Olena Nikolaieva of Kreston Ukraine Elected to the Board of the Audit Chamber of Ukraine
June 30, 2023
Kreston Global is pleased to share that Olena Nikolaieva, Director of Quality at Kreston Ukraine, has been elected to the Board of the Audit Chamber of Ukraine. This notable achievement was announced at the regular Congress of Auditors held in Kyiv on June 24, 2023.
Role of the Board of the Audit Chamber of Ukraine
The Audit Chamber of Ukraine is a self-regulatory organisation that oversees the national auditing profession. The Board plays a crucial role in maintaining and enhancing the standards of auditors’ professional activity, ensuring their independence, and promoting the development of the audit profession in Ukraine.
The Importance of Auditing in Ukraine
In the current challenging times, the auditing profession remains a key pillar of financial stability in Ukraine. The role of auditors in ensuring the reliability of financial statements is essential for both Ukrainian society and those who support the country.
Kreston Ukraine Audit’s Vision for the Future
Olena’s election to the Board is a great example of Kreston Ukraine’s ongoing commitment to the development of the auditing profession in Ukraine and contributing to the growth and integrity of the profession.
We congratulate Olena Nikolaieva on her new position and acknowledge her exceptional work in the field of auditing. Her dedication to upholding professional standards sets a valuable example, and we look forward to her contributions in her new role.
Stuart is an FCA-qualified chartered accountant with more than 10 years of practical accounting and audit experience.
He leads the technical developments for Duncan & Toplis. This covers audit, financial reporting and maintaining quality of work.
He has recently been appointed to Duncan & Toplis’ operations board and become a member of the ICAEW’s influential Ethics Advisory Committee. Stuart also sits on the Kreston Global ESG Committee.
International Sustainability Standards Board issues first reporting standards
June 28, 2023
On 26 June 2023, The International Sustainability Standards Board (ISSB) issued its first two reporting standards, IFRS S1 and IFRS S2.
The need for global consistency: ISSB’s first reporting standards
The issuing of these inaugural standards signifies the “ushering in a new era of sustainability-related disclosures in capital markets worldwide”.
One of the most significant limiting factors to the effectiveness of climate reporting has been the number of different bases on which entities report on. There has been a desperate need for global consistency. It is hoped that the release of these standards will be a turning point for the disclosure of climate-related risks and opportunities specific to individual entities.
These first two standards build on the ISSB’s objectives to;
Develop standards for a global baseline of sustainability disclosures meeting the information needs of global investors.
Enable companies to provide comprehensive, decision-useful sustainability information to global capital markets.
Deliver a common language of sustainability disclosures, with the flexibility for regional ‘building blocks’ to be added by regulators when necessary to meet local and multi-stakeholder information needs.
IFRS S1: General requirements for disclosure of sustainability-related financial information
S1 covers the general requirements for disclosure of sustainability-related financial information.
S1 sets the scene for the specific requirements of S2 and for future sustainability standards covering areas other than climate.
S1 adopts the structure of the Task Force on Climate-Related Financial Disclosures (TCFD). S1 also refers to other standards and frameworks in the absence of a specific ISSB standard.
The standard’s main objective is to “require an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general-purpose financial reports in making decisions relating to providing resources to the entity.”
There is a requirement that an entity discloses information about all such risks and opportunities that could reasonably be expected to affect the entity’s prospects.
S1 prescribes how an entity prepares and reports such disclosures, setting out general requirements for the content and presentation of those disclosures so that the information is useful to the users of that information.
In particular, the standard requires that an entity provides disclosures about:
the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities;
the entity’s strategy for managing sustainability-related risks and opportunities;
the processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities; and
the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.
IFRS S2: Climate-related disclosures to drive sustainable decision-making
S2 covers the specific requirements of climate-related disclosures.
The main objective of the standard is to “require an entity to disclose information about its climate-related risks and opportunities that is useful to users of general-purpose financial reports in making decisions relating to providing resources to the entity.”
S2 also incorporates the TCFD recommendations and guidance and includes a requirement to provide industry-specific disclosures. Industry-specific metrics are included as illustrative guidance, taken from SASB standards.
S2 specifically applies to:
climate-related risks to which the entity is exposed, which are:
climate-related physical risks; and
climate-related transition risks; and
climate-related opportunities available to the entity.
In particular, the standard requires that an entity provides disclosures about:
the governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities;
the entity’s strategy for managing climate-related risks and opportunities;
the processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the entity’s overall risk management process; and
the entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.
Effective date and adoption: Understanding the timeline for implementing ISSB Standards
Both standards are effective for periods beginning on or after 1 January 2024, early adoption is permitted as long as both standards are applied.
Voluntary adoption and potential assurance requirements for entities
Adoption of the standards is voluntary. However, local jurisdictions may make their adoption mandatory for certain classes of entities.
At this stage there are no specific assurance requirements in place. However, analysis provided by IFAC would indicate that of the entities reviewed that did report some ESG information, over 50% have obtained some level of assurance on that information between 2019 – 2021.
Assurance has been gained from the entity’s auditor (who provides the majority) and other service providers.
Although there are no specific international ESG assurance standards currently set, the majority of assurance work was performed under ISAE 3000 (revised). The vast majority of reviews obtained limited assurance with c10% obtaining reasonable assurance.
Future plans: ISSB’s global promotion and consultation on additional reporting elements
The ISSB will be promoting the standards worldwide, working with local jurisdictions and focusing on the standard’s connectivity with financial statements. There is also currently a public consultation on four projects to further understand the standard-setting priorities covering ecosystems, human capital, human rights and integration in reporting. Further standards covering other elements of ESG are likely to follow.
European Sustainability Reporting Standards (ESRS) and Corporate Sustainability Reporting Directive (CSRD): Aligning with ISSB efforts
In addition to the ISSB standards, EFRAG has been developing the European Sustainability Reporting Standards (ESRS – 12).
These standards have a mandatory implementation for applicable entities with a progressive phase-in period over several years, with early adoption being encouraged.
The standards have a comprehensive coverage of ESG matters, not just focusing on climate to start with.
The standards have the concept of double materiality and the ESG reports must be made in the management report, at the same time as the financial statements.
The standards also have a mandatory assurance element, starting as limited but moving to reasonable over time.
EFRAG is working with the ISSB to promote interoperability.
The European standards certainly seem to have built on the international ones so far, and are mandatory with a mandatory assurance element.
Conclusion
The introduction of the two SS standards is a pivotal moment in the reporting of ESG matters.
They provide a basis for international comparability and help bring ESG matters to the forefront of investors’ decision-making.
More will follow but this is a vital moment in the battle towards net zero. Read more about global ESG developments on our sustainability hub.
News
Doron Rozenblum
Managing Partner, Kreston-Ezra Yehuda-Rozenblum, Israel, Kreston Global Internal Audit Group Chair
Doron is the Managing Partner of Kreston-Ezra Yehuda-Rozenblum in Israel, leading the Risk Advisory Services division. With over two decades of experience in risk management and internal auditing, he excels in identifying operational risks and enhancing internal audit efficiency. Doron is also the Vice President of The Institute of Internal Auditors in Israel. He has a broad experience in all aspects of accounting, auditing and financial management. Direct experience with oil & gas, real estate, financial consulting and venture capital.
Herb is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance.
Cloud technology, digital assets and the future of accounting
In an article recently published by the International Accounting Bulletin, Doron Rozenblum and Herbert M. Chain, elaborate on the profound changes sweeping across the profession. These changes are primarily driven by the adoption of cloud technology and the emergence of digital assets such as cryptocurrencies. To read the full article, read the latest audit and assurance supplement by the International Accounting Bulletin (paywall), or read the summary below.
Cloud technology changing accounting practices
As the authors point out, the widespread adoption of cloud technology in recent years has significantly transformed the accounting landscape. Businesses are capitalising on the numerous benefits offered by cloud-based accounting systems, including improved accessibility, cost-efficiency, and scalability. Real-time collaboration, streamlined workflow, and faster financial reporting have been made possible due to this technology.
Nonetheless, this digital transformation also introduces challenges in maintaining data integrity, security, and privacy. With financial data being stored on remote servers, it’s imperative that stringent security measures are employed by cloud service providers. Moreover, accountants need to acquire the necessary technical skills to effectively navigate and integrate these cloud platforms.
The rise of digital assets
Cryptocurrencies, a notable example of digital assets, are also playing a significant role in reshaping the future of accounting and attestation. While they provide alternative forms of digital currency offering transparency, security, and efficiency, their volatile nature poses challenges in valuation and recognition. Furthermore, concerns surrounding the ownership and control of cryptocurrencies necessitate the development of enhanced attestation services.
Blockchain technology, which underpins most cryptocurrencies, presents unique opportunities for accountants. It can facilitate the auditing of smart contracts and cryptocurrency transactions for accuracy and compliance. However, this also necessitates the development of an understanding of blockchain protocols, and the skills needed to audit clients engaged in the digital asset space.
The future of accounting and attestation
The convergence of cloud technology and digital assets signifies a shift in the accounting and attestation landscape. While it offers enhanced capabilities, it also requires professionals to equip themselves with new skill sets, knowledge, and a proactive approach to addressing concerns related to data security and regulatory compliance. The opportunities these technological advancements present for accountants to position themselves as trusted advisors in the digital age of finance are significant.
Opportunities for accountants; a case study
In a case study discussed in the article, a digital asset technology firm required Service Organisation Control (SOC) 1 Type II and SOC 2 Type II examinations. These examinations provide opportunities for accountants to engage in attest work. Specifically, these opportunities arise in the independent evaluation of a client’s controls and processes that may impact its customers’ financial reporting (SOC 1), and the assessment of the client’s security controls and availability of their platform (SOC 2).
Moreover, the readiness assessment stage involves accountants assessing the client’s current operations and determining its preparedness to maintain an annual SOC. This involves identifying existing controls, determining which controls should be in place, and identifying gaps for remediation.
During the examination phase, accountants verify the scope of the SOC examinations, confirm changes to control areas, and identify the client’s controls through walk-throughs, observations, and inspections of evidence. They then test the suitability of the design and operational effectiveness of controls.
Overall, these processes highlight significant opportunities for accountants in attest work, offering them a chance to play a crucial role in evaluating and enhancing the effectiveness of clients’ controls and processes.
*The original article was authored by Doron Rozenblum, Chair of Kreston’s Global Internal Audit and Risk Group and Managing Partner at Kreston EYR, Israel, and Herbert M. Chain, Assistant Technical Director for Kreston’s Global Audit Group and Director at CBIZ MHM, USA.
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A guide to starting a business in the Netherlands
Kreston Global firms in the Netherlands have recently expanded resources for entrepreneurs with its latest guide to starting a business in the Netherlands. This useful new guide offers practical insights and tips to facilitate a smooth transition into the Netherlands business landscape.
The guide provides a practical roadmap for entrepreneurs looking to establish a business in the Netherlands. It serves as an efficient tool, highlighting the most critical issues businesses might face when entering the Dutch market. However, the guide does not aim to be exhaustive, given the wide range of potential business scenarios and constraints.
Expert consultation from Kreston Global
To supplement the guide, Kreston Global encourages entrepreneurs to consult with their member firms located in the Netherlands for more detailed information. Whether it’s a question about the basics or a complex concern, the team is ready to provide expert advice.
Flexibility and liberal framework of Dutch law
According to Dutch law, a foreign individual or company can operate in the Netherlands through either an incorporated or unincorporated entity or branch. The guide elaborates on the flexible and liberal framework that Dutch corporate law provides for the organization of subsidiaries or branches.
The essentials of starting a business in the Netherlands
The guide offers a holistic approach to doing business in the Netherlands, covering a variety of key areas. These include starting a business, finding a location, understanding subsidies and financing, complying with tax legislation, managing personnel, and a list of useful addresses.
No matter where you are in your entrepreneurial journey, “Doing business in the Netherlands” is designed to equip you with the knowledge and resources you need to succeed. Backed by Kreston Global’s extensive network of eight member firms active in the Dutch region, this guide marks a significant step towards supporting global entrepreneurs in this internationally-focused and strategically positioned base for Europe.
If you are looking to expand your business into the Netherlands, read the doing business in the Netherlands guide. If you would like to speak to one of our firms in the Netherlands, please get in touch.
Luc works as a VAT expert at Kreston MDS in Beersel at Kreston VDN. He began his career as an inspector with the Belgian VAT Authorities. He provides VAT expertise and advice for the mid-market and SMEs. Luc has also worked within a large big 4 company as VAT director. He is specialised in EU VAT matters, cross border trade and real estate issues.
VAT in the digital age
May 23, 2023
On 8 December 2022, the European Commission launched the VAT in a Digital Age package, a series of measures to modernise and make the EU’s Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalisation.
VAT in the Digital Age package (“ViDA”)
This “VAT in the Digital Age package” (“ViDA”) has 3 pillars : • Digital Reporting Requirements (DRR) • Platform Economy • Single EU VAT Registration
Member States lost €93 billion in VAT revenues in 2020 according to the 2022 VAT Gap report of the EU. Conservative estimates suggest that one-quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, scale-ups and other companies that operate cross-border. The package of proposals is in fact draft amendments to three pieces of EU legislation. The proposed changes still need to be adopted by the Member States.
Real-time digital reporting based on E-invoicing
For ViDA to become effective, the proposal will need unanimous consent from all 27 EU Member States. If adopted by all Member States, the changes proposed by ViDA will gradually become effective between 1 January 2024 and 1 January 2028.
Streamlining cross-border transactions with real-time digital reporting
Real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU The new system introduces real-time digital reporting for VAT purposes based on e-invoicing that will give Member States valuable information they need to step up the fight against VAT fraud, especially carousel fraud.
Changes in electronic invoicing and reporting deadlines
The ‘Digital Reporting Requirements’ is any obligation for VAT-taxable persons to submit data periodically or continuously in a digital way on all (most of) their transactions, including by means of mandatory e-invoicing, to the tax authorities.
Below, the most important changes are indicated :
• The proposal changes the legislation, providing that electronic invoicing will be the default system for the issuance of invoices for cross-border B2B transactions within the EU from 2028. There will be no thresholds or exemptions for small businesses; • From 1 January 2024, the definition of an electronic invoice will change. These invoices must be issued in a structured format. The condition that the recipient must accept electronic invoices will no longer be required; • The deadline for issuance of e-invoices for intra-community supplies of goods and services that are subject to a reverse charge is two days after the chargeable event took place; • The deadline for digital reporting of intra Community transactions will be 2 days after the issuance of the invoice or when the invoice should have been issued; • Real-time reporting will be introduced to replace the existing system of intra-Community declarations. The new system should allow Member States to exchange information on VAT returns in cross-border transactions much more quickly; • Member states will be allowed to establish additional real-time reporting systems for transactions to private individuals or domestic transactions but based on the common reporting system; • Extension of the definition of intra Community distance sales of goods to cover second-hand goods, works of art, collectors’ items and antiques. • Discontinuation of the call-off stock simplifications as of 31 December 2025 as those can be covered under the One Stop Shop (OSS).
VAT responsibilities in the platform economy
Under the new rules, platform economy operators, in particular the short-term rental of tourist accommodation and passenger transport will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual provider (deemed suppliers). From 2025, these platforms will be made responsible for VAT payments in certain situations (C2C and C2B transactions). The implementing regulation stipulates that the platform is subject to VAT in all cases where the provider has not provided a valid VAT number.
Further : • The extension of the OSS return to e-commerce and own stock movements across EU borders; • Call-off stock withdrawal as traders will be able to use OSS (see above); • Marketplaces become deemed suppliers for their EU sellers’ B2C goods sales across EU borders; • The Import One Stop Shop (IOSS) to become mandatory for marketplaces which have facilitated their sellers’ imported goods sales; • The proposal clarifies the VAT treatment of services provided by platforms. These will be subject to VAT in the country where the underlying facilitated transaction for VAT purposes takes place.
The introduction of a single VAT registration across the EU
Building on the already existing ‘VAT One Stop Shop’ model for online shopping companies, the proposals would allow businesses selling to consumers in another Member State to register only once for VAT purposes for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU. The following new rules will be introduced :
• The e-commerce package success of One-Stop-Shop VAT return for distance selling will be extended to movements of own stock by e-commerce sellers prior to B2C e-commerce sale (B2B2C transactions); • The SVR will enable businesses to charge, report and manage their entire EU VAT through their domestic tax authorities, including eventually the entire audit process; • The stock movement remains taxable with two transactions – arrival and sale. Both would be reported in the OSS, which would need additional information added to be reported to the member state of identification (where OSS is registered); • This will eliminate the need for hundreds of thousands of foreign VAT registrations for e-commerce sellers; • All B2B deliveries by foreigners to registered customers will be subject to the reverse charge of tax. The reverse charge transactions must be indicated by the supplier in its EU sales listing (from 2025), and are subject to (real-time) intra-EU reporting (from 2028). Under the current system, such a shift is only optional. Most countries have some form of reverse charge, but impose their own country-specific conditions, which makes the VAT rules for foreign registrations very complex; • Extension of deemed supplier: Where this is facilitated by a marketplace, the VAT on the local domestic sale to the consumer will flip to the marketplace as the deemed supplier. The exception is sales in the country where the seller is resident. • This is irrespective of where the seller is established, meaning an extension from the 2021 e-commerce package for just non-EU to include EU sellers. This will level the playing field; • The seller will use OSS to report the zero-rated taxable acquisition to the marketplace. B2B transactions under the scenario would be zero-rated for VAT. The disadvantage of this option is that it would favour sellers using marketplaces and penalise their own website sales which would still be responsible for the domestic VAT reporting.
Considering readiness for digital VAT
These proposals and possible changes will probably have a significant impact on companies’ systems and processes. Businesses operating in the EU should start to consider their readiness for the changes should they come into force, particularly in respect of the systems changes that would be required for standardised e-invoicing. The simplification regime (OSS) if implemented, offers opportunities for businesses to streamline their reporting obligations.
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Stuart Brown
Kreston Global ESG Committee member, Head of Technical and Compliance at Duncan & Toplis
Stuart is an FCA-qualified chartered accountant with more than ten years of practical accounting and audit experience.
He leads the technical developments for Duncan & Toplis. This covers audit, financial reporting and maintaining the quality of work.
He has recently been appointed to Duncan & Toplis’ operations board and has become a member of the ICAEW’s influential Ethics Advisory Committee. Stuart also sits on the Kreston Global ESG Committee.
AI can play a critical role in ESG initiatives by helping companies analyse vast amounts of data, identify patterns and trends, and make more informed decisions about reducing their environmental impact, improving social outcomes, and enhancing corporate governance. Here are a few examples of how AI is being used in ESG initiatives:
Environmental: AI can be used to analyse satellite imagery and other data sources to track deforestation, identify pollution sources and monitor climate change’s impact on ecosystems. This information can help companies better understand their environmental impact and develop strategies for reducing their carbon footprint and other environmental harm. AI can also support gathering internal energy and carbon usage data to assist with reporting within financial statements and other publications.
Social: AI can analyse social media and other online data sources to monitor public sentiment and identify emerging social issues that may be relevant to a company’s business. This information can help companies to be more proactive in addressing social issues and improving their social outcomes. AI can also provide efficiencies in the day-to-day operation of businesses freeing up employees’ time to focus on other initiatives.
Governance: AI can analyse financial data and other information to identify potential risks and conflicts of interest that may impact a company’s governance practices. This information can help companies to strengthen their internal controls, improve transparency, and enhance their overall governance structure.
However, it is important to note that AI is not a panacea for ESG issues. While AI can provide valuable insights and help to automate specific tasks, it is not a substitute for human judgment and decision-making. Instead, companies must still ensure that they have strong governance structures, including robust policies and procedures, to ensure that their ESG initiatives are effective and aligned with their overall business objectives.
Moreover, there are also ethical concerns associated with the use of AI in ESG initiatives. For example, AI algorithms may inadvertently perpetuate bias or discrimination if not designed and implemented responsibly and ethically. Therefore, it is important for companies to be transparent about their use of AI and to ensure that their AI initiatives are consistent with their ethical and social responsibilities.
In conclusion, AI has the potential to play a valuable role in ESG initiatives by helping companies to understand better and address complex environmental, social, and governance challenges. However, it is important for companies to approach AI cautiously and ensure that their use of AI is aligned with their ethical and social responsibilities. Ultimately, the success of ESG initiatives will depend on integrating human judgment and decision-making with the insights and efficiencies that AI can provide.
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Laurent Le Pajolec
Member of Board EXCO A2A Polska, Kreston Global ESG Committee member
General Manager and shareholder of consulting companies with a Marketing/ business development and a Financial background with direct experience with several sectors (Real estate, Transport, Fintech, Legaltech, M&A, Import- Export, HR, Restructuring). Exco Polska Board Member.
Christina Tsiarta
Advisory services on sustainability, ESG & climate change
Christina is an experienced consultant specialising in ESG, sustainability, and climate change. She has over 13 years of expertise and has worked with various organizations, including local municipalities, national government agencies, the Directorates-General of the European Commission, and the private sector across different industries.
Call for systemic change in DEI through TCA
May 9, 2023
Our experts and ESG Committee members Laurent Le Pajolec and Christina Tsiarta recently collaborated on an article where they shared insights on why a firm should engage in Trade Cooperation Agreement (TCA) and why existing accounting methodologies are no longer sufficient for modern-day businesses.
Progress in DEI stalls globally
The Netherlands has overtaken Canada to become home to the world’s most diverse, equitable, and inclusive workplaces, as per Kantar’s Inclusion Index 2022. The index measures progress in developing inclusive and diverse workplaces globally, with personal services, non-profit, and professional services being voted as the most inclusive industries, while the entertainment industry remains among the least inclusive. Despite a growing appetite for systemic change in diversity, equity, and inclusion, progress in developing diverse and inclusive workplaces has stalled globally, with countries such as Canada, the USA, and Italy seeing a significant drop in their scores. Failure to take meaningful action impacts recruitment and retention, with one in four employees likely to leave their organisation due to a lack of inclusion.
Inclusion progress
The research indicates that although DEI has become more prominent in businesses’ agendas, there has been a lack of progress. The global score for the index remains at 55, the same as in 2020. In contrast, eight out of twelve markets surveyed have experienced a decline in their Inclusion Index score from 2019 to 2022. However, Mexico and Australia have made significant strides in DEI progress, with 15% and 7% increases in the last three years.
Industries are making varied progress in their efforts towards inclusion. Personal services (such as beauty salons), professional services (like legal and accounting firms), and non-profit organizations are leading the way. Financial services, ranking in the middle, and IT and marketing companies, in the lower half of the ranking, are taking steps to improve inclusion. However, industries like fashion, hospitality, security, entertainment, media, sports, publishing, and agriculture, ranked at the bottom, still have a lot of work to do to improve their inclusivity.
Read more from Laurent Le Pajolec and Christina Tsiarta here.
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Earth Day 2023: Liza Robbins
April 21, 2023
As Earth Day 2023 approaches, it is important to acknowledge the importance of sustainability in the corporate world. Due to the increasing environmental difficulties, it is crucial for businesses to integrate sustainable methodologies into their activities. In this article, Liza Robbins, Chief Executive of Kreston Global, provides her perspective on how tax and accounting specialists can assist businesses in focussing on sustainable practices.
Earth Day 2023 theme is ‘Invest in our planet.’ Businesses can profit significantly from a sustainable transition if they invest early on. How do you think businesses will profit – or benefit?
Climate change has become a crucial topic in today’s business world, with various stakeholders such as staff, clients, suppliers, and investors expressing their concerns about the impact of businesses on the environment. As a result, they have high expectations for companies to engage in sustainable practices. Ignoring these issues will result in negative consequences for the reputation and profitability of the business, as sustainable companies are more attractive to stakeholders.
The recruitment and retention of top talent have become significant challenges for businesses globally. Individuals increasingly seek to work for companies that have a positive impact on the planet, and the focus on sustainability can be a key factor in attracting and retaining employees. Therefore, organisations that integrate sustainable practices into their operations will benefit in terms of attracting and retaining talent.
Governments and regulators worldwide are also introducing new policies and laws to combat climate change, and organisations that adopt carbon reduction strategies now will be better equipped to navigate these new requirements. Adopting sustainable practices not only ensures regulatory compliance but also enhances the organisation’s reputation and brand value, positioning the organisation as a trailblazer in sustainability, which is highly attractive to stakeholders. In summary, businesses must recognise that sustainability is not a peripheral issue but a core concern that can drive long-term success and stakeholder satisfaction.
What is the role of accounting networks like Kreston Global in the education and behaviour change that firms and their clients need to take us to net zero by 2050?
At Kreston Global, we recognise the significant role we play in driving positive change in the world. As representatives of the accounting profession, we take great pride in our network’s ability to create a lasting positive impact. With over 25,000 individuals across 115+ countries, we have the reach and the influence to shape the global business landscape.
Our connectivity allows us to leverage our position to educate and consult on sustainable business practices, showcasing good practices that positively influence firms and their clients. At Kreston Global, we firmly believe that sustainability is a critical aspect of modern business, and we actively promote this mindset to our network and beyond.
Kreston Global recently partnered with Treedom Agroforestry to mitigate the emissions generated by enabling our members to connect face-to-face. What actions have you taken in your firms or your personal life that you can share that will help mitigate or reduce emissions?
At our organisation, sustainability is a top priority, and we have taken significant steps to integrate it into our operations. As part of our Strategic Plan, we have made a commitment to ESG and positive impact, and have enlisted the help of our network experts in this area, establishing an ESG Committee to identify best practice that can be shared across the organisation. We strongly believe that sustainability is not just a buzzword but a critical aspect of responsible business practices.
On a personal level, I am deeply committed to the Reduce, Reuse, Recycle mantra. I believe that we should all be mindful of our consumption patterns and strive to reuse items whenever possible. For instance, I have significantly reduced my car usage and prefer to walk or cycle for short journeys. I am delighted that the pleasant weather has made this more feasible lately.
At Kreston Global, we are also committed to reducing our carbon footprint. We carefully consider our travel plans and aim to combine multiple uses for a single flight whenever possible, such as attending meetings or conferences. We are dedicated to doing our part in creating a more sustainable future, both at work and in our personal lives.
To read more about the sustaiblity and ESG reporting in Kreston Global, click here.
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Earth Day 2023: Andrew Griggs
Earth Day is a global event celebrated every year on 22 April to raise awareness about the importance of protecting our planet and taking action against environmental challenges. As we approach Earth Day 2023, it’s important to consider the role that businesses can play in contributing to a more sustainable future.
Andrew Griggs, Senior Partner at Kreston Reeves and head of the Kreston Global ESG Advisory Committee shared his insights on how businesses can incorporate sustainability into their financial reporting and tax compliance, and how they can benefit from investing in sustainable practices.
1. The business world is among the most significant emitters of greenhouse gases and other pollutants. How can businesses incorporate sustainability into their financial reporting and tax compliance?
“I think there are great opportunities for UK businesses to incorporate sustainability into reporting, simply by looking at what is mandatory now for larger companies (over 500 employees) and following that lead to getting ahead of the curve as it will be mandatory for SMEs soon. From a financial management perspective, all business benefits from knowing their ESG risks and opportunities, and seeing what the impact of their business has on their wider community and stakeholders. And of course, it gives anyone looking closely at that business, be it as an investor, potential recruit or to do business with, a sense of the business culture, values and ethos.”
2. Earth Day 2023 theme is ‘Invest in our planet.’ Businesses can profit significantly from a sustainable transition if they invest early on. How do you think businesses will profit – or benefit?
“As I mentioned above, getting in early is always useful as it can take time to build a comprehensive ESG approach. I know from our own journey as a firm that wanted to have a positive impact on the world and society that the earlier you start the better. We began ours in 2018 and in March this year have achieved B Corporation certification which was one of our goals. The benefits of this inside-out approach have been substantial in terms of increasing staff engagement and morale, improving our financial performance, creating standout in the marketplace, and attracting/retaining clients.”
3. How can tax incentives for sustainable initiatives positively impact a company’s bottom line, and how can businesses take advantage of them with the help of tax and accounting professionals to quantify these benefits in their financial statements?
“Environmental tax incentives in the UK are quite good – there are capital allowances on energy efficient practices (improving heating and energy consumption) and investments in zero carbon technology (ie building infrastructure/electric car/bikes for staff etc). We know that adopting these and other measures such as turning down the heating slightly, going paperless, encouraging recycling and looking at lower water usage and plastic reduction has had a considerable impact in a positive way on our bottom line.”
4. What is the role of accounting networks like Kreston Global in the education and behaviour change that firms and their clients need to take us to net zero by 2050?
“In Kreston we have the opportunity to reach – both across our 165 member firms in 115 countries but in turn to influence and engage their clients and people. This allows us to change behaviours across a large global footprint and create impetus for change by galvanising the whole network. Our network’s impact strategy includes a committee of some of our ESG leaders to help direct and mentor other firms in this area.”
5. Kreston Global recently partnered with Treedom Agroforestry to mitigate the emissions generated by enabling our members to connect face-to-face. What actions have you taken in your firms or your personal life that you can share that will help mitigate or reduce emissions?
“As previously mentioned, as a firm we have committed to becoming a B Corporation so we can live our values of not only becoming net zero but ensuring a long-term commitment to staying net zero – and helping others to do so as well as part of being B corp.“
In conclusion, Andrew’s insights highlight the importance of incorporating sustainability into businesses’ financial reporting and tax compliance, investing in sustainable practices, taking advantage of available tax incentives, and the role of accounting networks in driving education and behaviour change. As we celebrate Earth Day 2023 with the theme of ‘Invest in our planet,’ it’s important to remember that businesses can profit significantly from a sustainable transition if they invest early on.
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News
Carmen Cojocaru
Managing Partner at Kreston Romania
Carmen Cojocaru is a highly qualified professional with extensive experience in the fields of accounting, audit, tax, and business process outsourcing. Additionally, Carmen’s involvement with the ESG committee and Kreston Global highlights her commitment to promoting ethical business practices and fostering sustainable growth within the industry.
ESG Reporting in the EU
April 13, 2023
Carmen Cojcaru from our ESG committee looks at the progress of ESG reporting requirements in the EU (European Union), and explores the implications of new legislation on businesses operating in the region.
ESG in the EU
Sustainability reporting enables companies to convey their progress toward goals on various sustainability parameters, including ESG (environmental, social, and governance) metrics and risks and impacts. This non-financial reporting helps companies communicate both positive and negative implications of their actions on the environment, society, and economy and accordingly set priorities. With the new EU CSRD-Corporate Sustainability Reporting Directive, corporates must adopt new rules and include new regulatory frameworks into their business strategies. This decision will make the EU the world leader in sustainability reporting standards and will impact around 50,000 companies across the EU (up from 11,700 currently), so the potential is enormous.
What exactly does the news refer to?
It implies and affects: strategy and policies, non-financial KPIs, governance on sustainability issues, double materiality, risk assessment and management, and taxonomy; therefore, it impacts the reporting standards. In short, CSRD requires organizations to focus on the objectives related to sustainability issues and to report on progress, including both prospective and retrospective information in achieving them. The new sustainability reporting rules will apply gradually, starting in 2024. The biggest challenge regarding the matter is the vague information.
More details about the standards will be known in June 2023, when the first set of ESRS adopted by the European Commission is expected, followed by the second set in June 2024.
To whom do these new sustainability reporting rules apply?
The reporting requirements will apply to all large companies, all listed companies (except listed micro-enterprises) and non-EU companies with branches or subsidiaries in the EU above certain size thresholds.
Listed SMEs will have the option to use simpler, proportionate standards and the option to not apply the directive for 2 years after entry into force. The CSRD also specifies reporting requirements for listed SMEs.
Reporting timeline of ESG in the EU:
Public-interest entities with more than 500 employees from 1 January 2024 (the first report will be published in 2025);
Large companies (that exceed 2 of the size criteria: over 250 employees and/or EUR 40 million turnover and/or EUR 20 million total assets) from 1 January 2025 ( the first report being published in 2026) ;
Listed SMEs from 1 January 2026 (first reports in 2027, deferral to 2029 possible);
Non-EU companies with branches/subsidiaries in the EU from 1 January 2028 (first reports in 2029).
Reports will have to be subject to independent assurance, provided by auditors or other assurance service providers, initially it will be limited assurance.
The International Sustainability Standards Board (ISSB) is a new standard-setting board created by the IFRS foundation trustees to assist investors and other capital market participants with useful information about companies’ risks associated with their activities from the ESG perspective.
In 2023 they are expected to finalize the two exposure drafts published by ISSB; one setting out general sustainability disclosure requirements and the other on climate-related disclosure requirements.
“The CSRD requires the company’s statutory auditor, another auditor (according to Member State’s option) or an independent assurance services provider (IASP) (Member State’s option), to provide limited assurance on a company’s reported sustainability information. Member States should set out equivalent requirements for IASPs around quality, independence, and oversight in line with the Audit Directive.”
The International Audit and Assurance Standards Board (IAASB) is developing a standard for sustainability reporting assurance, which you can learn more about here.
In addition, the International Ethics Standards Board for Accountants (IESBA) is developing suitable globally-applicable ethics, and independence standards in support of transparent, relevant, and trustworthy sustainability reporting. Learn more about it here.
NFRD is still in force
Just a reminder that the rules introduced by the Non-Financial Reporting Directive ( NRFD), (applicable to large public-interest companies with more than 500 employees), are still in force until companies have to apply the new rules of the CSRD.
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