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Implications arising from conflict in Ukraine

HAT has received a number of queries regarding accounting treatment where clients hold monetary or non-monetary assets in Ukraine, Russia and Belarus (liabilities should also be considered, although queries to date relate to assets).  At the moment, this generally relates to accounting periods which ended during 2021, although the same position would apply for an accounting period ending on 31 January 2022.

Recalling the principles which applied at the time of COVID in terms of measurement / impairment and to a lesser extent, the collation of audit evidence, the same principles apply this time, albeit for very different reasons, with the main measurement principles being:

  • The financial statements should present information based on the conditions which existed at the end of the reporting period and if the reason for any impairment or other potential adjustment is the Russia / Ukraine conflict and this is after the end of the reporting period, it is a non-adjusting event, the impact of which should be appropriately disclosed, if material; and
  • Where a client has substantial trade with Russia or Ukraine, the impact of war and any consequential sanctions must be included in any assessment of going concern.

Regarding anti-money laundering considerations and financial sanctions, a recent ICAEW article highlights that:

  • Firms holding client money must ensure that funds in their accounts do not relate to any individual or business where sanctions have been imposed; and
  • Firms should consider the current financial sanctions when updating AML client due diligence. More immediately, the known or suspected introduction of sanctions impacting a client, or their beneficial owners, should trigger the formal review of existing client due diligence.

In respect of sanctions, the Government’s guidance in this area summarises the legal requirements and more detailed guidance published by multiple Government departments and is being regularly updated.

In the event that a firm or a firm’s clients have a link to a Russian resident or Russian national or Russian entity (in either the private or public sector), it is essential that prohibitions and requirements imposed by the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019 / 855) and subsequent amendments are understood.

Note that in certain circumstances, prohibitions relate to individuals / entities in Crimea in the way that they would if the individual / entity was in Russia.

It should also be noted that in limited circumstances, exceptions to prohibitions apply, which apply automatically and if certain criteria apply, it is possible to obtain a licence to perform certain activities where financial or trade sanctions apply.

Finally, further guidance has been issued by the CCAB covering ethical considerations, obligations under AML legislation, sanctions, PEPs and PII considerations.  Two key observations from this guidance are:

  • The position is fluid and fast moving and as such, it is necessary to continually revisit the position as what remains acceptable this week may be in breach of sanctions requirements next week. Those within the profession must comply fully with their legal and professional obligations relating to the sanctions regime in the UK; and
  • It should not be forgotten that there are existing sanctions in place regarding Belarus (The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 (SI 2019 / 600)), which were supplemented by a Financial Sanctions Notice on 18 February 2022. It is possible that there may be further sanctions against residents / nationals / entities in Belarus – should this happen, the CCAB Guidance will be updated.

Finally, the ICAEW have blogged, highlighting the reputational risk for firms.  

For further advice please call our member’s technical helpline. 

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