Category Archives: Accounting & Auditing

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Potential areas of risk for the 2017 audit cycle

 

By Morgan International Staff Writers

When a business is entering the audit cycle, there are some primary considerations that it should take with regards to the audit and potential areas of risk that might be within the business.  These need particular attention – how the auditor will plan and execute their audit, the tools being used and other more complex areas of the process.  The business should also consider the auditor and indeed their suitability for the role.

  • Auditor independence

The auditor needs to be a completely neutral person who isn't affiliated with the company or connected companies in any way to ensure that the audit is consistent and high quality.

  • Multinational audits

If the auditor is from outside the country, it is important to check the professional reputation and independence of the auditor with companies and professional bodies in their home nation.

  • New accounting standards

If the company has transitioned to any new accounting standards during the year, this is a high risk for the audit cycle as the overlap could leave areas of vulnerability.  New standard approaches are being encouraged for revenue recognition, credit losses and preparing the financial statement.

  • Economic factors

All businesses can be affected by certain economic factors – the rise of fuel prices is a classic example.  Ensure these are factored into the audit cycle appropriately.

  • Financial reporting areas

Potential areas of risk include the assessment and management of ongoing concerns by the auditor and that the procedures of evaluation and testing can cover earnings in foreign jurisdictions.

  • Ever increasing transparency

New rules require the disclosure of more information in auditors including the role of an engagement partner and other participants so this needs to be factored into the audit process.

There are also other considerations that should be used to look for risks and problems within the method including:

  • Engagement quality review
  • Improper alteration of documents
  • Cybersecurity risks
  • Software audit tools
  • Auditor’s reporting model (if a new version is pending approval)

Controlling risks

An important part of the auditor’s role and that of the company using their services is to identify and handle the many risks within the audit cycle to help minimalize or remove them entirely.  By considering areas such as the economic factors affecting the business and any new accounting standards employed by the business, areas of risk can be identified before the audit and made certain to give the correct attention during the undertaking.  This makes for a more successful audit process.

 

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How and when to grow your company’s accounting function

 

By Morgan International Staff Writers

In many cases, when a business first starts there’s no need or the budget to employ a full time accounting professional.  As the business grows and the accounts become more complex, there is sometimes the need for more advanced software or even a part-time professional.  Sometimes the services are outsourced to someone outside the company.

Finally, the company reaches the point of having one or more professionals working full time on the accounts.  But how do you know when your business reaches the stage and is ready to move and grow?

Starting a business

  • DIY services

When you start a business, it is crucial to start accounting from day one or things can quickly get out of control.  Many companies use software such as QuickBooks to set up a connection to their bank account, automatically handling basic accounting functions.  It can take care of bookkeeping tasks such as; business income, business outgoings (expenses) and invoicing clients.

Sometimes the task may be outsourced to a freelancer on a regular basis.

  • Tax preparation

As the year progresses, there is the need for tax preparation.  This is a different job to bookkeeping and the professional required is often a different one.  The software can do some of the job, compiling the information needed.  Often a freelancer can be used to submit the actual self-assessment or corporation tax returns to ensure it is done correctly.

Growing the business

  • Freelance services

As the business grows and people are employed by the company, the accounts become much more complex and a part-time accounting staff member is often used alongside the software.  Alternatively, a regular freelance service can be used on an ongoing basis to handle tasks such as payroll, tax and bookkeeping.

  • Cash flow monitoring

Accounting is about more than just tax – it is the measure of the financial health of the business.  Therefore, the accounting department, whether one part-time staff member or a room of full-time staff, are responsible for providing reports and information to help monitor the cash flow of the company.  There may also be compliance issues to consider depending on the industry.

The larger business

  • In house specialists

When the business reaches the stage of multiple employees, multiple contracts with different customers or a range of products, then a full-time accounting person is often needed – sometimes a team of them.

 

  • Compliance and company reports

There may be one person handing general bookkeeping and payroll while another handles invoicing.  Tax and compliance issues may be another person’s area of expertise or there may be an overlap.  There should be someone responsible for compiling those crucial reports into the financial health of the company.

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7 Questions to Ask Before Hiring an Accountant

 

By Morgan International Staff Writers

For many small businesses, hiring an accountant can seem a bit daunting. They are often not really sure what they are looking for, and what will make an accountant a good fit for their firm. To some it may seem like all accountants and practices are the same, but this could not be further from the truth. So we are here to help you with 7 questions to ask before hiring an accountant.

 

  • How long have you been in business?

Avoid a start-up as you will benefit from an accountant who has experience of the challenges that small businesses face.

 

  • How many clients do you personally manage?

You want to make sure that the accountant will have sufficient time for your business, but equally if they have just a few clients, it may raise alarm bells about why they have been unable to attract/keep more clients.

 

  • Do you have references?

This is crucially important. You need to see references from current or very recent clients who have lots of good but honest things to say about the accountant.

 

  • What is the charging structure?

You need to be clear how fees will work. Be cautious that where there is a fixed fee, it includes all of the services you would expect to be included. You do not want to be surprised by unexpected expenses.

 

  • Will my account be managed by on person?

For consistency, it is advantageous for one person to manage the account. Of course you expect there to be cover when that person is away.

 

  • How often will I receive a P+L?

Some firms will prepare a P+L on a monthly basis which is very useful to keep a track on business profitability, particularly for small businesses.

 

  • Can you provide advice?

You will likely have plenty of questions about taxes, expenses lines, and so on. You need to feel confident that your accountant will be readily available and happy to answer those questions.

 

In summary, hiring an accountant is a big decision for businesses. Make sure you take the time to ask the questions above, and anymore you might have before you make an appointment.

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UAE Fintech Industry Surging

 

By Morgan International Staff Writers

Fintech is big news, both in the UAE, and globally. It is a fairly new financial industry using technology to improve financial activities, often through automation and making use of sophisticated tech such as artificial intelligence. The introduction of disruptive technology in the UAE and wider Middle East is likely to be advantageous for customers but will challenge the traditional banking model. The key areas where fintech has thus far been pervasive are insurance, trading, and risk management. In July 2017, The Dubai International Financial Centre’s Fintech hive selected 11 start-ups to partake in a 12 week accelerator programme which will offer them the opportunity to pitch their ideas to a number of investors in November 2017. Abu Dhabi Global Market (ADGM) announced in August 2017 that it was assessing 22 applications from fintech startups to take part in a regulatory laboratory sandbox programme. This allows successful participants to develop their ideas alongside financial services firms in a lighter touch regulatory environment.

Some of the key innovation areas utilize innovative technologies/areas such as:

  • Blockchain and cryptocurrencies such as Bitcoin
  • Smartphones and apps
  • Robo advisers and robo investors
  • Contactless cards
  • Payment solutions

 

These innovations and new industry entrants pose a significant threat to traditional banks and financial advisors, who will be forced to innovate and diversify themselves to survive. There are of course likely to be opportunities for the traditional players to team up with the innovators which will permit old business models to be updated.

 

In summary fintech allows financial services to be delivered more quickly, cheaply, and conveniently. There are still some concerns around security, but as these issues are resolved, expect to hear a lot more about innovative financial technology solutions in the months and years to come.

 

 

 

 

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VAT Implementation in Saudi Arabia

 

By Morgan International Staff Writers

Last month in Saudi Arabia, businesses were hurrying to meet the deadline to register for VAT – value added tax. Many had expected the deadline to be the end of September, so this was a surprise for many, and put added pressure on businesses to comply in time to avoid attracting financial sanctions.

 

Those affected are required to register with Saudi Arabia’s General Authority of Zakat and Tax (GAZT). The registration deadline is part of the effort by the Gulf Cooperation Council to replace oil revenue lost from barrel prices remaining low. They are attempting to address the shortfall with the imposition of an indirect tax of 5%.

 

Who is in scope for VAT? Businesses selling goods/providing services with sales in excess of 375,000 riyals which is approximately $100,000. For those with sales of less than 1 million riyals, they are permitted to delay registration until Jan 1 2019. For businesses with turnover above 187,500 riyals, but below 375,000 riyals, registration is voluntary. With respect to the kingdom’s 250 largest businesses, they were automatically registered for VAT.

 

There are of course penalties for failure to register and/or pay. Failing to:

  • Apply for registration by the deadline - 10,000 riyals.
  • Submit a tax return within the set timeframes – 25% of the tax due.
  • Pay the tax due by the deadline – 5% per month
  • Keep proper records – 50,000 riyals

 

The GAZT said in a statement that they are developing a wide range of resources to aid businesses in understanding their tax obligations. A business is of course responsible for their registration and internal processes, but reporting and payment will be done through an online GAZT portal.

This will be a step change and a challenge both financially and from a process perspective for Saudi Arabian businesses. There will be support available from the GAZT – but it will be interesting to see how effective implementation of the new indirect tax is.

For those with specific queries in relation to VAT, it would be worthwhile seeking advice from a qualified accountant.

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Seven Tips on How to Be a Great Leader in a Crisis

By Morgan International Staff Writers

Projects should run smoothly, but invariably different forces conspire to create problems and great leaders are defined by how they react to those issues and deal with the problems.

Look for early warning signs.  A crisis rarely just happens, and it is usually apparent that something is going wrong before it happens.  Learn to look for the early signs that something is starting to go wrong – such as team member reports or unexpected results – and prepare a contingency plan.

Respond with quick, effective, decisions. A crisis can be made all the worse by procrastination and poor decisions.  As a project manager, you are expected to be able to make quick decisions, based on your project knowledge, to prevent a crisis becoming disastrous.

Face reality. In a crisis, it can be easy to ignore the hard facts and look for the positives, but that can lose you valuable time.  Learn to look at a crisis for what it is – something going badly wrong - and determine how you are going to remedy it and not learn to live with it.  You can’t make realistic decisions unless you face the reality of a situation!

Manage communications effectively. Others are going to want to know about the crisis, and you need to learn how to impart that knowledge in a salient information only.  Senior managers won’t want waffle – they want to know the facts and what you are going to do about it.  In a serious crisis, you may need to respond to the media too, so be prepared for that.

Manage team ideas. In a crisis, your team are the people who will help you overcome it, but they need careful managing.  Get them together early on and work out ideas using standard tools such as brainstorming to overcome the problem.

Encourage problem solving.  As a project manager one of your main roles is to get the best out of people, and a crisis is the one place where your people have to excel. Usually, your team will look to you for direction but in this instance, you need to encourage them to find the answers within their own areas of expertise.

Be determined.  As a crisis grows, others outside the team may try to take over and pull the project from you.  In these cases, you need to stick to your principles and ensure that you have control.  If you lose governance of the team and the situation, it could turn out much worse.  Be determined and own the problem, right until its conclusion.

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Auditors focus on fraud detection

By Morgan International Writers

Whether they like it or not, auditors are increasingly being expected to focus on fraud detection. In fact it is becoming a responsibility, as in the event that there has been fraud and the auditor does not discover it, there is a significant chance that they will be sued by the company. This applies to companies both small and large. This not only applies to CPAs, but also to internal auditors and government auditors.

One of the ways in which auditors will be seeking to prevent fraud will be through risk management – that is having the appropriate controls in place over financial reporting. Furthermore, auditors are finding themselves dragged into conversations about cyber security as clearly one of the major ways fraudulent activity is carried out is via the internet and access to the corporate network. This again expands the scope of the auditor in a way that is unprecedented.

There have been advances made from a technology perspective which aid fraud detection such as artificial intelligence and machine learning. When there are large volumes of data, computers are very efficient at identifying irregularities. Furthermore they are able to ‘learn’ typical patterns of behaviour and therefore highlight any irregularities which could be fraud.

The good news is that discovery of fraud, and risk management is covered in detail within the CPA. The concept covered as explained within the 2017 course content is:

“Assessing Risks and Planning Further Procedures – Identifying and assessing risks of misstatement due to error or fraud and developing appropriate engagement procedures, including understanding and calculating materiality and considering specific engagement risks, as well as incorporating concepts such as group audits, using the work of the internal audit function and the work of specialists.”

In summary, as the occurrences of fraud not only increase in volume but also in complexity and seriousness, responsibility has fallen to auditors to identify it when it occurs and to put in place processes and procedures to prevent it from happening in the first place. This is a big responsibility, however the CPA syllabus has the requisite content to equip a new accountant with what they need to fulfil their role.

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Received Your CFA Exam Results? Failed? What Next?

By Morgan International Staff Writers

The CFA is widely considered to be Wall Street’s toughest exam. However that does not stop approximately 170,000 students worldwide turning out for it. Less than 50% pass the CFA exam, and therefore there will unfortunately be a lot of people who have not received the result they would have liked. However rather than start to doubt yourself, we are here to give you some top tips of what to do next and to pass next time around!

 

  • Pause and gain perspective

It would be very easy to fall into a depression and tell yourself you are not good enough etc. However failure is built into the system, and it is statistically likely that you will fail an exam at some stage. Many extremely good candidates will fail, but they will also get up, dust themselves off, study again, and pass the next time. So take some time to gather your thoughts and gain some perspective. It is not the end of the world and you can take it again. Of course next time you will be armed with experience of already having sat the exam before.

 

  • Evaluate

One you have taken that bit of time to get over the initial disappointment, consider and evaluate where you think you may have gone wrong. For example were you underprepared on particular topics and over prepared on others? Perhaps you did not sufficiently use the CFA curriculum books, or you did not do enough practice questions. Do the gap analysis and fix it next time.

 

  • Get back on the horse

Book in your resit. This is probably the simplest of the stages but for some the hardest as the fear of failing again can feel overwhelming. Remember you have the benefit of knowing where you went wrong last time! This in itself is invaluable.

 

  • Contact a training provider

It might be that you think you could benefit from some additional help with your exam preparation. There are a number of organisations out there such as Morgan International who have vast experience of helping students such as yourself overcome failure and pass with flying colours.

 

In Summary

Failing an exam is tough, particularly if you have done as much preparation as you feel you could have done. However you must remember that statistically you are more likely to fail than pass. This is of course not an excuse of any kind, but it should allow you to put things into perspective, fill the gaps in your knowledge, and pass a resit.

 

 

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4 Ways Tech is Transforming Accounting

By Morgan International Staff Writers

Accounting has traditionally been one of the slower professions to adopt new technologies. However a huge amount of accountancy tasks are fairly transactional and could be automated quite easily with a view to freeing professional accountants up to working on more strategic organizational activities. Here are the 4 top ways that technology is transforming accounting as we move swiftly through 2017:

 

  • Cloud Computing

Applications are made available in the cloud which means accountants can perform tasks wherever they are in the world, and wherever they are, so long as they have an internet connection. It also means that some modifications to the application can be made by the accounting team in real time, without needing to go through a change control procedure.

 

  • OCR

No more than a few years ago, OCR technology was a bit hit and miss. In an area such as accountancy, where getting just one digit wrong can cause massive problems, many businesses decided against the use of the technology. Not only has OCR now improved, but there have been big innovations in terms of creating workflows to searchable archives. This has allowed businesses to greatly streamline processes.

 

  • Mobility

Accountants are increasingly becoming dependent on their mobile devices to access data. Companies such as Xero are launching mobile apps that help accounting firms to manage their business. We are also seeing apps used as a way to aid communication and productivity between accountants and clients. It is also another way in which accountants can work on the move.

 

  • Social media

Social media is an essential and fairly inexpensive way for accounting firms to engage with their customer base. It is also an opportunity to reach and attract new clients. It is a valuable sales and marketing platform and many accounting firms are now going beyond traditional marketing to prioritize digital business development plans.

 

Summary

Technology is becoming increasingly pervasive within the accounting industry, and accounting professionals will have no choice but to keep up if they are to be successful and access the efficiencies their peers have at their disposal.
 

Internal Audit and the Vital Connection with Cybersecurity

 

By Morgan International Staff Writers

The internal audit function provides a safety net for companies by identifying risk, and offering advice on how to manage it. With widespread and increasingly sophisticated cyber threats, the risk to business has become alarmingly high in recent years.

In fact, a 2017 government survey shows that cyber breaches or attacks affected nearly half of firms in the UK during the past year.¹ So how can an internal audit department help their company reduce exposure to cyber attacks, and deal with them effectively if they occur?

Independent cyber risk assessment

A risk assessment by the internal audit function establishes the strengths and weaknesses of any existing strategy, and helps to implement a stronger plan to deal effectively with current threats.

A completed assessment would include:

  • Potential origins of a cyber attack: for example, an organised gang of cyber criminals, a single independent hacker, business competitors, or someone working for the company
  • Reason for an attack: potentially financial, purely disruptive, reputation damage, or theft of strategic plans
  • How an attack might occur: phishing emails, stolen personal information, vulnerabilities in hardware or software programmes

Advise management on the level of risk and its management

Having assessed the measures currently in place, internal audit can advise management on their effectiveness, and suggest potential changes or updates. They will provide information on:

  • Existing and emerging cyber threats
  • Vulnerability of the business to cyber attack
  • A strategy to mitigate and manage risks in the long-term
  • Plans to deal with the crisis if an attack occurs

Once new systems are in place, or existing cybersecurity measures updated, internal audit carry out what is potentially the most important aspect of their role – testing compliance and discovering the effectiveness or otherwise of security and recovery plans.

After an attack

Internal audit should work alongside the IT department at every stage, and if the company is unfortunate enough to suffer an attack, use newly-found information to re-evaluate plans in the future.

Cybersecurity is a critical issue for every business - even the smallest enterprise is at great risk. It is crucial, therefore, that personnel understand how to prevent such an attack on a day-to-day basis. To increase your knowledge in this area and help to safeguard your company, have a look at the accredited training courses on our website.

¹https://www.gov.uk/government/news/almost-half-of-uk-firms-hit-by-cyber-breach-or-attack-in-the-past-year

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/609186/Cyber_Security_Breaches_Survey_2017_main_report_PUBLIC.pdf

http://www.accountingweb.com/aa/auditing/internal-audits-critical-role-in-cybersecurity

https://www2.deloitte.com/us/en/pages/risk/articles/cybersecurity-internal-audit-role.html