PwC
Agenda
25 November 2015Accounting developments seminar
2
What’s happening in the economy?
1
Telling the story –Corporate reportingElaine Forrest 2
Accounting regulator activityPeter Hogarth 3
New UK GAAPJennifer Dickie
4
Cyber SecurityWilliam Rimington
5
Coffee Break
Tax reportingRay Farnan
6
Q&A Panel
8
IFRS UpdatePeter Hogarth
7
PwC
Accounting developments seminar
3
What’s happening inthe economy?
Simon O’Brien
125 November 2015
PwC
What’s happening in the economy?
Video available to watch here: http://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook/ukeo-nov-15-summary.html
Accounting developments seminar
4
25 November 2015
PwC
Implications of the economy on financial reporting
5
Accounting developments seminar
Reporting of risks &
exposures
Impairment testing and sensitivities
FX, hedgingBusiness
combinations
25 November 2015
PwC
2015 Autumn statement 25 November at 1230pm
Accounting developments seminar
6
25 November 2015
Follow @PwC_UK for live commentary.
Hashtag #AutumnStatement and #SR2015
www.pwc.co.uk/autumnstatement
Topics we predict may be covered...
• More action on avoidance and evasion• Measures for Private Equity, Travel and
Subsistence• The Northern Powerhouse • Reform of business rates • BEPS (Base Erosion and Profit Shifting)
PwC
Upcoming eventshttp://www.pwc.co.uk/events/passionate-about-london-.html
Webcast – 15 December 2015
Accounting developments seminar
7
25 November 2015
Follow the hashtag #PALDN to find out more
One of the main issues for London business right now is talent, skills and finding the next generation of employees.
Our Passionate about London webcast will debate these issues.
PwC
Got a question for us?
Tweet your questions to our speakers throughout the event using hashtag:
#ADS15
Accounting developments seminar
8
25 November 2015
PwC 9
Telling the story –Corporate reporting
Elaine Forrest
225 November 2015Accounting developments seminar
PwC
Relevant risk reporting – Is your risk reporting specific and dynamic enough to bring to life your risk management?4
Telling an authentic story – Is your narrative consistent and coherent throughout?
Weighty tomes – has the continued increase in length of annual reports been at the expense of quality? 1
Measures that matter – Do your KPIs genuinely explain the progress being made?
2
3
What does your reporting say about you?Emerging themes from our review
10
Facing the future – Are you providing the reader with a forward-looking orientation that is clear and consistent?5
Accounting developments seminar
PwC
25 November 2015
PwC
2014 UK Corporate governance code and guidancePeriods beginning on or after 1 October 2014
25 November 2015Accounting developments seminar
10
New
Viability statement
Going concern confirmation
Robust assessment of principal risks
Monitoring and review of risk management and internal control
Amended
Going concern
Risk
PwC
Viability statementsWhat we’ve seen in early examples
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25 November 2015Accounting developments seminar
Periods chosen –
3 to 5 years
Business plan forecasts usedas basis
Occasional references to other factors
Explanation of process could be more insightful
Particular opportunities on stress testing
Lack of clarity on qualifications or assumptions
PwC
25 November 2015Accounting developments seminar
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Accounting regulator activity
Peter Hogarth
3
PwC
Spotlight on the accounting regulator – CRRT
25 November 2015Accounting developments seminar
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1Quality of reporting good, room for improvement for smaller companies
2Clear and concise continues to be a focus
330% of companies approached for further information and explanation; 3 Press Notices and 6 Committee References
4Company responses: good practice guidelines
5Changes to CRRT operating procedures
PwC
FRC progress so far
25 November 2015Accounting developments seminar
Slide 15
Audit committee reporting
Fair, balanced and understandable
New UK GAAP
The extendedaudit report
Strategic report
Audit firm tendering
Remuneration reporting
The StewardshipCode
New risk management disclosures
The viability statement
Recent FRCActivity
PwC
Development of prior years areas of focus
25 November 2015Accounting developments seminar
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Involvement of professional expertise
Tax impacts
Clarity of specific nature of judgments applied
Include IAS 1 sensitivity analysis
Disclosed benefits vs intangibles recognised
Accounting policy needed
Auditors’ and Audit Committee reports used
Clear disclosure of significant estimates
Expect to see more intangibles
Items which enhance rather than distract
Exceptional items Significant judgements
Estimates and sensitivities
Business combinations and separate intangibles
PwC
Areas of focus for 2015/16
25 November 2015Accounting developments seminar
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Applicationof materiality
judgements
Complex supplier
arrangementsPensions
Revenue Cash flow statements
Tax
PwC
FRC priority sectors
25 November 2015Accounting developments seminar
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• Insurance
• Food, drink and consumer goods manufacturers and retailers
• Companies servicing the extractive industries
• Business services
• Support services
• IT (including software companies)
2014/15
2015/16
PwC
New UK GAAPTemperature test
20
Q: Have you started to look at New UK GAAP?
1. We’ve been working on it since last year’s ADS
2. We’ve started thinking about it
3. Not yet – we don’t need to think about it till we report next year
25 November 2015Accounting developments seminar
PwC
• Qualifying entities
• Notify shareholders
FRS 101 – IFRS with disclosure exemptions
• FRS 100 – Application of financial reporting requirements
• FRS 103 – Insurance contracts
• FRS 104 – Interim financial reporting
• FRS 105 – Micro-entities
What else is there?
22
New UK GAAP frameworkRecap
25 November 2015Accounting developments seminar
FRS 102 – The ‘New UK GAAP’
• All entities except groups listed on an EU regulated market
• Notify shareholders of reduced disclosures
PwC
Changes to Company Law and new UK GAAP
• Effective date 1 January 2016 for most changes
• Main impact of changes on small and micro companies
• Consolidation exemption conditions changed
• A full list of related undertakings (direct and indirect) is required for accounts approved after 1 July 2015
• IFRS formats for P&L and balance sheet allowed
New EU Accounting Directive now implemented into Company Law (SI 2015/980)
1
New UK GAAP standards a moving target until recently2
23
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Small companies: FRS 102 Section 1A
24
Thresholds Previous New law
Turnover £6.5m £10.2m
Balance sheet total
£3.26m £5.1m
• No more ‘abbreviated accounts’:
Prepare balance sheet, income statement and notes but filing P&L and directors’ report is optional
No SCI, cash flow or SOCIE
Fewer disclosures – Subject to true and fair view
• Choice of formats
• Audit exemption
25 November 2015Accounting developments seminar
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FRS 102Measurement changes vs. old UK GAAP
25 November 2015Accounting developments seminar
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Ta
ng
ible
assets
Sh
are b
ased
pa
ym
ents
Leases
Post employment benefits
Intangible assets
Other employee benefits
Capitalisation of borrowing costs
Business combinations
Deferred tax
Investment propertiesFinancial instruments
Deriv
ativ
es
Hed
gin
gC
ash
an
d ca
sh eq
uiv
alen
ts
Comparative information
PwC
FRS 102Measurement changes vs. old UK GAAP
25 November 2015Accounting developments seminar
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1. Off-market intercompany loans
2. Forward contract
3. Business combinations
4. Deferred tax
Areas we will cover
Debt restructuring
Investment property
Other key areas
PwC
FRS 102 Company background
New GAAP Limited
Parent Co
Sub 1 Sub 2 Sub 3
Sub 4
27
25 November 2015Accounting developments seminar
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FRS 102 Scenario 1Off-market intercompany loans: Old UK GAAP
28
New GAAP Limited
Parent Co• £100m lent in 2012
• 10 year term, bears interest at fixed rate of 10%
• Market rate of interest 15%
£100m @ 10%
25 November 2015Accounting developments seminar
Sub 1 Sub 3
Old UK GAAP (FRS 4):
Net proceeds
PwC
FRS 102 Scenario 1Off-market intercompany loans: FRS 102
BasicAmortised cost (Section 11)
ComplexFair value P&L (Section 12)
• Basic – amortised cost
Basic or complex? 1
29
25 November 2015Accounting developments seminar
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FRS 102 Scenario 1Off-market intercompany loans: FRS 102
• Recognise at face value
• Basic – amortised cost
Basic or complex? 1
• Initial measurement of basic loan at fair value
Is it a financing arrangement? 2
Is it repayable on demand?3
30
25 November 2015Accounting developments seminar
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FRS 102 Scenario 2 Forward contract – Old UK GAAP
• Foreign currency debtor €100m
• Due in 3 months time
• Forward contract taken out to fix the price at £
• Revenue and debtor recorded at forward contract rate
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25 November 2015Accounting developments seminar
New GAAP
LimitedBANK
In 3 months:• pay €100m
• receive £75m
Debtor €100m
Old UK GAAP:
Presented as £75m
PwC
FRS 102 Scenario 2Forward contract – FRS 102
32
25 November 2015Accounting developments seminar
• Translate sale and debtor at transaction spot rate
• Retranslate debtor over 3 month period, difference in P&L
• Derivative recognised on the balance sheet at fair value
New GAAP
LimitedBANK
In 3 months:• pay €100m
• receive £75m
Debtor €100m
PwC
FRS 102 Scenario 3Business combinations and intangibles – Old UK GAAP
Goodwill
• Acquired ABC Ltd in October 2014
• Consol b/s: £m
FV consideration x
FV net assets (x)
Goodwill x
• 20 year life
Acquired assets
• Computer software acquired = tangible asset
• No deferred tax recognised
New GAAP Limited
ABC Ltd
33
25 November 2015Accounting developments seminar
PwC
FRS 102 Scenario 3Business combinations and intangibles – FRS 102
34
25 November 2015Accounting developments seminar
Goodwill
• Judgement needed when estimating useful economic life (UEL)
• Maintain previous UEL (20 years) on transition
• Business combinations after transition date must be restated
• Optional transition exemption exists for those before transition date
Acquired assets
• Computer software acquired = intangible asset where separable
• More intangibles?
• Deferred tax must be provided on all past business combinations with net assets still on balance sheet
New GAAP Limited
ABC Ltd
PwC
FRS 102 Scenario 4 Deferred tax – Old UK GAAP
Revalued building
New GAAP
35
25 November 2015Accounting developments seminar
Deferred tax may be discounted
PwC
FRS 102 Scenario 4 Deferred tax – FRS 102
Timing differences ‘plus’ approach
Revalued building
Deferred tax provided on revaluation of non-monetary assets
Deferred tax is not discounted
36
25 November 2015Accounting developments seminar
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Transition truth or myth?
Truth Myth
37
25 November 2015Accounting developments seminar
Business combinations1
Third balance sheet needed2
Shareholder notification FRS 1023
Shareholder notification on transition4
Transition date5
Dormant companies6
PwC
The practical side – Transition process
38
25 November 2015Accounting developments seminar
• Accounting
• Cash tax
• Distributable reserves
• Legal structure
• People, systems, processes
Phase 1: Impact
assessment
Phase 2: Evaluation
Phase 3: Integration
• Step plan
• Cost vs. benefit
• Detailed quantification
• Embedding
• Training
• Testing
• Review
PwC
The practical side – FRS 102 transition checklist
39
25 November 2015Accounting developments seminar
Restate comparatives Explain impact Balance sheet and P&L
reconciliations, including opening period
Other reconciliations as considered useful
Update policies Update notes
PwC
Disclosure when adopting FRS 102
All entities
Qualifying entity exemptions
(if applicable)
Primary statements
Transition
Judgements and
estimates
Statement of
compliance
40
25 November 2015Accounting developments seminar
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Other possible disclosures
41
25 November 2015Accounting developments seminar
Financial instruments(including fair value)
1 Deferred tax2
Joint ventures3Investment properties (including FV)
4
Defined benefit plans5 Business combinations6
PwC
Help is available
• Practical guides
• Similarities and differences publication
• PwC ‘Manual of accounting – NewUK GAAP’ (2nd edition)
• FRS 102 and FRS 101 Illustrative accounts
• Reporting Impact Assessment
• FRS 102 roll forward
• PwC Treasury, Structuring, Tax, Accounting Advisory and Pensions
• PwC Inform – New UK GAAP branch
42
25 November 2015Accounting developments seminar
Sources of cyber attacks
INSIDER
Nation State Hacktivism
Organised Crime
Cyber Terrorists
45
25 November 2015Accounting Developments SeminarPwC
Our unique selling points
• Integrated services
• In-house legal expertise
• Ranked #1 by Gartner
• Access to clients and reach
• Breach aid
• CSIR certified to deal with cyber attacks
46
25 November 2015Accounting Developments seminarPwC
To help us service our clients, we’ve teamed up with a few
alliance partners
47
25 November 2015Accounting Developments Seminar
Building confidence in your digital future
Seize the advantageWe help you exploit digital opportunity with confidence
• Compliance with privacy and regulation• Digital trust is embedded in the strategy• Risk management and risk appetite
You can’t secure everythingWe help you set the right priorities
• Enterprise security architecture• Protect what matters• Strategy, organisation, governance• Threat intelligence
It’s not if but whenWe help you build an intelligence-led defence, enabling rapid cyber response
• Continuity and resilience• Crisis management• Incident response• Monitoring and detection
Fix the basicsWe help you use technology to your advantage, deriving maximum return from your technology investments
• Identity and access management• Information technology hygiene• Information technology, operations technology and
consumer technology• Security intelligence and analytics
Their risk is your riskWe help you understand and manage risk in your interconnected business ecosystem
• Digital channels• Partner and supplier management• Robust contracts
People matterWe help you build and maintain a secure culture, where people are aware of their critical security decisions
• Insider threat management• People and ‘Moments that Matter’• Security culture and awareness
48
25 November 2015Accounting Developments SeminarPwC
Our cyber security services
Build and assure
defences
Navigate legal and
regulatory landscape
Identify and respond
to attacks
We are unique in providing integrated, market-leading cyber security services
49
25 November 2015Accounting Developments SeminarPwC
PwC
25 November 2015Accounting developments seminar
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Coffee break
Visit our stands…
Social media help desk
PwC Inform
The IPO Journey
My Taxpartner
PwC
Agenda
November 2015
Slide 52
Emerging tax issues
• EC State aid reviews
• OECD’s Base Erosion and Profit Shifting (BEPS) action plan
• Countries’ unilateral actions
Uncertainty over Income Tax Treatments – Draft IFRIC interpretation
1
Meet the experts
2
PwC
EU State aid
November 2015
Slide 54
Major European tax initiative
• EU law defines ‘State aid’ as an advantagein any form that is conferred on a selective basis to undertakings by national public authorities.
• The European Commission (EC) is using State aid laws to challenge corporate tax rulings.
• If State aid is determined to have been granted:
- EC can force country to collect from companies up to 10 years of tax savings (plus interest) based on benefit received.
- Expect adjustment or contingency to be accounted for under IAS 12 rules.
• Management’s accounting conclusion should be consistent with IAS 12 recognition and measurement principles for uncertain tax positions.
Recent EC’s investigations
• Challenges to several tax arrangements of large MNCs within European countries.
Meet the experts
PwC
EU State aid
November 2015
Slide 55
What are the next steps?
• Quantification of amounts to be repaid.
• Further litigation on the cases with final decisions?
• Further final rulings are expected in the near future.
• Tax authorities are to share ‘rulings’ with each other under the EU transparency initiatives. Which may lead to further investigations.
What should companies be doing?
• Understand if they have received any rulings or potentially preferential treatment from EU taxing authorities.
• Document with appropriate analyses/support any uncertain positions.
• Determine if any disclosure regarding State Aid risk is appropriate.
Meet the experts
PwC
EU State aid – US companies’ disclosures
November 2015
Slide 56
Location of disclosures
Income tax note
Directors report
Significant risks
Meet the experts
Examples
“If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid. While such amount could be material, as of June 27, 2015 the Company is unable to estimate the impact.”
– (Apple)
“The outcome of the European Commission’s investigations could require changes to existing tax rulings that, in turn, could have an impact on the company’s taxes.”
– (Zoetis)
PwC
OECD’s BEPS actions
November 2015
Slide 57
Action 1Address the challenges of the digital economy
Action 2Neutralise the effect of hybrid mismatch arrangements
Action 3Strengthen CFC rules
Action 4Limit base erosion via interest deductions and other financial payments
Action 5Counter harmful tax practices more effectively
Action 6Prevent treaty abuse
Action 7Prevent the artificial avoidance of PE status
Action 8Assuring that TP outcomes are in line with value creation: Intangibles
Action 9Assuring that TP outcomes are in line with value creation: Risks and Capital
Action 10Assuring that TP outcomes are in line with value creation: Other high-risk transactions
Action 11Establish methodologies to collect and analyse data on BEPS and the actions to address it
Action 12Require taxpayers to disclose their aggressive tax planning arrangements
Action 13Re-examine transfer pricing documentation
Action 14Make dispute resolution mechanisms more effective
Action 15Develop a multilateral instrument
Actions that may have potential tax accounting implications, e.g. uncertain tax positions, outside basis implications, transparent entity accounting, increase in tax accounting compliance, etc.
Meet the experts
PwC
Practical challengesQuestions of definition vs. accounting
November 2015
Slide 58
Tax jurisdiction
Revenues Profit(loss) before income tax
Incometax paid (on cash basis)
Income taxes accrued –currentyear
Stated capital
Accumulatedearnings
Number of full time employees
Tangible assets (other than cash and cash equivalents)
Unrelated party
Related party
Total
Treatment of branches/pass
through entities?
CFC taxation?
Leases? Inventory?
Treatment of contractors?
Inclusion of dormant vs. liquidated entities?
What comprises net sales?
Clarification of PY adjustments?
Permanent establishments?
Additional non-share capital? Basis of calculation? (pre-acq included?)
Meet the experts
PwC
Unilateral actions
November 2015
Slide 59
Country Actions Tax accounting considerations
EU State aid, transparency packages UTPs, disclosures
United Kingdom Diverted profits tax, tax transparency proposals
UTPs, disclosures
Australia expansion of anti-avoidance rules, disclosure of certain tax information, tax transparency code proposal
UTPs, disclosures
Ireland elimination of a ‘double Irish’ structure UTPs
France anti-hybrid rules UTPs, transparent entity accounting
Meet the experts
PwC
Uncertainty over Income Tax Treatments – Draft IFRIC Interpretation
November 2015
Slide 60
Meet the experts
PwC
Uncertainty over Income Tax Treatments
November 2015
Slide 61
Now January 2016 June 2016 December 2016
Educate
Respond
Identify
Policy
Document
Disclosures
Controls
Monitor
Quantify
Action plan
Meet the experts
Key areas covered by the draft interpretation
• Scope
• Unit of account
• Detection risk
• Recognition and measurement
• Changes in recognition and measurement
• Disclosures
• Transition
What are the key implications
• Formal structure
• Potential measurement differences
• Impact on disclosures and expectations
PwC
25 November 2015Accounting developments seminar
62
IFRS accounting update
What’s new in 2015/16?
What’s in the pipeline after 2015/16?
Peter Hogarth 7
PwC
Amendments effective this year
64
Standard Nature of amendment
IAS 19, ‘Employee benefits’ Employee contributions
Annual improvements Various
25 November 2015Accounting developments seminar
PwC
A little more change next year
65
Standard Nature of amendment
IFRS 14, ‘Regulatory deferral accounts’ Rate-regulated activities
Amendments to IFRSs 10, 11 and IAS 28 Acquisition of interests
IASs 16 and 38 Methods of depreciation
IAS 1 ‘Disclosure initiative’
IFRS 10 and IAS 28 Investment entities
Annual improvements Various
25 November 2015Accounting developments seminar
EU endorsement is still pending for most standard changes
PwC
What’s next? The ‘big three’
66
• Published July 2014
• Effective 2018
• EFRAG predict EU endorsement before end of 2015
25 November 2015Accounting developments seminar
IFRS 9 Financial instruments
IFRS 15 Revenue
Leases
• Published May 2014
• Effective 2018
• EFRAG predict EU endorsement soon
• IASB and FASB proposing amendments already
• May be published before end of 2015
• (Almost) all leases on-balance sheet
• IASB to treat all leases like finance leases; FASB to classify leases for P&L purposes
PwC
Latest updates
68
Current status
Joint boards discussion
Transition Resource
Group (TRG)
Other discussions
25 November 2015Accounting developments seminar
PwC
IFRS 15 - Practical considerations
There are likely to be many interested parties, in the implementation of this new standard, with impacts far outside the finance function:
Sales staff – How are they incentivised? Based on revenue? Will that change?
Licensing/legal –Opportunities to change contractual terms - can they or should they change given new rules?
Budgeting – how is this factored into budgets/5 year plans?
Investor relations – how and when is this communicated to the market?
IT – what new data needs to be collected for e.g. new estimates or disclosure, and will there be a requirement to change current systems?
Controls – New processes and controls required, including controls over the impact of estimation
25
Accounting developments seminar 25 November 2015
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Timeline
71
ED Published
Aug 2010
New ED published
May 2013
Expected final standard
Q4 2015
Discussion paper issued
Re-deliberations began
Re-deliberations began
Mar 2009 Jan 2011 Mar 2014
Effective date: TBD EU Endorsement: TBD
25 November 2015Accounting developments seminar
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Lessee accounting
72
• All leases on Balance Sheet as with finance leases under IAS 17
• Exemptions for short term leases and leases of low value assets ($5,000)
Single approach
• Right of use (ROU) asset
• Lease liabilityBalance sheet
• Amortisation expense
• Interest expense
Income statement
25 November 2015Accounting developments seminar
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Lessor accounting
73
The classification between finance leases and operating leases for lessors is as under IAS 17.
Balance sheet Income statement
Finance leases Derecognise the underlying asset and record a net investment in the lease.
Interest income on the net investment.
Any selling profit or loss on the underlying asset.
Operating leases Underlying asset remains on balance sheet.
Lease income – Straight line over term of lease.
25 November 2015Accounting developments seminar
PwC
Help is available
• Practical guides and In Depths
• Similarities and differences publication
• PwC IFRS Manual of accounting
• IFRS Illustrative accounts
• PwC Treasury, Structuring, Tax, Accounting Advisory and Pensions
• PwC Inform
• Pocket guides
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25 November 2015Accounting developments seminar
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the
information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the
accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members,
employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to
act, in reliance on the information contained in this publication or for any decision based on it.
© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC
network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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