RTÉ has found itself embroiled in controversy as news of understated payments to media star Ryan Tubridy dominated headlines. Such was the level of public concern that parliamentary committee hearings into claims Ireland’s national broadcaster had made undisclosed payments of more than €345,000 to The Late Late Show host over five years, on top of his declared annual salary of €440,000, were screened live in pubs.
Most barter transactions are simply accounted for as a sale and purchase
A number of accounting and reporting issues came under scrutiny, as detailed below.
Barter transactions
Most barter transactions are simply accounted for as a sale and purchase. IFRS 15 specifies that ‘non-monetary exchanges between entities in the same line of business’ are not considered a sale by either company, but exchanges of dissimilar products or services are simply accounted for as purchases and sales at fair value.
Jointly controlled operations
The operation of joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves.
It is not uncommon for a senior executive to have absolute discretion over a ‘slush fund’
If, for example, an organisation and a closely associated contractor jointly negotiate a government grant, then the accounting is simply that each party ‘shall recognise in its financial statements…Its share of the grant income that it earns from the…joint venture.’
If the organisation negotiates the whole contract and simply arranges direct payment of part of the grant to the contractor, then this is not a jointly controlled arrangement, and the organisation will book the whole income and also book the direct payment to the contractor as an expense.
‘Slush-fund’ accounting
It is not uncommon for a business to grant a senior executive absolute discretion over certain defined company resources, which are sometimes called a ‘slush fund’.
Employee remuneration in total must be disclosed within the financial statements
Spending from the fund is at the discretion of the executive, with no formal procurement process but with the underlying proviso that it must be of some benefit to the organisation. However, the fund must still be recorded properly and failure to do this would most likely fall foul of the prohibition on ‘false accounting’, as outlined in Section 10 of the Criminal Justice (Theft and Fraud Offences) Act, 2001. Under Section 59, an auditor or accountant becoming aware of a breach would also be obliged to report the offence to the Garda.
Recording transactions
There are a number of sections of the Companies Act 2014 that reference the issue of adequate accounting records and true and fair financial statements. However, it is worth noting that a statement made outside the scope of the financial statements is not in scope of the act.
For example, a disclosure of employee remuneration in total is required to be made within the financial statements (Section 317). A false statement included in this disclosure is an offence but a press statement disclosing inaccurate salary details is not.
Accounting records
Section 281 et seq of the Companies Act 2014 includes the specific requirement that the records ‘correctly record and explain the transactions of the company’. There is also a specific requirement to ‘record of all transactions whereby services are provided and whereby services are purchased, to whom they were provided or from whom they were purchased and of all the invoices relating thereto’.
Not keeping adequate accounting records is a Category 2 offence
Barter transactions are no different to traditional ones in terms of the requirement to comply with the sections. Not keeping adequate accounting records is a Category 2 offence for the company and any director who ‘by his or her own intentional act been the cause of any (not keeping adequate accounting records) by the company’.
True and fair view
Section 292 of the Act requires a company using IFRS Standards to ‘comply with all IFRS’ and non-compliance is a category 2 offence. IFRS Standards have specific requirements in respect of barter transactions. There are additional requirements in respect of financial statements being required to show a ‘true and fair’ view (S291) but these have to be considered in the context of materiality of any error individually and in aggregate.
Giving a false statement about arrangements that are off the books is a breach of Section 406
The omission of a barter transaction may have no net effect on profit, especially when the transaction has no PAYE implications. However, the omission of PAYE on benefits in kind (BIK) given to staff through a barter transaction, such as sporting tickets and overseas trips, can often be very material, and such benefits would need to be included in the overall staff remuneration disclosures.
Informing auditors
Omitting to tell auditors about something or giving a false statement about arrangements that are off the books is a breach of Section 406. The section applies to employees as well as directors.
Directors’ duties
Section 330(1) of the act requires directors to check the information given to auditors and make a statement to the effect that no ‘relevant audit information of which the company’s statutory auditors are unaware’. There is also a requirement for the directors to do their own due diligence on this.
Paying contractors
To determine the status of contractors and whether they are taxed under Schedule D (self-employed) or Schedule E (employed), employers are advised to read the Revenue guide.
However, if a contractor incorporated their own company and supplied their services through that company, then the services can be paid for by the contracting company without the deduction of PAYE tax, and the contractors’ company becomes responsible for any PAYE due. However, if they gave the contractor a ‘third-party benefit’ – say, tickets to a football match – they would be responsible for BIK and tax.
Revenue defines free use of assets such as promotional cars as third-party benefits
There is also the issue of Professional Services Withholding Tax. Schedule 13 to the Taxes Consolidation Act 1997 includes a list of 82 bodies that must deduct withholding tax from payments for professional services, including RTÉ.
Free use of assets such as promotional cars, defined by Revenue as third-party benefits, and other benefits would also need to be assessed. BIK must be accounted for by the company giving the gift (and not the employer of the person receiving the gift).
