tax rules, and SEC review of Big Four China practice ban

Revenue recognition 

The International Accounting Standards Board and the US Financial Accounting Standards Board have agreed a converged accounting standard on revenue recognition. The core principle of the converged standard is to recognise revenue for goods or services at the time a company expects to be paid. There will also be greater disclosure on revenue. The two boards have established a Joint Transition Resource Group to ease implementation of the new standard. Phil Dowad, KPMG’s global IFRS revenue recognition leader, said the converged standard would affect many businesses. ‘Companies that sell products and services in a bundle, or those engaged in major projects… could see significant changes to the timing of revenue recognition,’ he said.

EC looks at Tax rules

The European Commission has launched an investigation to determine if Apple, Starbucks and Fiat are benefiting from illegal state aid from member countries through favourable tax treatments. The investigation will examine Ireland’s treatment of Apple subsidiaries, Netherlands’ relations with Starbucks and tax arrangements in Luxembourg of Fiat Finance and Trade. Commission vice president Joaquín Almunia said: ‘Under the EU’s state aid rules, national authorities cannot take measures allowing certain companies to pay less tax than they should if the tax rules of the member state were applied in a fair and non-discriminatory way.’ 

China ban challenged

The Big Four accounting firms have won a review of the ban on their China practices’ auditing of US listed companies. The Securities and Exchange Commission (SEC) is to conduct the review of its administrative law judge’s ruling that invoked the six-month suspension. Action was taken against the Big Four for refusing to release audit-related documents of US listed, but China located, companies to the SEC, which the firms say they are prevented from doing by Chinese law. Meanwhile, a court in Hong Kong has ordered EY to release audit documents related to a former Chinese client, Standard Water, to Hong Kong’s Securities and Futures Commission.

Sustainable concerns

Most investors now consider sustainability issues, with 80% regarding sustainability a relevant concern when making investments, according to PwC’s report, Sustainability goes mainstream. ‘Our research sought to gain insight from investors about how they are incorporating issues of climate change, resource scarcity, extreme weather events and evolving corporate responsibility expectations into their investment decisions and strategies,’ said Kayla Gillan, leader of PwC’s Investor Resource Institute. ‘We found significant evidence that an effect is occurring today – and that it is likely to increase in coming years.’ 

funds support for IR

An integrated reporting pension fund network has been formed with the support of some of the world’s largest funds, including AustralianSuper and CareSuper. The network will increase engagement across the sector with the International Integrated Reporting Council and help promote support for the concept of integrated reporting (IR). The network’s first meeting was held in Australia and heard from the National Australia Bank and the Australian Council of Superannuation Investors as supporters of IR.

high cost of Fraud 

Around 5% of global revenues are lost to fraud, amounting to a total annual loss of more than US$3.5 trillion, according to a study by the Association of Certified Fraud Examiners, the 2014 Report to the Nations on Occupational Fraud and Abuse. A typical in-house fraud costs a corporation about US$140,000, but in more than one in five instances the fraud costs more than US$1m. On average, it takes 18 months before a fraud is detected. Smaller businesses suffered higher fraud losses than the largest corporates. 

KPMG mergers

KPMG has completed two new major business deals. Most of the partners and staff of hedge fund professional services firm Rothstein Kass are to join KPMG, to make KPMG the largest audit, tax and advisory practitioner in the hedge fund sector. John Veihmeyer, global chairman of KPMG, said the deal represented ‘a significant investment in our audit and tax businesses’ – though the firm is not disclosing terms. KPMG has also acquired SAFIRA, one of the largest global business process management providers. KPMG said the transaction supported its strategy to provide comprehensive technology-enabled solutions to business problems.

Last updated: 1 Jul 2014