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Association of Chartered Certified Accountants

ACCA

ACCA is the Association of Chartered Certified Accountants.

Lobbying Activity

Response to Sustainable corporate governance

17 May 2022

ACCA welcomes the aim of the CSDD to progress corporate sustainability in supply and value chains, but we feel more clarity, consistency and scope are needed to change behaviours and effectively manage the accumulation of today's existential threats. While we agree with the change of title for the CSDD, the meaning of corporate sustainability should be better explained, should be at the top and not limited to a set of adverse environmental and human rights impacts. Explanations are also needed regarding how it relates to other definitions, eg UN’s definition of sustainability in Our Common Future about ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’, and regarding how due diligence rules enable companies to achieve sustainable creation and encompass all of the aspects of sustainability from humanity, social, biodiversity and planetary to governance and anti-corruption issues and how they all interconnect. We would like more detail and clarity about what the EC’s objectives are and how CSDD connects to EU law and corporate culture. We also need more details about who the addressee companies are and what is expected from them. These definitions are essential to ensuring the appropriate assurance and accountability to achieve our objectives. The CSDD scope is too much centered on the largest companies and does not offer sufficient reach to SMEs, which make up most of the EU’s economy. Collectively, we need to provide ongoing support and guidance for SMEs around the world if we are to reverse adverse impacts on people and the planet and make sustainable corporate governance the norm. Businesses, large or small, will only be pulled back by rules that lack clarity, consistency and comparability. ACCA would like to see specific definitions of how different types of businesses fall into the scope, and recommend clarifying the roles of the different sectors. It would be helpful to define certain high risk sectors, including high risk SMEs, and spell out the criteria used for deciding that. More explanation is also needed on how non-EU companies, as well as the public sector entities, such as municipalities, are affected or influenced by the proposed rules. We feel more clarity is needed about what constitutes a business relationship and how the CSDD applies to different types of third-parties, so suppliers and the potential for supplier swapping. Same goes for the role of freelancers, outsourcers and other stakeholders, and on how CSDD is aligned to internationally accepted principles, e.g the OECD’s due diligence guidance and the UN’s 17 SDGs. Many companies are already adopting- or in the process of adopting- other frameworks for achieving sustainable goals. So, it is important that the EC’s definitions are in line and compatible with both its own CSRD and green bond proposals as well as other global sustainability reporting proposals, e.g. the ISSB and national TCFD roadmaps. For internal controls, there should be more detail about the required transparency of the framework- ie why the organisation uses COSO or not. We welcome the mandatory due diligence verification proposal but feel there needs more explanation of what independent assurance means, i.e. who this should be. It would be helpful to explain the context of the definition across the proposed directives, or even consider a single standard for what independent means. On contractual provisions, we support their use as additional comfort but not as stand-alone solutions- more clarification on how these affect SMEs is necessary. On the role of directors and civil liability, we support collective responsibility of board members, but there needs to be further clarification given the different legal regimes at national level,on how to deal with unlevel implementation and enforcement, and how the legal framework is involved in defining the fiduciary duties of the board and ensuring accountability.
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Response to Strengthening the quality of corporate reporting and its enforcement

3 Feb 2022

ACCA strongly supports the EC approach to consider the three pillars of high quality and reliable corporate reporting as part of the wider financial reporting ecosystem and commend the EC’s multi-stakeholder approach. Improvements on corporate governance, statutory audit and supervision should take place in a coordinated way so that all three can be mutually reinforcing towards improved quality. Corporate reporting. Our evidence suggests that the quality of corporate reporting varies significantly across Member States (MS) and that different levels of compliance with IFRS are driven by the accounting regime in place before IFRS adoption, differences in tax treatments, the size and maturity of the capital market, and cultural factors including attitudes towards compliance. Differences in the interpretation of IFRS should be distinguished from fraudulent or erroneous reporting. ACCA observed that giving supervisory bodies the power to require corrective action, such as restatement of financial statements, is particularly key to improving the quality of corporate reporting. Transparency about the enforcement actions taken and the circumstances giving rise to enforcement action is also very helpful as it provides preparers and auditors with a valuable point of reference to guide more consistent application of IFRS. Corporate governance. Our view is that all public interest entities should have a separate audit committee (AC) and there should be no MS options on this requirement. We believe that it would be helpful if the duties of AC are further explained and better defined, also in relation to other committees. We recommend giving company boards an explicit responsibility to establish effective risk management and internal control systems for the preparation of corporate reporting, including as regards to controls for risks of fraud and going concern, to enhance the quality and reliability of listed companies’ corporate reports, as well as transparency about the effectiveness of the companies’ risk management and reporting on the actions undertaken during the reporting period. Audit. For the auditor/audit firm rotation, the existing EU audit regulation allowing for flexibility in its implementation has resulted in diverging rules among member states, which may create additional barriers. We therefore call for greater harmonisation and support limiting the number of Member State options in the EU Audit framework. For ACCA, there is currently insufficient evidence that joint audits would positively contribute to audit quality. We therefore do not support their introduction. We support auditors reporting on whether the directors’ statement on material fraud is factually accurate, rather than how they have assured it, as currently stated in the consultation. We call on the EC to be mindful of the risks associated with the additional reporting requirement, and to avoid introducing a new expectation gap. Supervision. Audit quality issues identified in the EU consultation can be attributed only to some extent to deficiencies in the EU legal and supervisory framework, and additional, more stringent regulation will not necessarily lead to higher audit quality and fewer deficiencies. We suggest more emphasis on the implementation and further harmonisation of the existing EU framework. We believe that there is scope for the role of the CEAOB to be developed and strengthened to underpin greater consistency across members states in audit inspection approach and methodology. We recommend the EC consider proposals such as enhanced transparency around the reporting of the findings of the audit inspection process, and to focus on appropriate resourcing of supervisors of auditors and audit firms, in support of a robust overall system of supervision. We support developments using existing national supervisory institutions, but with more EC-wide prescription over the nature of supervision, supported by strengthened oversight from the CEAOB.
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Response to Revision of Non-Financial Reporting Directive

13 Jul 2021

ACCA supports the EU’s leadership in promoting the adoption of sustainable business models throughout the EU. Reporting is one part of the solution alongside sustainable finance, corporate governance, taxation and regulation. We need to minimise undue compliance burden on companies, conserving business resources so they can be spent on green and just transition. Global harmonisation: Social and environmental challenges require a global response. We applaud the EU’s leadership, but urge the EC to commit to globally-consistent reporting standards, by co-constructing with the IFRS Foundation. ACCA supports a building blocks approach, where: • principles-based standards are set at the global level by the ISSB, and • the EU mandates additional focused disclosure requirements to reflect European ambitions on sustainable development and EU public good. To ensure that info is comparable and decision-useful, the EU disclosure requirements should be consistent and interoperable with global standards. Timing of implementation: Sound data and internal control systems are needed for meaningful, high-quality reporting. While we support the scope extension of the CSRD requirements to all large companies, a rushed implementation could result in poor quality reporting and undermine public trust.The proposed timetable is challenging for all, but especially for companies not currently within scope of the NFRD. We recommend a phased approach, with CSRD requirements: • applying first to entities within scope of the current NFRD requirements, and • extending to other large entities one year later. This will allow the entities newly in-scope to benefit from the experience of those already applying the NFRD, without slowing the pace of European leadership in this area. Cost and benefits: While ESEF will improve accessibility, annual reports must be concise for them to be useful for investors and other stakeholders. Our members outreach indicates that the proposed CSRD is expected to result in costs to business over and above the costs currently incurred responding to diverse information demands. We urge the Commission to consult with preparers to ensure the impacts on them are proportionate. We call for: • Consistency with ISSB standards: to avoid duplication of effort in complying with different mandatory standards • Consistency with other initiatives such as the EU taxonomy: to ensure the combined impact of concurrent initiatives is understood by all parties • Early publication of EU standards and application guidance: to avoid unexpected costs and disruption • Focused and precise requirements: uncertainty over how to comply can increase costs by necessitating the use of additional advisory services and iterative trial and error. Double materiality: While we recognise the rationale for double materiality, leaving complex materiality judgements about external impact to companies could lead to reporting that is disjointed, not comparable, of limited value to users. We call on EU institutions to define what constitutes material impact on people and the environment, rather than leaving that judgement to companies. EFRAG should set precise mandatory disclosure requirements, taking into consideration the EU’s SDG commitments, Paris Agreement targets, public policy priorities, and planetary boundaries. These mandatory requirements should be focused, limited in number, clearly-defined and interoperable with ISSB standards. Education qualifications for auditors: Article 7(5) requires auditors to have practical training in ‘the assurance of annual and consolidated sustainability reporting.’ Given resources available to small audit firms and the nature of their client base, this may have the unintended consequence of favouring larger firms with the ability to undertake sustainability assurance engagements. We recommend the EC to flex this to ensure that all future accountants, whether working for for large or small firm , are not excluded.
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Response to Business taxation for the 21st century

30 Mar 2021

ACCA recommends resisting the tendency to focus exclusively on corporate profits taxes when considering “Business Taxation”. For ACCA, this not only misses out on opportunities to use the tax system to improve society but can also actively reinforce bad outcomes of the existing regime. Modern society and business enjoy a symbiotic relationship, each relying on the other. However “Business Tax” is all too often seen as a one way street, with companies expected to contribute to society but no consideration given to the wider impacts of tax on business behaviour. Worse still is the practice of focusing exclusively on a company’s tax payments on its profits as a measure of its societal worth. Consumption taxes rely on businesses producing goods and services; the vast majority of employment taxes are derived from private sector wages. The environmental impact of poor production processes, and the public health and social welfare implications of poor remuneration have far more direct impact on society than the figures in the accounts. How a business makes its profits is far more important to society, to the environment, and to our future, than how much profit it makes. Moreover, the long term future of traditional corporate taxes, especially at an international level, is uncertain. The digitalising economy has highlighted the weakness of reliance on existing legal structures and conventions, reshaping patterns of production and demand both locally and globally. Taxing business, rather than legal fictions, is undoubtedly a more robust model for the future but will depend on our ability to measure the quantum and value of business activity to all its stakeholders. The worth of a business to society is a function of all its outputs, whether we currently measure them or not. Tax can play a role in guiding those outputs, incentivising employment by reducing the tax burden on labour and reducing environmental harms by taxing pollution and resource use. Taxing the economic surplus represented by profits should remain an important element, but at a 20% tax rate, €10m of turnover in a 10% margin business represents €9m of costs and just €200k of tax income on profits. €9m of low wages and pollution will cost more than €200k in healthcare, social welfare and remedial costs to fix. For ACCA, the Business Tax Roadmap should focus on encouraging sustainable profit making rather than maximising profits (the logical response to taxation of them) however they’re made. See also ACCA reports: • Foundations of a Sound Tax System : https://www.accaglobal.com/hk/en/professional-insights/global-profession/foundations_tax.html and • Tax as a force for good: rebalancing our tax systems to support a global economy fit for the future | ACCA Global: https://www.accaglobal.com/hk/en/professional-insights/global-profession/environmental-tax.html In these reports, when looking at different tax measures, we argue that policy-makers need to be clear about what objective each tax measure should achieve: is it to raise revenue? Or to change behaviour? So, for example, the taxation of digital services would logically meet the objective of raising revenue, rather than changing behaviour – and as such, the design of digital services tax would need to be careful so as not to give rise to unintended behavioural consequences. Environmental taxes, on the other hand, have an implicit agenda to change behaviour. That is why in Tax as a Force for Good we advocated for a revenue-neutral approach, using tax revenues from balanced and sustainable green taxation to reduce labour taxes, provide targeted support to the most vulnerable in society, or improve sustainable infrastructure.
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Meeting with Mairead McGuinness (Commissioner) and

4 Feb 2021 · non financial reporting directive.

Response to Sustainable corporate governance

7 Oct 2020

The Association of Chartered Certified Accountants (ACCA) welcomes the European Commission’s Inception Impact Assessment on Sustainable Corporate Governance and agrees that sustainability needs to be further embedded into corporate governance frameworks. Covid-19 has forced companies to re-think their purpose and strategy for the long-term and now is a better time than ever to introduce more effective measures to make sure this happens, otherwise businesses will not be able to survive, thrive and indeed make better impacts on people, the environment and society at large. Sustainable corporate governance is not only about compliance it is also about creating value and indeed crucial to building a viable recovery. As such, we support the Commission’s initiative for shifting from short to long-termism and agree it would help integrate stakeholder interests, strengthen a company’s competitiveness as well as lead them to improve their environmental and social impacts. It also would allow for better measuring of business performance through environmental and social metrics. However, ACCA sees a crucial need for better guidance particularly for small-to-medium enterprises to a) implement these processes; b) engage with stakeholders more effectively; c) conduct materiality assessments; and d) align the long-term interests of stakeholders, shareholders and communities. In this respect, we believe that the EU could support stakeholder engagement more by building a better dialogue on national and sector levels. We echo other responses to enhance collective action on the ground by getting companies, business councils, policy makers and stakeholders to work together on integrating sustainability into business models and supply and value chains as well as to set more coherent best practice standards. Furthermore, ACCA would encourage companies to report their objectives and progress on shifting from short to long-term thinking and explain why if they do not. This ultimately would help companies better align their decision making with stakeholders’ expectations, which is already the direction we see investors and prudential regulators around the world heading. We also welcome more transparent disclosures on Boards in terms of their compositions, objectives and communications, as the pandemic proved that many lack a sufficient view of their company’s risks. Boards need to be made up of more diverse backgrounds and expertise, from scientific and physiological to technological and communicative. Diverse thinking will help company directors make better decisions and avoid biases that create blind spots, better preparing them for the challenges facing their organizations today and tomorrow. Boards also need to look more closely at long-term value creation, and reconsider how they allocate the profits of their companies, cater to the interests of their different stakeholders and balance the short and long-term requirements. They also must look out for ways to innovate and transform, not least by mapping out supply chains and identifying gaps and red flags. Boards need to drive a responsible culture and approach to business conduct and this can only be achieved by carrying out proper due diligence. Boards need to reassess their communications and flows of information to ensure they are managing all risks – financial and non-financial as well as external and emerging – effectively and in a timely manner. Boards need integrated information that connects financial and non-financial data to help them plan and build resiliency for future disruption. It is important to keep initiatives closely aligned with international standards in developing measures for sustainable corporate governance frameworks and due diligence requirements, eg with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and the ILO Tripartite Declaration of Principle on Business concerning Multinational Enterprise.
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Meeting with Paulina Dejmek Hack (Cabinet of President Jean-Claude Juncker) and Barclays PLC

15 May 2018 · Speech at EBRD-ACCA-Barclays event "Empowering business to engage with sustainable finance and the SDGs"

Meeting with Paulina Dejmek Hack (Cabinet of President Jean-Claude Juncker) and Barclays PLC and

21 Jun 2017 · Concluding remarks on sustainable finance at the joint Acca, Aviva, Barclays, IIRC Conference

Meeting with Vasiliki Kokkori (Cabinet of Commissioner Marianne Thyssen) and PwCIL

7 Jun 2017 · Jobs of tomorrow: what educational skills do we need?

Meeting with Phil Hogan (Commissioner)

8 Feb 2017 · Delivery of Keynote speech

Meeting with Phil Hogan (Commissioner)

29 Apr 2016 · Taxation Issues