Technology and dispute resolution

Posted by Stephanie Kemp on 29 April 2016

The future of dispute resolution - technology

Our appreciation of current issues in the dispute resolution world was deepened when we attended the Singapore 2016 Global Pound Conference Shaping the Future of Dispute Resolution and Improving Access to Justice.  The more we learn about contemporary dispute resolution, the better we understand how our role as consulting (dirty) or independent (clean) expert fits into the process as a whole and the better we can assist our clients.

The use of technology during the conference transformed it from being the traditional series of lectures supported by PowerPoint presentations to being more like a seminar that reflected the issues relevant to the audience.  In each session, participants were posed a series of questions to discuss with their neighbours and submitted group answers via a website.  The answers to questions then formed the agenda for a wide-ranging discussion between a panel of about eight experts on the stage.

Technology was also centre stage for a presentation on online dispute resolution.  How can disputes between people be settled online?  An interactive website model has been pioneered in the United States to settle low value cross border disputes arising out of internet commerce such as Amazon, PayPal and EBay (see for example  The buyer and seller enter the essentials of their dispute into the website and, while human mediators supervise the site, over 90% of disputes are settled by parties using the software alone without the need for any intervention by the mediators.  Online dispute resolution is cheap, can take place in numerous languages and takes the anger and emotion out of the dispute by making parties settle down with their computer and simply answer a series of questions, rather than facing each other.  It works because the means of resolving the dispute suits the users it uses the Internet like the original transaction, or in other words "fits the forum to the fuss".

Because of its potential to diffuse emotion, the techniques are now being extended out of low value commercial disputes into more challenging and tense areas such as family law, an initiative that is already in use in the Netherlands.

Science was also applied to dispute resolution in a session on how the brain works.  There is a lot more to this than sitting everyone around a round table and watching body language!

We learned that there are three parts to the brain, a primitive part that is dedicated to survival, the limbic system that registers emotions and the neocortex that deals with higher order thinking.  Working across these regions are three "operating systems", emotional, social and cognitive.  How these operating systems act on the regions determines our behaviour.

As a result of an exercise looking at silhouettes of eyes, we learned that we are programmed to register danger and fear much more quickly and accurately than emotions like happiness that do not pose a threat to us.  Our first impressions are formed in the amygdala and respond to our perception of dominance and trustworthiness in a new face.  Before we know it, we are registering where the new person fits in the social hierarchy and whether they are friend or foe.  Feelings of friendship and empathy cause particular regions of the brain to fire.  The suffering of a friend arouses empathy and acts on the brain in a different way from witnessing the suffering of someone who means nothing to us.  With all this happening in milliseconds at the beginning of a meeting or negotiation, it is important to be aware of what is going on and to try to create empathy "we are all in this together".

The cognitive operating system transcends this and enables us to step back from a situation and act rationally rather than purely on instinct.  However, the brain tires quickly and with it cognitive ability, but we often do not realize it.  Some fascinating research on judges assessing parole cases revealed that rulings in favour of the prisoner were much more likely first thing in the morning or after a meal break!  The judges benefitted from short breaks and food in their ability to assess each case on its merits rather than follow the status quo.  Again, this is useful information when embarking on a long or emotionally tense negotiation.

By the end of the session on neuroscience, the opportunities for online dispute resolution, which takes away some of the human unpredictability, appeared to be enormous.

Posted in:expert witnessdispute resolutionADRLitigation Support  

The future of dispute resolution - globalisation

Posted by Stephanie Kemp on 12 April 2016

Our appreciation of current issues in the dispute resolution world was deepened when we attended the Singapore 2016 Global Pound Conference Shaping the Future of Dispute Resolution and Improving Access to Justice. The more we learn about contemporary dispute resolution, the better we understand how our role as consulting (dirty) or independent (clean) expert fits into the process as a whole and the better we can assist our clients.

The opening address by Sundaresh Menon, Chief Justice of Singapore on the impact of globalization on dispute resolution set the tone for the two days of the conference. Menon looked at globalization in terms of three major socio-economic shifts that are taking place:

  • The open movement of capital and labour, leading to an increase in cross border trade and as a consequence cross border disputes
  • A move towards cross cultural convergence as legal systems built for transactions within nations are forced to converge with one another and reduce the costs of compliance for an increasing level of international trade and commerce
  • An increase in parties seeking access to justice through non-traditional means by agreement such as arbitration, mediation or a combination of the two, giving them a flatter structure, using a facilitator rather than a judge, and greater self-determination.

Legal systems have to respond to these pressures and can do so in three main ways:

  • Countries need to equip their legal systems with a range of options including Alternative Dispute Resolution avenues - the courts may not be the best answer for all cases. He suggested the A in ADR should stand for appropriate dispute resolution rather than alternative different disputes call for different approaches. At the same time, there should be greater specialization on the bench and recognition that some subject matter may require an expert amicus curiae to assist the judge with the technical aspects of the subject matter.
  • There needs to be increased communication between stakeholders so that jurisdictions learn from each other and adopt the best features of other systems. Conventions on the enforcement of judgements and collaboration and knowledge sharing between courts in different countries will help in building a system where there is less incentive to forum shop and judgments and agreements are enforced.
  • In spite of culture clashes and different approaches to ethics, the way forward involves drawing on a global talent pool and allowing practitioners to work outside their home jurisdiction.

Perhaps not surprisingly, Menon finished by emphasizing the qualities of Singapore as a forum for international dispute resolution. In addition to its well-known Singapore International Arbitration Centre, it now also boasts the Singapore International Mediation Centre and is pioneering a process where mediation and arbitration are combined. The most recent addition to Singapore's dispute resolution menu is the Singapore International Commercial Court, of which Menon appeared to be very proud. He sees this as an alternative to international arbitration, with parties agreeing to be bound by its jurisdiction at the outset. The proof of the pudding will be in the eating, however.  So far the SICC has only heard a couple of cases.

Posted in:expert witnessdispute resolutionADRLitigation Support  

Globalisation and the expert accountant/auditor

Posted by Stephanie Kemp on 5 April 2016

Since the early 2000s the accountancy profession has been experiencing a relentless push towards global convergence of standards in accounting, auditing and ethics. Globalization affects the regulatory context in which we do our work as the standards in use are increasingly the same around the world. Convergence has become increasingly necessary to cope with businesses operating in multiple jurisdictions and reporting to multiple regulators. Accounts need to be understandable to a variety of readers and users need to be able to trust that those accounts have been audited to acceptable standards, wherever they were issued from Adelaide to Zurich.

What started as a gradual move towards harmonization of standards gained momentum with the announcement by the EU that all listed companies within it would prepare their accounts under International Accounting Standards from 1 January 2005. This deadline encouraged other countries to follow suit with Australia also adopting the 2005 deadline and New Zealand adopting from 2007. Numerous other countries have followed and the world is falling into two camps IFRS on the one hand and US GAAP on the other.

Similar moves were afoot in auditing and assurance and the standards drafted by the International Auditing and Assurance Standards Board (IAASB) form the basis of auditing standards used in major jurisdictions around the world. In 2006, the Australian Auditing and Assurance Standards Board (AUASB) issued the IAASB's standards as legally binding Australian standards with minor modifications. At this time the IAASB was in the process of redrafting its standards to make a clearer distinction between standards and guidance (the Clarity rewrite), which were issued, operative from 1 January 2010. Australia issued the Clarity standards operative from the same date and keeps up to date with amendments as they are issued by the IAASB.

The International Ethical Standards Board for Accountants (IESBA) is doing similar work on the ethical and professional standards to that of the IAASB, issuing high quality standards that can be adopted by ethical boards around the world. Again, Australia uses the standards of the IESBA as the basis for its own standards issued by the APESB.

While the context within which we do most of our work is becoming increasingly standardized, operating across jurisdictions has its complexities and can have a very direct impact on what we can do as experts. While parent company and subsidiary auditors are applying the same standards, even where they share a brand, they may be separate firms for legal purposes. As a result, access to actual working papers for the audit of an overseas subsidiary, as opposed to a memo from the subsidiary auditor, can be problematic where the subsidiary is in a country with a very different legal system. Harmonisation of the standards is only part of the issue and increased cooperation between legal systems is vital. In our next blog, we will talk about some of the things we learned about globalization and dispute resolution on our recent trip to the Singapore 2016 Global Pound Conference, Shaping the Future of Dispute Resolution and Improving Access to Justice.

Posted in:IASBIFRSFinancial Reportingexpert witnessdispute resolutionAuditAuditorIAASBinternational auditing standardsIESBA  

Prevention is better than cure

Posted by Stephanie Kemp on 9 March 2016
Claims against accountants and auditors seem to be an inevitable part of professional life insurance policies are, after all, a source of funds for creditors when it all goes wrong and the liquidator has been called in.  Increasingly the class action law firms are also looking for a piece of the action on behalf of shareholders after a sudden drop in share price. 

The ICAEW's February Economia magazine published an article The Best Defence, which touches on a number of aspects of professional negligence suits that we have seen in our practice as forensic accountants.  It surveys situations that can increase the risk of a dispute erupting, such as complex areas of the audit being done by inexperienced staff, and lack of clarity surrounding the terms of the engagement, which can lead to the client relying on informal communications from their accountant which turn out to be inconsistent with the final report or to the client receiving a surprise bill for unanticipated work.

The impetus for the article was the issue by ICAEW in October 2015 of revised guidance on Managing the Professional Liability of Accountants.  The paper takes members through a series of areas and looks at how to minimize their risk.  It looks at client and engagement acceptance, the importance of the engagement contract and the implications of electronic communication, and risks that can arise during the engagement.  Its guidance is as applicable to professional accountants around the world as it is to ICAEW members.

Under risks inherent in client acceptance, the paper suggests that practitioners consider issues such as the reputation and integrity of the client, and the client's expectations do they align with what the accountant can provide with the resources available to him or her?  In an increasingly globalized world, an overseas client, with all operations and records overseas, may be seeking a listing on an established stock exchange to lend respectability to a venture.  The auditor may not be able to access the underlying records with sufficient confidence to be able to sign an unmodified audit opinion.  Either situation in an audit situation can result in a limitation of scope that makes it impossible for the practitioner to do the audit.  We have seen more than one instance where the auditor has been prevented from looking into the private side of a client business and so has not understood the full impact of related party transactions until the client has collapsed and the liquidators investigations have started.

Posted in:engagementNegligenceexpert witnessdispute resolutionAuditAssuranceLitigation Support  

The Westworth Kemp Review of 2015

Posted by Stephanie Kemp on 1 February 2016
Our review of trends and themes from our work in 2015 reflects upon the work we did particularly in the context of dispute resolution and looks forward to some important changes that the auditing and assurance and financial reporting standard setters have in store for us.  It ranges across issues such as decluttering the financial report and the application of materiality, scepticism in auditing (a bit of a recurring story in our expert witness practice, unfortunately) and forthcoming changes to audit reporting and to financial reporting for not-for-profits.
Posted in:GovernanceIASBIFRSLeasesRevenueFinancial Reportingnot-for-profitexpert witnessdispute resolutionAuditMaterialityAssuranceLitigation SupportReporting  


Posted by Stephanie Kemp on 19 January 2016

The IASB's materiality paper The Application of Materiality to Financial Statements blows a breath of fresh air through financial reporting.  By refocussing directors' and other preparers' attention on financial reporting as communication, the paper will help in getting rid of "clutter" - unnecessary disclosures that only serve to blur the message.  In the words of the IASB: "The concept of materiality acts as a filter through which management sifts information to ensure that financial statements include all the financial information that could influence users' investment decisions. It also enables management to present material information in a clear and effective way, excluding information that is not material."

Westworth Kemp's submission is supportive of the IASB's initiative.  In our view, clearer communication between organisations and stakeholders is essential and this paper, specifically addressed at management, rather than just accountants and auditors, will help.  We would like to see the document given greater prominence in the accounting literature, perhaps as part of the Conceptual Framework, rather than a Practice Statement.

Posted in:GovernanceIASBExposure draftMaterialityReporting  

Audit and Ethics News

Posted by Stephanie Kemp on 29 May 2015
A brief rundown of the changes in audit/assurance and ethics standards and guidance during the first few months of 2015 can be found in our Audit and Ethics Update.  We also look at some of the changes that are in the pipeline, such as the changes to auditor reporting, which are dealt with in more detail in their own newsletter.

A new-look audit report

Posted by Stephanie Kemp on 22 May 2015

The winds of change are blowing through audit reporting globally, with the issue by the IAASB of the first tranche of standards in its auditor reporting project.  These standards have now been issued by the AUASB as exposure drafts with a view to having them operative in Australia from 1 January 2016 like their international counterparts.

We have prepared a summary for auditors, audit committee members and others involved in the audit process to help them prepare for a new way of doing things.

Posted in:AuditAuditorAssurance  

Current or non-current?

Posted by Stephanie Kemp on 30 April 2015
Our comments on the AASB's exposure draft ED 259 Classification of Liabilities - Proposed amendments to AASB 101 are supportive.  We have seen instances where there has been confusion over how to apply the requirements as currently drafted and our submissionsupports the clarifying amendments.
Posted in:AASBExposure draftAASB 101LiabilitiesReporting  

Accounting News

Posted by Stephanie Kemp on 24 April 2015
A brief run down of the major changes to financial reporting standards in the first three to four months of 2015 can be found in our Financial Reporting Update.  We also look at changes that are in the pipeline, such as exposure drafts and the leasing project.
Posted in:AASBIFRSLeasesRevenueAmending standardsExposure draftReporting  

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