Technical resource centre

Welcome to the Chartered Accountants Ireland's Technical Resource Centre. This resource area is aimed at keeping members up to date with the latest technical news and helpful resources to keep them abreast of current developments worldwide. There is also a link to our Technical Enquiry Service in contacts and support.

Latest news

Republic of Ireland  The Central Bank of Ireland has this week published the “Peer Review: Central Bank of Ireland’s Performance of its Regulatory Functions in Relation to Credit Unions”. The Review, undertaken by an external and experienced team of international regulatory experts from the International Credit Union Regulators’ Network (ICURN) has found that the Central Bank effectively performs its functions in the regulation and supervision of the credit union sector. IAASA has recently published summary information of its financial reporting enforcement activities undertaken during 2019. UK The FRC has released 8 updated ISAs (UK) with an effective date of 15 December 2019, amended to include conforming amendments arising from the revision of ISA (UK) 540 (Revised) – Auditing Accounting Estimates and Related Disclosures. European  ESMA has published the responses received to its consultation on MiFID II review report on position limits and position management.          

Jan 16, 2020

Northern Ireland  The Charity Commission for Northern Ireland is this week issuing letters to over 8,800 charity trustees to remind them their charity’s annual return is due for submission this month.  UK  Companies need to improve their governance practices and reporting if they are to demonstrate their positive impact on the economy and wider society, according to a new report from the FRC. The Financial Conduct Authority (FCA) and the Bank of England have this week outlined their plans to develop their data and analytics capabilities. Both authorities depend on access to high-quality data to fulfil their respective missions of maintaining monetary and financial stability, market integrity, effective competition and consumer protection. European  Accountancy Europe have just issued their January 2020 newsletter which includes recent publications and upcoming events. Accountancy Europe have just issued their Audit Policy Update which features an interview with Christian Orth, newly appointed Chair of the Audit & Assurance Policy.  International In 2020, the IASB plans to publish a number of con­sul­ta­tion documents, including a dis­cus­sion paper on goodwill and im­pair­ment, an exposure draft in its man­age­ment com­men­tary (wider corporate reporting) project, and a request for in­for­ma­tion regarding the 2020 Agenda con­sul­ta­tion.

Jan 09, 2020

UK  The Financial Reporting Council (FRC) has issued an update of its Practice Aid to assist audit committees in evaluating audit quality in their assessment of the effectiveness of the external audit process. Europe The European Securities and Markets Authority (ESMA) has published its thematic report on the implementation of ESMA’s Guidelines on Alternative Performance Measures (ESMA APM Guidelines). Ac­coun­tancy Europe has published a paper de­scrib­ing and calling for a global solution to in­ter­con­nected stan­dard-set­ting that can meet the need for reliable, con­sis­tent in­for­ma­tion in non-fi­nan­cial reporting that is in­ter­con­nected with financial reporting. International The International Auditing and Assurance Standards Board (IAASB) has released a Feedback Statement sharing what the Board has heard regarding audits of less complex entities in response of its recent Discussion Paper: Audits of Less Complex Entities (LCEs): Exploring Possible Options to Address the Challenges in Applying the ISAs. The IAASB has issued ISA 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement, which has been revised to include a more robust and consistent risk identification and assessment. The IFRS December news update has been published.  

Jan 02, 2020
Audit

Exactly one year to the day after his review was announced, and available a couple of weeks earlier than anticipated, Sir Donald Brydon has published his report into the quality and effectiveness of audit. The report, which the UK Government commissioned, looks at the provision of audit services to UK Public Interest Entities, acknowledging that it could impact on the services provided by auditors beyond the UK. In June 2019, Chartered Accountants Ireland responded to the consultation with a lengthy submission. We had previously engaged with the other two key consultations/studies relating to the UK audit sector, namely the CMA’s Statutory Audit Services Market Study and the Independent Review of the Financial Reporting Council by Sir John Kingman.    The recommendations in the newly published report warrant careful consideration as they propose some radical shifts for both the auditing profession and the directors of businesses in the UK.  The recommendations include: A redefinition of audit and its purpose; The creation of a corporate auditing profession governed by principles; The introduction of suspicion into the qualities of auditing; The extension of the concept of auditing to areas beyond financial statements; Mechanisms to encourage greater engagement of shareholders with audit and auditors; A change to the language of the opinion given by auditors; The introduction of a corporate Audit and Assurance Policy, a Resilience Statement and a Public Interest Statement; Suggestions to inform the work of BEIS on internal controls and improve clarity on capital maintenance; Greater clarity around the role of the audit committee; A package of measures around fraud detection and prevention; Improved auditor communication and transparency; Obligations to acknowledge external signals of concern; Extension of audit to new areas including Alternative Performance Measures; and The increased use of technology. The report states very clearly that the directors have a role to play in corporate reporting.  We welcome the recommendation that the board should have enhanced responsibilities regarding the viability of the company and should produce a Resilience Statement that builds on the current going concern and viability statements. The report recommends the consideration of an internal controls review along the lines of the US SOX reports. In our letter we advised caution regarding this and that further work/evidence is required to justify the introduction of such a costly regime. In our response to the consultation we commented that the developments in auditor reporting in recent years have been very beneficial.  The introduction of commentary on ‘key audit matters’ (KAM) and discussion of materiality issues provides rich information for users of financial statements and that   this could be further developed by auditors commenting on KAMs year on year.  We are pleased to note that the report recommends such follow up. Audit fees will be more upfront in the financial statements and audit firms will be required to publish the profitability of their work from audit. They will also be asked to disclose, “within the audit report, the hours spend on each audit by each grade within the audit team”. This can only lead to much lengthier reports. In addition, it is proposed that auditors are given the freedom to include a wider range of material in their report as they feel appropriate. This will be a significant change for the current reporting and would rely heavily on the professional judgement of the auditor. Sir Donald Brydon stated “I recommend that auditors should be free to include original information, materially useful to a wide range of users, in their audit report and at the AGM, and not be confined to commenting on that which has already been stated by directors.” We look forward to the discussions and debates that this report will no doubt generate and we will be publishing commentary and further analysis in 2020.    

Dec 20, 2019

Chartered Accountants Ireland  The report of the independent review into the quality and effectiveness of audit has just been published. We will be issuing commentary and further analysis on this report in 2020. ROI  The Central Bank of Ireland has published its sixth issue of the report on the financial conditions of the credit union sector.  UK  The FRC has announced its 2020/21 corporate reporting and audit quality review programme. The FRC has welcomed new guidance issued by the Taskforce on Disclosures about Expected Credit Losses (DECL).  The FRC has issued FRED 73 Draft amendments to FRS 101 – 2019/20 cycle. The Institute is considering whether a submission will be made by the deadline of 16 March 2020. To support the delivery of high-quality audit in the UK, the FRC has issued a major revisions to its Ethical Standard and revised Auditing Standards. The FRC has issued Amendments to FRS 102 - Interest rate benchmark reform, which responds to a current financial reporting issue.  The FRC issued a letter to the heads of audit of the larger audit firms in early November intending to share experience from the audit quality review inspections and root cause analysis performed by audit firms on aspects of the audit process that are likely to affect the quality of audits. International The International Auditing and Assurance Standards Board (IAASB) has released a Feedback Statement sharing what the Board has heard regarding audits of less complex entities in response of its recent Discussion Paper: Audits of Less Complex Entities (LCEs): Exploring Possible Options to Address the Challenges in Applying the ISAs.      

Dec 19, 2019
Insolvency and Corporate Recovery

We wish to remind members of the obligation to file beneficial ownership information with the Central Register of Beneficial Ownership of Companies and Industrial & Provident Societies (RBO).  The Insolvency Committee of the Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) is currently preparing a guidance paper which will discuss the implications of the RBO on insolvency practitioners.  The Insolvency Committee is currently liaising with the relevant parties prior to publishing this guidance paper. It is noted that insolvency practitioners should consider whether the RBO has been complied with for appointments after 22 November 2019 and you may consider including some relevant wording regarding same in your letter of engagement.

Dec 13, 2019

ROI  SI No 597 of 2019 European Union (Qualifying Partnerships: Accounting and Auditing) Regulations 2019 has been issued.  A copy of the Regulations are available on the DBEI website, which notes that these Regulations give effect to the transposed provisions of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (the Accounting Directive) in respect of partnerships and limited partnerships where Article 1(1)(b) of that Directive requires it. The Insolvency Committee of the Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) is currently preparing a guidance paper which will discuss the implications of the RBO on insolvency practitioners.  The Insolvency Committee is currently liaising with the relevant parties prior to publishing this guidance paper.   Europe EFRAG has shared the video recordings of its November Conference: IFRS & Regulation: Searching for Common Ground. In two parts you can watch the keynote speeches provided by Michel Prada and Steven Maijoor, followed by two thought-provoking panel discussions.  EFRAG has published its feedback statement to the IASB ED/2019/4 Amendments to IFRS 17. International Vice-Chair of the International Accounting Standards Board Sue Lloyd delivered a speech at the 9 December annual conference in Washington on regulatory developments organised by the American Institute of Certified Public Accountants.

Dec 12, 2019

ROI The Pensions Authority have published a guidance note on the European Union (Supplementary Pension Rights) Regulations 2019 (S.I. No. 447 of 2019). These Regulations bring certain provisions of Directive 2014/50/EU (the Portability Directive) into force from 13 September 2019. UK  Client Asset Assurance Standard - the Financial Reporting Council (FRC) has this week issued a revised standard for the audit of client assets. Europe  The November EFRAG Update has just been issued – it is published on a monthly basis to inform constituents about due process publications, public technical discussions held and decisions taken during that month. The Committee of European Auditing Oversight Bodies has issued ‘CEAOB guidelines on the auditors’ involvement on financial statements in European Single Electronic Format’. International As the UN Climate Change Conference (COP) meets this week, IFAC urges decisive action to put the world on a path to a sustainable future. To clearly articulate the role of the global accounting profession in addressing the climate emergency, IFAC published its Point of View on climate action. The IFRS November Update has just been issued which contains a summary of news and events over the past month.  

Dec 05, 2019
Financial Reporting

In this era of multi-GAAP, it was particularly useful for Irish accountants to hear the latest from both the FRC and the IASB. By Terry O'Rourke & Barbara McCormack Chartered Accountants Ireland recently hosted presentations by representatives from the UK Financial Reporting Council (FRC) and the International Accounting Standards Board (IASB) on current developments in their respective accounting standards – UK/Irish GAAP and IFRS. Given that Irish and EU listed groups are required to use IFRS, and many other Irish companies (particularly Irish subsidiaries of EU listed groups), also do so, while most other Irish companies use UK/Irish GAAP as required by Irish company law, these developments will affect a significant number of Irish accountants. The FRC presenters were Anthony Appleton, Director of Accounting and Reporting Policy; Jenny Carter, Director of UK Accounting Standards; and Phil Fitz-Gerald, Director of the Financial Reporting Lab. The IASB presenter was Board member, Gary Kabureck. FRC and UK/Irish GAAP The FRC presentation reminded us of the most recent overhaul of the accounting aspects of FRS 102, which is mandatory for 2019 but was permitted to be adopted in advance of 2019. The main changes made by the FRC to FRS 102 in that Triennial Review arose from requests by stakeholders for simplifications and clarifications in several areas. The areas amended are set out in Table 1. Unsurprisingly, two of the main changes resulted in a relaxation of accounting for loans and financial instruments as these were aspects of FRS 102 that many companies, particularly SMEs, found quite challenging. The FRC noted too that FRS 102 and FRS 105 had also been amended to reflect the enactment in Irish company law of the small and micro companies regimes for financial reporting respectively. The FRC confirmed that the question of whether the more recent IFRS Standards should be incorporated into UK/Irish GAAP will be a topic for future consideration but is not on the immediate agenda. FRC monitoring of compliance with relevant regulatory reporting requirements In addition to its role as the accounting standard setter for both the UK and the Republic of Ireland, the FRC also monitors the financial statements of UK listed companies for compliance with relevant regulatory reporting requirements, including IFRS and UK GAAP, and engages with UK companies when it identifies concerns in this regard. Accordingly, the FRC presentation included pointers on the areas of most frequent concern in the reports of IFRS reporters identified by the FRC in this monitoring activity. These areas are set out in Table 2. It is notable that the top two areas relate to narrative aspects of the annual report – the information provided on judgments and estimates underlying the financial statements, and the strategic report provided by the board of directors. The FRC noted that a greater level of sensitivity analysis was desirable in providing adequate information on accounting estimates. Alternative Performance Measures (APMs) was the next area of concern and, as noted later in this article, the IASB plans to introduce greater discipline in relation to the inclusion of non-GAAP numbers by management. Impairment of assets continued to be a concern, as did accounting for income taxes. The FRC presentation noted basic errors in cash flow statements, often tending to overstate the amount of cash generated by the entity’s operating activities. In relation to the use by companies of reverse factoring or supplier finance, the FRC noted that insufficient detail and explanations were provided on this source of finance. The FRC also noted inconsistencies between the information provided by the directors in the front half of the annual report and the financial information provided in the financial statements. The FRC also reviewed compliance with the more recent IFRS Standards, IFRS 9 with its expected loss approach to loan impairment and IFRS 15 on revenue recognition. The FRC considered there was generally high-quality disclosure on impairment among the larger banks with a more mixed level of information being provided by non-banking corporates. On IFRS 15, the FRC found disclosure generally good, but with some accounting policy descriptions not sufficiently specific and often not easily matched to discussions of activity in the narrative reports. For 2019, compliance with IFRS 16 and the inclusion of all leases on the balance sheet for the first time is the main new challenge for many IFRS users. The FRC examined a number of 2019 interim accounts for the transitional disclosures on IFRS 16. Among the weaknesses it identified was a need for clearer descriptions of the key judgments made and better reconciliations of IFRS 16 lease liabilities and the previous IAS 17 operating lease commitments information. The FRC also suggested that care is needed in discussing year-on-year performance where prior year lease numbers have not been fully restated. Brexit and IFRS In relation to the accounting standards to be used by UK listed companies after Brexit, the FRC explained that the existing IFRS Standards would continue to be used and any new or amended IFRS Standards would be considered for adoption in the UK by a new UK Endorsement Board, using criteria very similar to those used by the EU for endorsing IFRS. FRC Financial Reporting Lab The FRC took the opportunity to outline the work of its Financial Reporting Lab, as this is an area of relatively less awareness in Ireland. The Lab was launched in 2011 and aims to help improve the effectiveness of corporate reporting. It is intended to provide a safe environment for companies and investors to work on improving disclosure issues. Areas on which the Lab had previously issued reports include business model reporting and risk and viability reporting. It recently issued a report on climate-related corporate reporting and is currently working on a workforce reporting project, looking particularly at the information companies might provide to show how the board is engaging with these critical areas. The FRC encouraged interested executives to look out for calls to participate or indeed, to contact the Lab for a discussion on its activities. The FRC reminded us of the requirements of the EU Regulation that most listed companies in the EU will be required to make their annual financial reports available in xHTML from 2021, with annual financial reports containing consolidated IFRS financial statements needing to be marked up using XBRL tags. The relevant EU Regulation is the European Single Electronic Format (ESEF) Regulation. IASB presentation Primary financial statements project The IASB presenter explained that a key issue being considered in this project relates to the statements of financial performance, particularly the income statement/profit and loss account, having regard to the concerns expressed by users and the possible means of remedying those concerns. First, users consider that the statements of financial performance are not sufficiently comparable between different companies. The IASB will propose the introduction of required and defined subtotals in those statements. The proposed changes would also provide users with more precise information through a better disaggregation of income and expenses. Users also consider that non-GAAP measures such as adjusted profit can provide useful company-specific information, but their transparency and discipline need to be improved. The IASB will propose specific disclosures on Management Performance Measures (MPMs), including a reconciliation to the relevant IFRS measure. MPMs are those that complement IFRS-defined totals or subtotals, and that management consider communicate the entity’s performance. These proposals will also require MPMs presented to be those that are used by the entity in communications with users outside the financial statements and that they must faithfully represent the financial performance of the entity to users. Goodwill and impairment The IASB has been exploring whether companies can provide more useful information about business combinations in order to enable users to hold management to account for their acquisition decisions at a reasonable cost. Users have commented that the information provided about the subsequent performance of acquisitions is inadequate, that goodwill impairments are often recognised too late, and that reintroducing amortisation should be considered. Preparers contend that impairment tests are costly and complex, and that the requirement to identify and measure separate intangible assets can be challenging. The IASB plans to issue a discussion paper in the coming months. Its tentative views to date are that amortisation should not be introduced, that it is not feasible to make impairment tests significantly more effective, and that separately identifiable intangible assets should continue to be recognised. However, the IASB considers that additional disclosures should be required about acquisitions and their subsequent performance, and that an amount for total equity before goodwill should be presented. It may also propose some simplifications in impairment testing. IBOR reform The IASB noted that it recently finalised a revision to IFRS 9 and IAS 39 on the potential discontinuance of interest rate benchmarks (IBOR reform) in order to facilitate the continuation of hedge accounting. (The FRC also plans to amend UK/Irish GAAP in this regard.) Amendments to IFRS 17 Insurance Contracts The IASB has proposed amendments to IFRS 17, particularly a one-year deferral of its effective date to 2022, as well as amendments to respond to concerns and challenges raised by stakeholders as IFRS 17 is being implemented. Other topics The IASB has taken on board the concerns raised about its discussion paper on accounting for financial instruments with characteristics of equity, and is considering refocusing that project to clarify aspects of IAS 32 as well as providing examples on applying the debt and equity classification principles of IAS 32. Given the diversity of views on how deferred tax relating to leases and decommissioning obligations should be accounted for, and the potential increase in differences arising due to the inclusion of all leases on the balance sheet under IFRS 16, the IASB has issued an exposure draft proposing to amend IAS 12. The IASB plans to respond to the absence of IFRS requirements on accounting for business combinations under common control by issuing a discussion paper in 2020, probably specifying a form of predecessor accounting. Conclusion A key feature of the presentations by both the FRC and the IASB on amendments to their accounting standards was the level of diligence applied by both standard setters in listening to the views and concerns of their various stakeholders and considering the most balanced and appropriate response to those concerns. This emphasis by the accounting standard setters on carefully considering the views of stakeholders while developing high-quality accounting standards is most reassuring and bodes well for the future of accounting standards. Terry O’Rourke FCA is Chairperson of the Accounting Committee of Chartered Accountants Ireland. Barbara McCormack FCA is Manager, Advocacy and Voice, at Chartered Accountants Ireland. 

Dec 03, 2019