Technical resource centre

Developments of interest this week are set out below.  Ireland                  IAASA has published summary information of its financial reporting enforcement activities undertaken during 2017. The CRO have issued their regular gazette. UK The Financial Reporting Council (FRC) has launched a consultation on changes to Third Country Auditors (Fees) Instrument. European The European Supervisory Authorities (ESAs) have announced a multilateral agreement on the exchange of information between the ECB and AML/CFT competent authorities. The Technical Expert Group on Sus­tain­able Finance set up by the European Com­mis­sion (EC) has published its first report on companies' dis­clo­sure of cli­mate-re­lated in­for­ma­tion. International At its upcoming meeting, the International Accounting Standards Board (IASB) will discuss 5 of the 25 concerns regarding IFRS 17 'Insurance Contracts' that were iden­ti­fied in October 2018 as can­di­dates for potential amend­ments.        

Developments of interest this week are set out below.    Ireland                  IAASA has published ISA (Ireland) 540 (Revised December 2018) Auditing Accounting Estimates and Related Disclosures and related conforming amendments to other ISAs (Ireland). Central Bank welcomes this week’s publication of the Credit Union Advisory Committee Implementation Group Report and the opportunity to consider the matters raised. The CRO have issued their regular gazette. NI Charity regulators in the United Kingdom and Ireland recently opened a joint consultation on how to reform the process for developing the Statement of Recommended Practice (SORP) which closes on Monday 4 February 2019. The Charity Commission for Northern Ireland is hosting an event on 15 January 2019 in Belfast at which feedback to the consultation can be gathered. UK The Financial Reporting Council (FRC) has published a list of the names of companies whose audits have been reviewed by their Quality Review team in 2018/19.  European The European Securities and Markets Authority (ESMA) has issued its final Regulatory Technical Standards regarding cooperation between competent authorities and the European Supervisory Authorities under Regulation (EU) 2017/2402 (the Securitisation Regulation). ESMA has updated its Questions and Answers on MiFID II and MiFIR commodity derivatives topics. These Q&As provide clarification on issues related to the MiFID II/MiFIR regime for commodity derivatives, including on position limits, position reporting and ancillary activity.  The European Banking Authority (EBA) is scru­ti­n­is­ing the effective im­ple­men­ta­tion of IFRS 9 ‘Financial Instruments’ by EU in­sti­tu­tions and its impact as initially observed and has conducted a new exercise on the standard’s impact on EU in­sti­tu­tions followed by a first report to provide pre­lim­i­nary ob­ser­va­tions on the first stages of im­ple­men­ta­tion while a deeper analysis is still ongoing. International The IFRS Foundation December news summary has been published.

Developments of interest this week are set out below.  Ireland                  The CRO have issued their regular gazette. UK FRC Chairman Sir Win Bischoff commented recently on Sir John Kingman's independent review of the Financial Reporting Council. European Following the first period of ap­pli­ca­tion of IFRS 9 'Financial In­stru­ments' in the European Union, the European Banking Authority (EBA) is scru­ti­n­is­ing the effective im­ple­men­ta­tion of the standard by EU in­sti­tu­tions and its impact as initially observed. The European Com­mis­sion has adopted the ESMA draft for a single European elec­tronic reporting format (ESEF) as Delegated Reg­u­la­tion. This reg­u­la­tion is to be applied to annual financial reports con­tain­ing financial state­ments for financial years beginning on or after 1 January 2020. International The December IASB podcast has recently been published.

Following consultations earlier in 2018, this week has seen the publication of two very significant reports on the regulation and operation of the UK statutory audit market. Sir John Kingman issued the Independent Review of the Financial Reporting Council (‘Kingman Report on the FRC’) while the Competition and Markets Authority (‘CMA’) issued its update paper on the Statutory Audit Services Market Study (‘CMA update paper’). Institute Chief Executive Barry Dempsey comments on these developments. CMA update paper The original CMA invitation to comment (‘ITC’) in October 2018 contained a wide range of potential measures, aimed at increasing competition, enhancing incentives to better align audit services to shareholder interests, improving market choice and opportunities for switching auditors and bolstering the resilience of the UK audit market, particularly against the failure of one of the Big Four audit firms.  Following the consultation, to which Chartered Accountants Ireland made a detailed submission (submission at this link), the CMA has developed a proposed package of remedies to address the key concerns in its study, including three core proposals: Regulatory scrutiny of auditor appointment and management, with a view to securing audit committees’ accountability and independence; Mandatory joint audit, with a view to breaking down barriers to non-Big 4 firms; An operational split between the audit and advisory businesses of audit firms, aiming to address identified conflicts between the provision of audit and non-audit services, while mitigating against some of the key negative consequences of alternatively introducing full ‘audit-only’ firms. Other remedial measures discussed in the update paper include peer review prior to the accounts being signed off.  The above remedies are discussed in the update paper as preferred alternatives to other measures originally proposed in the ITC (e.g. an independent body to appoint auditors, market share caps and fully audit-only firms), though the update paper suggests that the CMA may take future steps in relation to these should sufficient progress not be made via the current proposed package of measures.  Potential measures in the original ITC not being pursued by the CMA include the break-up of the Big 4 firms and the creation of a national audit office (NAO) style auditor for private sector audits. The CMA is now consulting on this proposed package of measures until 21 January 2019 with final recommendations expected by April 2019.  Chartered Accountants Ireland will again participate in this consultation. Kingman report on the FRC Following the Kingman Review’s call for evidence, to which Chartered accountants Ireland responded in detail in August 2018 (submission at this link), the Kingman report calls for the replacement of the FRC with a new independent regulator (suggested title: ‘Audit, Reporting and Governance Authority’) with clear statutory powers and objectives.  It recommends that the new regulator should be accountable to the UK parliament.  In total there are 83 different recommendations addressing the structure and purpose of the regulator, the effectiveness of its core functions, the role and powers of the regulator with respect to corporate failures, oversight and accountability, staffing and resources, and other matters.  Some key recommendations include: The new regulator taking responsibility for the approval and registration of audit firms which audit UK PIEs from the Recognised Supervisory Bodies (including Chartered Accountants Ireland); Enforcement action against accountants in relation to apparent wrongdoing in public interest entities should be undertaken on a statutory rather than voluntary basis, as is the current arrangement; That the regulator has the powers to investigate the actions of all directors, not just those who are members of accountancy bodies; The introduction of a duty of alert for auditors to report viability or other serious concerns to the regulator; Giving the regulator powers to commission a ‘skilled person review’, paid for by the company, in relation to its strategic objective to “protect the interests of investors and the wider public”, and to publish such a report if it is judged to be in the public interest; That the Department for Business, Energy and Industrial Strategy (‘BEIS’) give serious consideration to a strengthened framework around internal controls; That staff, board or committee members are prohibited for the foreseeable future from working on any regulatory functions relating to a past employer; Enhanced obligations with regard to the review of the audit market; and That BEIS should put in place a statutory levy and the current voluntary funding approach should cease. Next steps As noted above, the CMA is further consulting on its proposed package of proposals.  In addition, BEIS has announced an independent review, to be chaired by Donald Brydon, outgoing Chair of the London Stock Exchange Group, on the quality and effectiveness of the UK audit market.  BEIS has said that the Brydon review into UK auditing standards will build on the Kingman and CMA reports by considering “how far audit can and should evolve to meet the needs of investors and other stakeholders”.  Chartered Accountants Ireland Chief Executive Barry Dempsey commented on these developments as follows: “We at Chartered Accountants Ireland welcome the publication on Wednesday of both the CMA update paper on its UK statutory audit services market study and the Kingman report on the FRC.  There is widespread agreement that audit quality must be at the heart of any reforms in the sector and that steps be taken to restore public trust and confidence in the statutory audit function.  We also welcome the announcement of the Brydon review into the scope and purpose of the audit, aimed primarily at substantively closing the gap to stakeholder expectations of the audit.  Whilst we, and indeed other stakeholders, may not agree with everything that is proposed, we fully recognise the importance of the on-going debate. The response to the recommendations contained in these reports and reviews will be pivotal to achieving these shared aims of high quality audit and high levels of public trust and confidence.  Of course it is critical that any changes implemented in the UK can work in the global context of the auditing profession.  In our CMA response we highlighted the need for coordinated solutions to enhance corporate reporting and statutory audit globally. The proposed measures address complex issues and their design will be critical in terms of implementation and effectiveness.   Chartered Accountants Ireland has submitted detailed responses to both the CMA and Kingman consultations and looks forward to engaging further on these matters as they develop”. 

Developments of interest this week are set out below.  Ireland                  The CRO have issued their regular gazette. UK The FRC has announced the composition of the Advisory Group for its major project on the Future of Corporate Reporting. The Group will provide input and advice to the FRC as it develops the project which will lead to recommendations for changes to regulation and practice. European EFRAG is consulting on both its assessment of Definition of Material (Amendments to IAS 1 and IAS 8) ('the Amendments') against the technical criteria in the EU and on its assessment of whether the Amendments are conducive to the European public good. Comments are requested by 1 February 2019. EFRAG has issued a draft endorsement advice letter and a separate invitation to comment relating to the endorsement for use in the EU of the Amendments. International The International Accounting Standards Board (IASB) has, during its December meeting, voted to propose to amend IFRS 17, the insurance contracts Standard issued in May 2017. The IASB has published a summary report on its Post-implementation Review of the fair value measurement Standard, IFRS 13, which showed that the Standard works as intended.      

Developments of interest this week are set out below.   The FRC has issued a suite of staff factsheets on aspects of FRS 102, including the 2017 triennial review.  The factsheets are intended to assist stakeholders by highlighting certain requirements of FRS 102 and can be accessed here. The CRO have issued their regular gazette.  Wates Principles to improve corporate governance standards among private companies - a new code for the corporate governance of large private companies has been launched. Reporting against these principles will take effect on 1 January 2019. Find out more on the FRC website at the link here. On 11 December the FRC withdrew, with immediate effect, Practice Note 25 ‘Attendance at Stocktaking’ and Practice Note 27 ‘The Audit of Credit Unions in the United Kingdom’. Read more here. The FRC has launched a consultation to assess the effectiveness of the Client Asset Audit Standard which was introduced in 2015 and is also consulting on updates to its Practice Note on ‘The Audit of Banks and Building Societies in the United Kingdom’. The FRC has also issued an International Standard on ‘Auditing Accounting Estimates and Related Disclosures’ (International Standard on Auditing (UK) 540 (Revised)). The November 2018 IFRS Interpretations Committee Update (IFRIC Update) has been published. IFRIC Update is a summary of the decisions reached by the IFRS Interpretations Committee in its public meetings.  

Developments of interest this week are set out below.  Ireland                  The CRO have issued their regular gazette. UK The FRC have published a report on their thematic review considering the auditors’ work on the Other Information in the Annual Report. The report can be read here. The FRC’s Financial Reporting Lab is calling for investors and companies of all sizes to participate in a new project which will explore best practice disclosures around the sources and uses of cash. It will consider how reporting on the location, nature and availability of cash within a group, as well as future uses of cash, can be presented in a way that is most useful to investor decision-making. European EFRAG has published its response to the request for technical advice from the European Commission on the accounting for equity instruments from a long-term investment perspective. In May 2017, EFRAG received a request for technical advice from the European Commission (EC) on the accounting treatment of equity instruments under IFRS 9 Financial Instruments from a long-term investment prospective and EFRAG has now published its response to the EC request. The European Securities and Markets Authority (ESMA) has published its annual market share calculation for EU registered credit rating agencies.  

IAASA has this week published a Consultation Paper to seek the views of stakeholders regarding the Authority’s intended policy on publication and grading in the quality assurance review process relating to statutory auditors and audit firms that carry out statutory audits of public-interest entities ('PIEs').

Developments of interest this week are set out below.  Ireland                   IAASA seek views on the future publication and grading policy relating to PIE   audit firms. The CRO have issued their regular gazette. NI Regulators invite feedback on Charities SORP - A consultation has launched to seek views on how best to reform the process for developing the SORP following the recent expansion of the SORP-making body that sets the framework for charity financial reporting to incorporate the Charity Commission for Northern Ireland with the Charities Regulatory Authority for the Republic of Ireland as observer. UK The Financial Reporting Council's (FRC) Financial Reporting Lab has released its quarter 3-4 newsletter.  European The European Financial Reporting Advisory Group (EFRAG) has published a dis­cus­sion paper (DP) 'Non-ex­change transfers: A role for societal benefit?' The DP explores the accounting for transfers in which an entity received (or gives) value without directly giving (or receiving) ap­prox­i­mately equal value in exchange. The European Securities and Markets Authority (ESMA) is publishing a Public Statement to address the risks of a no-deal Brexit scenario in the area of central clearing. The ESMA Board of Supervisors supports the continued access to UK CCPs to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability. The European Fed­er­a­tion of Ac­coun­tants and Auditors for SMEs (EFAA) has published the results of a survey on non-fi­nan­cial in­for­ma­tion reporting by small and medium-sized entities (SMEs) across 14 European countries. International The IFRS Foun­da­tion has issued an ad­di­tional new stand-alone ed­u­ca­tional module, which supports the learning, ap­pli­ca­tion, and reading of financial state­ments prepared with the IFRS for SMEs Standard.