Audit

Chartered Accountants Ireland have published Technical Alert (TA) 03/2020 to provide a brief outline of the significant changes to this standard and to direct members to additional sources of information and guidance on the implementation of the revised ISA 570.  This TA covers both UK and Ireland versions of the revised standard.  The revised standards strengthen the work effort required by auditors in their evaluation of management’s going concern assessment and there are enhanced reporting requirements for the audit report. These revised standards are effective for audits of financial statements of entities, for periods commencing on or after 15 December 2019 and will have widespread impact on our members.  For many audits that makes December 2020 year ends the first application  

Nov 25, 2020
Audit

Chartered Accountants Ireland have published Technical Alert (TA) 02/2020 to provide a brief outline of the significant changes to this standard and to direct members to additional sources of information and guidance on the implementation of the revised ISA 540.  This includes discussion on the need for preparers of financial statements to engage with their auditors to discuss the accounting estimates included in the financial statements.  This TA covers both UK and Ireland versions of the revised standard.

Nov 25, 2020
Financial Reporting

ISA (Ireland) 315 (Revised October 2020), Identifying and Assessing the Risks of Material Misstatement is available here. The effective date of the revised standard is effective for audits of financial statements for periods beginning on or after 15 December 2021; early adoption is permitted. In August 2020 IAASA published its consultation on the proposal to revise ISA (Ireland) 315, Identifying and Assessing the Risks of Material Misstatement in line with the revisions made by the Financial Reporting Council (FRC) and the International Auditing and Assurance Standards Board (IAASB). They noted that respondents were in agreement with the proposal to issue the revised standard and has published a Feedback Paper.

Oct 20, 2020
Financial Reporting

IAASA has published its annual Observations paper highlighting some significant topics that those charged with governance should consider when preparing their financial statements for 2020.IAASA’s paper highlights some key areas that warrant close scrutiny by those preparing, approving and auditing 2020 financial statements in the upcoming reporting season including:the pervasive impact of the COVID-19 pandemic on the recognition, measurement, presentation and disclosure of income, expenses, assets and liabilities in companies’ financial statements; andthe challenges and uncertainties facing companies from Brexit.This 2020 Observations paper is addressed primarily to the preparers, approvers and auditors of financial statements and seeks to highlight matters users may wish to be aware of and focus on when reviewing 2020 financial statements. 

Sep 22, 2020
Financial Reporting

A new report publised by the Center for Audit Quality (CAQ) report, The Role of Auditors in Company-Prepared ESG Information: Present and Future, highlights the key role of auditors in ESG information provision.  The report published by the US-based nonprofit public policy advocacy organisation builds on a report released in December 2019 by CAQ, 'The Role of Auditors in Company-Prepared Information: Present and Future'. This describe the role of auditors and how they are positioned to help fill existing gaps in enhancing the reliability of decision-useful information. This new report provides: an overview of what ESG reporting is how investors are using the information how public company auditors are well-positioned to enhance the reliability of ESG information, given their public interest role key questions board members can ask management and public company auditors  questions investors can ask when using ESG information to make capital allocation decisions The coronavirus pandemic has accelerated the focus on ESG information, as investors are increasingly seeking information on employee health and work environments, according to the CAQ.

Jul 07, 2020
Financial Reporting

Hannah Armitage of the FRC's Financial Reporting Lab on July 1 described the key role the FRC plays in ensuring that market and financial system participants take into account climate-related issues, and that companies provide information to investors and other stakeholders about their plans for the future and the challenges and opportunities they face in a future low carbon economy. Marking the beginning of London Climate Action Week (Digital), Armitage described climate change as being high on the FRC’s agenda as the regulator of the accounting, auditing and actuarial sectors. She announced that the FRC is carrying out a thematic review to understand what boards, companies, auditors and professional bodies are doing to consider and report on the climate-related issues they face within their own areas of responsibility.  The Joint Forum on Actuarial Regulation, of which the FRC is the Chair, also recently identified climate change as a main risk in its ‘Risk Perspective’.  Although Armitage acknowledged that reporting on the effects of climate is not easy, involving, as it does, making assessments of an uncertain future and its impact on business, she stated that working out how we benchmark against this uncertain future is part of the ongoing work currently happening on climate change at the moment, and cited as examples: the FCA’s consultation on ‘comply or explain’ reporting on TCFD (Taskforce on Climate-related Financial Disclosures), work on the Pensions Bill regarding climate change, the IASB briefing note on the impact of climate change on financial reporting, and the efforts and insights shared by those taking part in the London Climate Action Week events.   Click here for more information on London Climate Action week, including a link to the recording debate “Peak TCFD”, a turning point where the Task Force’s recommendations have surpassed a critical mass for mainstream adoption.  

Jul 02, 2020
Audit

ICAS and ICAEW have today jointly published free-to-access guidance for owners and directors of SMEs to assess the prospects of their business in the wake of COVID-19. The guidance has been written by experts at ICAS and ICAEW to aid the many small and medium-sized businesses that have been affected by the coronavirus crisis as they prepare their accounts. Company directors are required each year to assess whether the business is a going concern when drawing up their annual accounts, and this should cover at least the 12 months from the date the accounts are to be approved by the directors. But coronavirus has had a dramatic change on the performance and prospects of many businesses, leaving some under threat, and accounts will have to reflect its impact. The publication explains to business owners and directors the importance of forecasting cash flow and how to reflect the impact of COVID-19. Additionally, it provides suggestions on how to work with auditors and accountants during the pandemic, including the need to provide evidence which shows that conclusions reached regarding going concern are reasonable. The guide is available here.

May 19, 2020
Financial Reporting

The COVID-19 pandemic is having a significant impact on a large number of businesses.  In this period, going concern considerations are likely to be more topical for both preparers and auditors. The Advocacy and Voice Team in the Institute has produced an article ‘Going Concern considerations for members preparing or auditing financial statements in the context of COVID-19’ (23 April 2020) to assist members involved in preparing and auditing financial statements, and to serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective.

Apr 24, 2020
Financial Reporting

Actions to mitigate the impact of COVID-19 on the EU financial markets regarding publication deadlines under the Transparency Directive While recognising the importance of timely and transparent disclosure of financial reports, ESMA is of the view that the burdens on issuers associated with the COVID-19 outbreak should be taken into account by NCAs – in Ireland’s case, the Central Bank of Ireland in a coordinated way. This is in the interest of investor protection and contributes to the integrity of financial markets in the Union. ESMA therefore, in coordination with NCAs and considering that issuers may be prevented from fulfilling the requirements due to COVID-19, expects NCAs during this specific period not to prioritise supervisory actions against issuers in respect of the upcoming deadlines set out in the TD regarding:  (a) annual financial reports referring to a year-end occurring on or after 31 December 2019 but before 1 April 2020 for a period of two months following the TD deadline; and  (b). half-yearly financial reports referring to a reporting period ending on or after 31 December. See the full statement from ESMA here 

Mar 27, 2020
Financial Reporting

Recent unprecedented events mean that the basis on which companies are reporting and planning is changing rapidly. It is important that due consideration is given by companies to these events in preparing all reporting.  The FRC therefore encourages listed companies and their auditors to consider carefully whether they should delay other corporate reports for the next two weeks, such as interim financial statements and final audited financial statements, except where necessary to meet a legal or regulatory requirement. Read more on the FRC website here 

Mar 23, 2020
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
Accounting

Attendees representing Institute members and other stakeholders were in Chartered Accountants House last Wednesday (30 October 2019) to meet with representatives of the International Accounting Standards Board (‘IASB’) and the Financial Reporting Council (‘FRC’), and hear presentations on IFRS and UK/Irish GAAP. Dr Brian Keegan, Director of Advocacy and Voice at the Institute, welcomed speakers and attendees to the event. The first presentation was from Gary Kabureck, IASB Board member, who presented on current and upcoming developments in IFRS, including the Board’s projects on the Disclosure Initiative, Primary Financial Statements, IBOR Reform, Business Combinations, and Goodwill and Impairment. Anthony Appleton, Director of Accounting and Reporting Policy at the FRC then discussed the key findings from the FRC’s Annual Review of Corporate Reporting, which had just been issued that morning, while Jenny Carter, Director of UK Accounting Standards at the FRC reminded attendees of the recent changes in UK/Irish GAAP that are effective this year, recent narrow scope amendments and planned developments in UK/Irish GAAP. Phil Fitz-Gerald, Director of the Financial Reporting Lab at the FRC, introduced the work of the Lab, which brings together companies and investors to support improvement and innovation in reporting, discussed recent Lab reports, and invited those interested in being involved in Lab projects to contact him. An informative Q&A session, led by Terry O’Rourke, chair of the Institute’s Accounting Committee, followed the presentations. Photographs from the event

Oct 31, 2019