Insightful Corporate Governance & Decision Making | Top-Level Mentoring | Getting Business Problems Solved
Author: David J. James
56 year old UK origin Chartered Accountant and business consultant who loves languages, literature, history, religion, politics, internet, vlogging and blogging and lively written or spoken discussion, plays backgammon and a few other board games. Walks and listens to Audible for hours a day usually, and avoids use of the car. Conservative Christian, married to an angel with advanced Multiple Sclerosis. We have three kids, two of them autistic, and we live in Warsaw, Poland. On the board of the main British-Polish charity Fundacja Sue Ryder in Poland, and involved in the Vocational Autistic School of "Nie Z Tej Bajki" in Warsaw. Member of Gideons International. Serves on two committees of the Chamber of Auditors in Poland, and on several Boards and Supervisory Boards. Has own consultancy called Quoracy.com delivering business governance and audit/valuation solutions as well as mentoring. Author of the GoldList Method for systematic optimal use of the long-term memory in learning.
Let’s imagine that the meat and dairy industries are cancelled, that everyone is convinced of the vegan arguments. Which of the following scenarios is then more likely?
a) the fields where the pastures for cattle were are allowed to continue as pastures full of natural biodiversity, with cover for birds and butterflies and wild flowers of all sorts have their haven there, grazed by cattle who now live until they are 22 years old, and die natral deaths, unbothered by humans. The original aurochs gradually reappears because the races of cattle interbreed and these majestic buffalo like beasts are viewed in huge herds at a distance by our great grandchildren. Occasionally we grow a field of crops on a field naturally fertilised by their natural grazing activities.
b) since we cannot use the cattle we don’t keep them and cattle as well as other farm animals with the possible exception of ducks and geese are threatened with extinction. We use the pasture land which has no sense without animals on it for crops (food or energy) and since these are monocultures it stresses to extinction several species of bird, many plants and insects which only survived till now because we had pasture for meat and dairy industries. Organic farming has no sense as there are no animals to provide the dung, so we keep on using agrochemicals and reach peak phosphorus and peak potassium faster. There is then a massive famine during which two to three billions simply starve to death, and a further several million from diseases aggravated by malnutrition, or food wars.
I you answered A, I may say you’re a dreamer, and by far and away not the only one. And that, for now, is a very big problem.
Certainly Bible prophecy shows a vegan or at least vegetarian heaven – Jesus ate fish after the resurrection so probably that is still going to take place – but we are not equipped for that now any more than we can run and not be weary, or walk through locked doors, or fly up into the sky by our own mere volition. These things go hand in hand and we need to wait for them, if we are looking for them as believing Christians.
For now the task is to use the animals but to treat them as well as we can, to increase the standard of care for each species, to take te reforms made in this direction over the last 25 years as a good start, and build on them.
We are also going to have to address the population issue, as there is not any answer to the issue of agriculture and the limit on yields other than the control of population.
The “solution” of taking animals out is not a solution when they are on land not classed as arable. We cannot eat wild grasses or scrub. A goat eats the scrub, we milk the goat. That’s how we do it.
The nineteenth century was all about obtaining more and more farmed land. In the twentieth century we had to slow that process right down as a limit was reached on how much forest we can take and still have a future.
The twentieth century was all about mechanisation, innovation, agrochemicals, management methods, new varities like Borlaug’s dwarf wheat or cattle with hyperplasia.
Welcome to the C21st, where we are now relatively out of ideas, out of somewhere to go to keep food production ahead of the curve in population. So the only thing left to do is to work on the popuation. And with that comes a lot of Government intervention, probably very unwelcome Government intervention.
A new provision in the Act on Public Offers (Ustawy o Ofercie Publicznej) has introduced a new obligation on Polish PIEs to prepare an annual report on the remuneration of the management board and supervisory board and to submit this report to the auditor’s assessment.
Art. 90g of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading, and Public Companies” introduces the new Remuneration Report. The supervisory board of a public company must prepare a report on the remuneration of the management board and the supervisory board each year. The scope of the report is specified in the provision cited above. The report has to be “assessed” by a statutory auditor to ensure that the information it contains is accurate and complete.
The first such annual Remuneration Report will be prepared jointly for the years 2019-2020 and the audits of them will be carried out for the first time in 2021.
The Remuneration Report will be prepared separately from the financial statements and the company’s annual report, and its “assessment” will be classified technically as “an assurance service, other than an audit of the financial statements”, and considered by the Regulator as part of the auditing business of a licensed firm. Only registered auditors and their companies licensed to audit Public Interest Entities should be engaged to perform these assurance services. The purpose of the auditor’s assessment is to confirm that the remuneration report contains all the elements required by law. Responsibility for the substantive correctness of the information indicated in the remuneration report rests solely with the members of the company’s supervisory board, and the auditor should be independent to the entity. It may indeed be the same auditor which carries out the audit of the Financial Statements, according to Art. 136 paragraph. 1 of the Act on Statutory Auditors, therefore in most cases it will be the same auditor which you already have.
The above has been confirmed by the Financial Market Development Department at the Ministry of Finance in response to a query by the Chamber of Auditors in Poland (PIBR).
Should you be in a situation where your financial statements auditor is reluctant to carry out this review, they are not obliged to as it is separate to the existing contracts in place currently. You may prefer, for the sake of good corporate governance, to engage a smaller Firm which is able to carry out PIE audits for this task. Please contact us and we will assist you to a good offer from a reputable Firm for the audit, or alternatively if you would like help with the report itself, this ca also be done with Quoracy Consulting and our partners.
For further help, please use the contact form below. It emails direct to me at the audit firm Grupa Strategia, which has been developing a competence in this area in anticipation of the changes.
The Ministry of State Assets has prepared a draft amendment to the Code of Commercial Companies. The project is currently at the stage of public consultations, which will last until September 19, 2020. The changes include introducing regulations to the holding law, but also strengthening the role of the Supervisory Board.
The most important changes are:
The Supervisory Board has the right to request from members of the management board, liquidators, proxies, employees of the company (including those employed under civil law contracts) to prepare or submit any information, documents, reports or explanations needed for supervision over the company. The completion date is set at max. 2 weeks with the possibility of its extension by the Supervisory Board.
introduces the obligation to inform the key statutory auditor about the meetings of the Supervisory Board, the subject of which are issues discussed before the AGM and the obligation for the statutory auditor to participate in such meetings.
The Supervisory Board will be able to appoint an advisor to the Supervisory Board to investigate, at the company’s expense, a specific issue related to the company’s operations or its financial standing.
the principle of open voting of the Supervisory Board is introduced, with the possibility of a different regulation in the statute or the SB regulations.
meetings of the Supervisory Board will have to be convened at least once a quarter (currently three times a year).
the draft explicitly provides for the possibility of appointing Supervisory Board committees. Until now, the provisions did not regulate this issue, with the exception of obligatory committees (eg the Audit Committee).
the role of the chairman in organizing the work of the Supervisory Board was underlined. The statutory requirements for convening Supervisory Board meetings were made more precise.
Invitations will need to contain the information we already provide (date, time and place of the meeting and the proposed agenda
the meeting) and the way of using means of distance communication when holding the meeting. The minimum notice period will be specified in the statutes.
it is proposed to clarify the issue of liability of Supervisory Board members. The draft stipulates that a member of the Supervisory Board should, in the performance of his duties, exercise due diligence resulting from the professional nature of his activity and be loyal to the company. The obligation to keep the company’s secrets will also apply after the mandate has expired.
At the same time, it is proposed to add a provision according to which: “A member of the management board, supervisory board, audit committee and liquidator does not violate the obligation to exercise due diligence if acting loyally to the company, he acts within the limits of justified economic risk, including on the basis of information, analyzes and opinions which, in the circumstances, should be taken into account when making a careful assessment. “
Information courtesy of chudzik.pl, in my opinion an excellent law firm, based in Lodz, for corporate legal and CoSec issues in Poland at the highest level.
From myself, I would just add that this is what is already in place in most advanced economies, and that there is nothing unhelpful, for once, in this draft legislation.
This Latin songstress could be described as something like Shakira meets Rita Ora meets Julio Iglesias. Could be described, that is, if she existed as an actual pop star rather than an accounting mnemonic.
In any case, if you are producing financial statements, you do need to have all of her records. That is, you need to record and disclose the various aspects referred to in each syllable of her name.
TI – Timing
NA – Nature
AM – Amount
PU – Purpose
RE – Reason
These five considerations come up again and again when it comes to putting the narrative blurb into the notes and disclosures of items in the Financial Statements prepared under IFRS, especially any where judgments have been used or estimation uncertainty exists. Her name is a mini checklist for each note which describes circumstance. Often you need to state the range of possible uncertainty, or what would happen if something else happens, but still this tends to be around these basic five aspects.
Location, location and location may be all that is important in real estate development, but this is not a separate consideration here. The When, What, How much, Why and How come are the more apposite of Mr Kipling’s exceedingly good serving men who taught him all he knew in that Elephant’s Child poem rather than Who and Where. Those two kind of get the day off. How on the other hand has to work bouchées doubles, appearing both as the quantum “How Much” and the reason “How Come”.
People may wonder why it is that IFRS standards talk about both Reason and Purpose. Are these two not synonyms of each other? Almost, I would say, but not quite. When I have a purpose, it is a forward looking intention, focused on what I hope to get out of an action, or transaction. When I have a reason, it refers to something that happened that caused the necessity that is being addressed. So for sure both purpose and reason talk about the motivation for a treatment or a transaction in the Entity, but one is a forward-looking aspect of the motivation and the other is backward-looking.
And of course, when we look forward and discuss the purpose of a thing, it behooves us, as managers and auditors also, to consider whether this motivation, this thing which the Entity has promised itself (usually referred to as a Future Economic Benefit (or FEB, as we don’t expect anything to come of it until at least next February) – is it still actual? Is it still just as likely to happen or has something happened since this was mooted that has occasioned the matter to “go south” as the Americans say, or “go pear shaped” as the British say? If so, we are likely to need to revise the value of the item and, at the very least, describe all those circumstances.
So Tina Ampure is just a very small mini-checklist of all these aspects, which it may help you to bear in mind while drafting notes and disclosures or running a check on them. Not only is this abugida-style acronym helpful in IFRS reporting, but also you may get mileage out of Tina in non-financial corporate reporting also.
So, make sure you get all her records…
While I am about it, I will mention some other important points about notes to the financial statements.
They do form part of the financial statements, and therefore you will commonly see at the bottom of primary statements the utterance that “the notes to the accounts for part of these financial statements”
An overriding point other than the Timing, Nature etc, is that they contain enough information to enable understanding of accounts by the people using them to make decisions, and understand them in a way which will help them make appropriate decisions in the area that appertains to them. Likewise, cluttering disclosures with unnecessary information is counter-productive and is therefore frowned upon. I have yet to see someone go to prison for making too many disclosures, but you are unlikely to win in the annual gala of best financial statements in your country, put it that way.
IFRS mandates proper cross referencing of these notes to the financial statements, and also recommends the order be first a statements that IFRS are used (with any exceptions), then a note of significant accounting policies, next the run through of explanations to the line items in the primary statements FOLLOWING THE ORDER of presentation in those statements. Finally all the other disclosures which don’t relate to single line items, eg post balance-sheet events, etc.
If in doubt, try to read the set of notes “in the shoes of” the various class of user of financial statements which the Entity has. Not forgetting, of course, the Competition and the Tax Office.
Accountancy is the language of business. Not always the language of macro-economics which is why that can go haywire, but of business it is. It is the way in which we keep things making sense and not having assets and liabilities which correspond to nothing but someone’s desire that they should be there, with no basis in fact.
If accountancy is our common language and logic in business, then the principles of double entry are like the grammar of that language. Sure, small businesses can get by on a simple cashbook or other prime-entry book but this doesn’t enable these business to draw up proper balance sheets or profit and loss accounts based on accounting language. You can’t make accruals and prepayments in a cash book.
So the simple single-entry language is like a language with no verbs, like baby language in business. And when the business grows to a certain size it cannot do its thinking properly without proper statements and these statements require double-entry bookkeeping to be drawn up.
Once a person has mastered double entry bookkeeping, it enables him or her to be able to assess the consequences of a transaction or an accounting treatment more easily, on the back on an envelope, in a spreadsheet or just in their head. Those business lawyers, tax advisers and others who miss the step of learning double entry usually show themselves up when they are in a room with such as are familiar with and fluent in this language.
The best that you can do is take a simple bookkeeping book and work through it, at first, but the penny is only likely to drop when you have done a few sets of books in real life. This is usually done close to the start of one’s career. Setting some time aside to spend a year or at least six months in a bookkeeping department is time well invested for the rest of one’s career, like learning to touch type or getting your driving licence under your belt early on.
The call to action here, if you want one, is not to skip it if you are early in your career or still studying, not to assume computers will take care of it and therefore you don’t need to understand it. If you are already advanced and feel bad that you missed it, then not only are there books but also courses in LinkedIn for premium members which can help put that right. Or there is night school in the town where you live, which may be the best of all if you live somewhere other than the UK or USA whose atypical systems dominate the approach books tend to take on the topic.
I have given this some consideration, indeed I first came up with this idea travelling back from Poznań to Warsaw some twenty years ago in the car with the late Sir Peter Kemp, if you will forgive the much dropping of name. He vehemently disagreed with me, but I have found in due course of time that I certainly do agree with myself.
The best way of all would be to give people a vote between 1.0 and 2.0, where everyone gets the 1.0 for having a soul and being a person, and the proportion of the second possible 1.0 is determined by which percentile of taxpayer you are, adjusted for awards for charity work or other merits, because it’s not all about money, it’s also about effort. So for example the average person would have a voting value of 1.5, Lord Billiam Nandnor, Elox Mustang, or Jess Bezamemucho, or whatever their names are, would give 2.0 apiece, and someone who simply scrounged off the dole and drink herself silly every day under a tree would still get 1.0 to acknowledge that there, but for the grace of God, go all of us.
It’s not a huge distinction, to give twice as much say per person to the hard hitters of an economy than to the drains on resources, but it would be at least something with the potential to improve the decisions now being made. Which is, of course, not saying much. But can we really believe that Gates, Musk et al are really as many multiples wiser than the poor as their income disparity might tempt us to believe? Probably not. Probably these success stories of humans have their weak areas and even some people with no incomes may be very clever indeed. Hence a bigger different than double between the greatest and least of us would be unfair and invidious. At the same time, it is a nice way to thank people for paying more taxes than average to allow them a bit more tune-calling and to set the voting algorithm so that they get it. This is only human – if someone invites us to a feast and they are paying, is it fair to complain that they are the ones who set the menu?
To put a lot into society and have no more say than someone who puts the minimum in, or worse, seems unfair to me. Sir Peter countered, channeling Churchill, that democracy was an awful system until you compare it with all the others. He thought that despite having different gifts and different levels of effort we have to assume our fellow men and women are all our equals, and that an assumption to the contrary was not only unworkable technically (this was a good twenty years ago and then he may well have been correct on that matter) but also morally reprehensible. The attempts of this erstwhile formidable mandarin of the civil service and ally of the Iron Lady to make me a bit more human and democratic whiled away a good part of that journey and are an enduring fond memory.
For sure I accept that we are all equal in the sight of God. But I don’t accept that we all have equally valid opinions or that the quality of decisions made by people who have no “skin in the game” (I assume Twister is the game the person who devised this saying had in mind) So this idea blends having one “soul vote” (for the avoidance of doubt, gingers would be deemed for this purpose to have souls) with the “no tax’n w/o rep’n” idea. It’s a kind of compromise which means every one can whine but because everyone is whining we know it’s kinda fair. Maybe it would improve the quality of decisions made by the electorate, also.
A person living in a different country could also split their soul vote to their country of oranges and put the tax part of the vote into the country where they are currently sitting like a lemon. But they wouldn’t be allowed to switch it back and forth like a yo-yo, even though in theory the soul can travel at speeds higher than C, 300,000,000 metres per second, which is a good deal faster than any existing yo-yo. Now wouldn’t that be better than the current system, whereby I am denied a vote in the UK because of not being there despite listening to the PM program most days, and also not allowed to vote in Poland because only citizens can vote for president and parliament, and even local elections I was immediately disbarred from from 31st January because the UK is leaving the EU. In order to even be a stakeholder in democracy, which I currently am not, and not by choice, I have to adapt my identity. Everyone else’s identity is sacrosanct, mine apparently not. I am not entitled to have any say at all on how my taxes are spent, but I pay more tax than the average person who does have a say.
So my idea could only be an improvement to democracy and very far from the illiberal and undemocratic system which John Major’s nemesis told me it was.
Your views on the idea profile of democracy are welcome in the comments below.
For all businesses and also some non-business organisations in Poland now, there is a new obligation, namely to identify the real ultimate beneficial owners (“UBO”s) onto a central public register. In Polish this is called Centralny Rejestr Beneficjentów Rzeczywistych which is easy for them to say, but not so easy for us, so the form CRBR is an acceptable abbreviation. Literally this means “Central Register of Real Beneficiaries” but we would normally say “Beneficial Owners” or “Ultimate Beneficial Owners” or just UBOs which is like a UFO, but more “boring” than “flying”, unless of course you own something quite valuable, in which case it is not boring at all.
This was all enacted last year with an initial deadline of 13th May 2020 which has now, because of the pandemic, been set back to 13th July 2020, and may well need to be set back further, however at the time of writing the deadline is STILL 13th July 2020, which is a Monday.
The initiative became law by way of enacting an EU Directive on combatting money laundering which goes right back to 2015. This however is a text-book example if you need one, for how the international standard or law in organisations like the EU (not only the EU, but here it has tended to show up the most) is set and then member states have a degree of leeway in how they then put this into local law. There is usually a minimalist approach, but Poland somehow usually manages to show that it is well ahead of the curve by enacting something which is at the top end of how rigorous and bureaucratic it can be, with major penalties, with no real guidance as to how those penalties would be scaled and assessed, without making even logical exceptions (for instance, if the details already published in the KRS – Polish Companies House equivalent – are already public, up-to-date and accurate as a reflection of UBO the you’re exempt, but no, they didn’t do that. And they didn’t exempt even quoted companies which even Russia did when they enacted a version of UBO law which was seen as pretty strict back in 2015).
So this is a great example of how the Polish authorities ride roughshod over business people in order to flex the muscles of the public sector and the state over the private sector muggins who pay for them to do it. They know full well that the business world, which remains in fear and thrall as in the days of yore, will do as they are told, and so they don’t worry too much. There is a computer interface, you have to use that, and you must use your company representative who is entitled to represent you as per the KRS (at which point you say, well if you do look in the KRS then you know that the UBOs are there already, but the answer is “we know what is on the KRS but we don’t know if these are not just nominees, and anyway it was the EU who told us to do this so just do it”).
The matter will be a minor chore for the majority of Polish businesses, but not even all of them. The problem they may have is the interface and the fact that when it comes to signing you need and electronic signature in the form of an ePUAP or a qualified signature, and even though official representatives of Companies are supposed to have these already, in fact they have not all done so, and those who have done so are still not very fluent in their use as they need to use them maybe once or twice a year, so this becomes a bit like expecting someone who goes to Church at Passover and Yom Kippur for weddings and funerals only, say the Nicene Creed and the First Surah from memory and in the original languages when very few people even speak Nicene these days.
Then you get people like us auditors who are using these things most weeks now, but we cannot just go in and do it for you, because it’s: a) not allowed and b) rendered impossible anyway by the very nature of electronic signing. Now imagine how more complex this is going to be for a foreign business especially if the Board are all non-Polish speakers and there is no Polish-speaking general proxy on the KRS or nobody on the KRS who can represent the company has an official electronic signature. Moreover the file has to be in a specific XML format, you cannot just hand in paper or even a pdf. The rules about what constitutes beneficial interest and how you measure it for various business cases are in a series of FAQs which are untranslated or badly translated.
And oh, I forgot to mention, the penalty for failure to do this by the deadline is, at least theoretically,PLN 1 million.
So, this means in practice, even though I know that a lot of UK-owned and other foreign-owned companies in Poland will be fretting about this, neither I no any other advisor, can come to you and say “hey that’s fine just hand it all over and we’ll do that for you and here’s my bill which is all you need to handle”. What canbe done then, meaningfully?
Well, folk like me, UK Chartered Accountants in Poland should be able to (and I definitely am able to) provide a CRBR Walk-Through Service with the following elements:
Talk to you beforehand to find out in your own language (I’m happy to do this in English, German, Russian, Polish and French) what your situation is regarding the representation, if the people have their PESEL or not, the ePUAP or qualified signature and make sure you are going to be able to make deadline without additional legal actions such as changes to the KRS. These might take a month or more if needed as there are several steps, and may even involve travel in this tough time, so there is no time to waste for that procedure if it’s needed now. If we identify that that’s needed you can take it to your usual company lawyer or I’ll get my own team on it, your choice. This stage may involve checking that you have a valid sig and remember your password to it. In no case will I ask for or see this password.
Talk through the situation re what the Ultimate Beneficial Owner profile is in your Company and how to apply the rules, again in your language, from the list above. If it’s not a typical situation so that research is needed, again you wouldn’t want to leave that to the last minute. In most cases it isn’t, but if you have situations where there are complex groups and offshore structures it can be difficult. (By the way, don’t trouble me if your purpose is to actually do money laundering and get around the law and keep people secret. I have no interest on helping anyone who does this and will not do so, as stated elsewhere on this site. I don’t like reporting people as I do not like to think of myself as an arm of the state, but please do not even put me into that dilemma, just go and find someone desperate enough to assist you. However, as long as you do want to obey the spirit of this law and play fair, and are simply interested in knowing how to do so in a complex situation, then I am happy to involve myself).
Prep the XML, then enter it with you talking through the process Based on the info in 1 and 2, I can go in and prepare the XML file and send it to you, then we talk again and with share screen I show you how to add the XML file, and then go through the signature process if you have doubts about it. Then I explain about taking and keeping the file which proves you have done this and also check that the register now shows what we think it should given the information gathering in part 2.
Concurrent health-check in KRS
While we are about it we can check that the filings in the KRS look in order and up-to-date and if not what needs to be done.
Depending on complexity, I would expect to be able to help you with that walk-through approach as per the above steps for between £200 and £500, depending on complexity, paid half in advance, half on completion. As I mentioned, you don’t have to be a UK or Irish or other Anglosphere business, but if you need the service and speak English, French, German, or Russian, then I can help make sure this is done and keep you safe from the rather draconian fine they are waving in the faces of decent business people.If you are interested in this walk-through service and would like to know more, please fill in the below form and submit it.