International Accounting Professional Trends (Issue 1, 2021)


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Global and regional accounting professional organization dynamics

International Federation of Accountants calls on the accounting industry to participate in anti-corruption activities

The International Federation of Accountants (IFAC) published an article on the website of the International Federation of Accountants (IFAC), pointing out that corruption has caused serious and adverse effects around the world, resulting in a global annual loss of 3.6 trillion US dollars, which is about 5% of the global GDP.

The article calls on the accounting industry to participate in anti-corruption activities in three core areas in accordance with the G20 Anti-Corruption Action Plan to safeguard public interests.
First, in the field of anti-money laundering, the financial industry is a key area of ​​anti-money laundering policies. Many non-financial industries, including the accounting industry, are also actively participating in anti-money laundering activities. For example, IFAC supports the work about Anti-Money Laundering Financial Action Task Force (FATF). In the digital age, financial crimes are becoming increasingly difficult to prevent and hold accountable. The accounting industry should use digital high-tech means to fulfill its legal anti-money laundering obligations.
Second, in terms of protecting whistleblowers, if the whistleblower discovers the corrupt activities of their units, whether they have the right to stop them is of vital importance. IFAC supports all countries and regions based on the G20, the Organization for Economic Cooperation and Development (OECD) and other international organizations. In principle, formulate laws and regulations to protect whistleblowers, and encourage the accounting profession to actively follow the above principles in the course of practice.
Third, in the field of enhancing public and private sector transparency, in addition to encouraging countries and regions to adopt the International Public Sector Accounting Standards, International Auditing Standards and the International Code of Ethics for Accountants, IFAC advocates that the accounting industry refer to G20 and OECD’s transparency and Integrity guidelines to enhance the transparency of the public and private sectors and enhance the level of integrity.
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The International Accountant Professional Ethics Standards Council releases five-year work summary report

Recently, the International Accountant Code of Ethics Board (IESBA) published a report entitled "Professional Ethics and Trust-Opening up New Work Fields", summarizing the work carried out in 2016-2020 and the progress of current projects, and emphasizing that IESBA is a promotion, Efforts to adopt and implement the International Code of Professional Ethics for Accountants.

IESBA Chairman Stavros Thomadakis (Mr. Stavros Thomadakis) pointed out that professional ethics is the cornerstone of the accounting industry to gain public trust. To this end, IESBA revised the International Code of Professional Ethics for Accountants.
The first is to strengthen the conceptual framework of professional ethics, emphasizing that accountants should use the framework to identify, evaluate and respond to the difficulties and threats faced by following the basic principles of professional ethics.
Second, when accounting firms maintain long-term business relationships with audit clients, more emphasis is placed on the importance of the partner rotation system for independence;
The third is to emphasize how accountants should adhere to professional ethics in the face of pressure and temptation.

Tommadakis emphasized that in order to help the global accounting industry cope with the impact of the COVID-19 pneumonia epidemic, in 2020, IESBA will provide relevant practical resources through a dedicated webpage, including the publication of the title "Considerations of professional ethics and independence under the COVID-19 pneumonia epidemic" The question and answer manual for employees, reproduced the guidelines jointly developed by IESBA and various national and regional standard-setting agencies.

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International Auditing and Assurance Standards Council promotes strengthening of quality management

Recently, the International Auditing and Assurance Standards Board (IAASB) issued International Quality Management Standards No. 1 (ISQM 1), International Quality Management Standards No. 2 (ISQM 2) and revised International Auditing Standards No. 220 (ISA 220) , To promote the adoption of solid, proactive, adaptable and effective quality management methods in the global accounting industry. These three standards will take effect on December 15, 2022.

This marks a profound change in the current international quality management standard system. IAASB Chairman Tom Seidenstein (Mr. Tom Seidenstein) pointed out that the above-mentioned standards will urge the audit industry to no longer focus on quality "control", but to continue to carry out high-quality practice through quality "management" methods, and at the same time encourage the leadership of accounting firms assumes more responsibilities to ensure that the accounting firm upholds the concept of quality first in the development strategy and operation process, continuously improves the quality of practice, and takes corrective measures in a timely manner when problems are discovered.

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Accounting career trends in relevant countries and regions

U.S. Securities Regulatory Commission filed accounting fraud charges against Luckin Coffee

On December 16, 2020, the US Securities Regulatory Commission (SEC) accused Luckin Coffee Company of defrauding investors, misrepresenting the company’s income, expenses, and net operating losses, and violating the anti-fraud, reporting, account books and records and internal control provisions of the US Federal Securities Law.

The SEC pointed out that from April 2019 to January 2020, Luckin used three separate procurement plans to use related parties to conduct false sales transactions, deliberately fabricating more than $300 million in retail sales. According to the allegations, some Luckin employees inflated company expenses by approximately US$190 million in order to create a false operating database and attempt to conceal fraud by tampering with accounting and bank records. The company deliberately seriously exaggerated its reported revenue and expenses in its publicly disclosed financial statements in 2019, and seriously underestimated its net loss. For example, in its publicly disclosed financial statements, Ruixing seriously exaggerated about 28% of the current period's revenue as of June 30, 2019, and exaggerated about 45% of the current period's revenue as of September 30, 2019. During the fraud, Luckin raised more than $864 million in funds from bond and stock investors.

It is reported that Luckin has agreed to reach a settlement agreement with the SEC including a permanent injunction and the payment of a $180 million fine. It is currently pending approval by the U.S. District Court for the Southern District of New York.

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The U.S. Public Company Accounting Oversight Board releases the 2020-2024 Five-Year Strategic Plan

In order to protect the interests of investors and the public, the American Public Company Accounting Oversight Board (PCAOB) officially released the "2020-2024 Five-Year Strategic Plan" (hereinafter referred to as the "Strategic Plan").

In the strategic planning, PCAOB analyzed the three major elements that affect the strategic prospects, namely, the quality of audit services, technological change and stakeholder participation. To this end, the strategic plan lists five strategic goals and corresponding action plans:
The first is to use economic and risk analysis to formulate standards, rules and guidelines more effectively, regularly evaluate their own regulatory processes and inspection activities, timely notify relevant parties of the audit firm’s practice quality inspection results, and strengthen the accountability mechanism for improper conduct of accounting firms and employees. To promote accounting firms to improve the quality of audit services.
The second is to predict and pay close attention to the impact of emerging technologies on audit services, assess information security-related risks caused by emerging technologies, and understand investors’ new expectations for audit services in this context, and formulate corresponding measures.
The third is to strengthen communication and interaction with investors, the company's audit committee and other stakeholders, solicit opinions and suggestions from related parties through the subordinate consulting working group, and report regulatory developments in a timely manner to improve the timeliness, effectiveness and transparency of regulatory work.
The fourth is to strengthen risk management capabilities through information analysis, improve internal work and decision-making processes, efficiently use resources, information and technology, and strengthen the protection of proprietary and sensitive data.
The fifth is to build an inclusive and efficient organizational culture, recruit, train and retain a diversified team of employees with different backgrounds and experiences, and encourage employees to stick to integrity, pursue excellence, work efficiently, and collaborate in the work process to achieve common goals.

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The Financial Reporting Council of the United Kingdom publishes auditors’ guidelines and company guidelines

In order to avoid the impact of the COVID-19 pneumonia epidemic on the quality of audit services and encourage companies to maintain good governance, on December 4, 2020, the Financial Reporting Council (FRC) issued guidelines for auditors and company guidelines to guide auditors and companies to conduct audits during the epidemic the work.

The auditor’s guide enumerates the impact of the epidemic on the audit business, including: how to conduct audit risk assessments, how to obtain sufficient audit evidence, how group auditors review the work of component auditors, and how to assess continuing operations in the context of global economic uncertainty Matters, pay attention to whether the company’s management fully disclosed information on the epidemic and whether it is necessary to reassess key audit matters.
Therefore, FRC recommends:
First, before undertaking business, carefully consider the audit work that can be carried out through remote technical means.
The second is to adjust the audit method according to the actual situation of the audited entity to obtain sufficient audit evidence on internal control to support the audit opinion.
The third is to consider obtaining sufficient audit evidence through other means, and assess the reliability of audit evidence through technical means.
The fourth is to consider litigation risks and financial compensation when assessing the risk of material misstatement.
The fifth is to fully consider liquidity and solvency risks when assessing the ability to continue operations.

The company guide points out that when preparing financial reports, companies should pay more attention to the areas that investors are interested in, and fully disclose information related to making major predictive judgments.
Therefore, FRC recommends:
One is to consider the use of declarative reports to disclose predictive information and the methods and assumptions used for forecasting, so as to facilitate auditors to review the company's board of directors' assessment of the company's viability.
The second is to explain the company's ability to continue operations, related major uncertainties and the basis for making major judgments.
The third is to pay attention to the information needed to make major judgments (especially the source of information needed for uncertainty assessment and related assumptions).
The fourth is to determine how to properly handle matters after the period and grasp the level of information disclosure.

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International Accounting Company News

Several accounting firms look forward to China's economic development in 2021

In 2020, affected by the COVID-19 pneumonia epidemic, the global economy is in serious trouble. Thanks to effective measures to prevent the epidemic and promote the resumption of work and production, China has become the only country in the world's major economies that has achieved positive growth. In 2021, with the widespread vaccination of the COVID-19 vaccine, many accounting firms predict that China's economy will continue to improve in 2021.

PricewaterhouseCoopers pointed out that it is expected that the global epidemic may be relieved in 2021 and the global economy will rebound. China's exports will continue to benefit from it, driving the economy to maintain a relatively rapid growth rate. Overall, China's economy is expected to achieve relatively strong growth in 2021, but factors such as weak domestic consumption and decline in infrastructure investment have prompted China's macroeconomic policies to maintain continuity and stability.

Deloitte believes that mainly due to three factors, the Asia-Pacific economic situation is expected to improve in 2021:
First, various countries and regions will take various measures to push the economy on track, and the regional economy will gradually recover.
Second, relevant countries and regions are aware of the importance of making up for economic shortcomings during the epidemic, and may carry out rectification to better respond to emergencies such as the epidemic in the future.
Third, some countries and regions may implement major reforms and introduce new economic management and development models to adapt to new changes after the epidemic. For example, Biden may lead the United States back to multilateralism. Affected by this, China will continue to lead the recovery trend, focus on improving the quality of development, increase support for small and medium-sized enterprises and consumer groups, focus on solving the problem of leverage, and continue to improve people's livelihood.

KPMG pointed out that affected by the epidemic, multinational companies are paying more attention to the security and stability of the industrial chain and supply chain, and they are more favoring China's huge market, complete industrial system, high-quality infrastructure, and deepening opening-up policies, and intensifying their efforts to deploy in China . After the signing of the "Regional Comprehensive Economic Partnership Agreement" (RCEP), the economic and trade ties between member states in the region have been further strengthened, and the general trend of regional cooperation has taken shape. In this context, China's economy will continue to recover in 2021, and the annual GDP growth rate may reach 8.8%.

KPMG believes that global economic recovery requires a package of reform measures

In order to alleviate the impact of the COVID-19 pneumonia epidemic, many central banks have successively adopted monetary policies such as interest rate cuts and quantitative easing to increase liquidity and provide effective support for the financial system; many governments have also introduced fiscal support including tax cuts, investment, and refinancing policies to boost the economy. KPMG pointed out that these measures have stabilized the economic development situation in the short term, and are of great significance for stabilizing the society, protecting people's livelihood, and avoiding the widening gap between the rich and the poor.

However, the International Monetary Fund (IMF), the International Finance Association (IIF) and other institutions have warned of the resulting debt risks and called on governments to act cautiously when taking measures to mitigate the impact of the epidemic and achieve a sustainable fiscal balance in the process of economic recovery.

KPMG believes that in order to stabilize the economy in the short term and cushion the huge impact of the epidemic, it is necessary to adopt proactive fiscal and monetary policies. However, in the long run, the key to economic recovery is to promote innovation and increase productivity through in-depth structural reforms, while paying attention to the reasonable distribution of social wealth in order to achieve shared, inclusive and sustainable development. 

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