Financial Reporting

The Companies (Accounting) Act 2017 (‘CA 2017’) made a range of amendments to the accounting and filing requirements of the Companies Act 2014.  This Technical Release (‘TR’) is intended as a signpost to assist with the preparation of statutory financial statements of small and micro companies. CA 2017 has reduced the number of disclosure requirements for small and micro companies compared with larger companies. The TR discusses these disclosures and also highlights some key aspects of the revised legal requirements regarding directors’ reports and abridged financial statements applying to small and micro companies.  TR 04/2018: Companies Act 2014 – Small and micro companies is available here.

Aug 29, 2018
Business law

Developments of interest this week are outlined. Northern Ireland and Republic of Ireland charity regulators to be included in new charity sector SORP-making body. ROI IAASA has published its annual Profile of the Profession, which contains statistical data regarding the nine Prescribed Accountancy Bodies (‘PABs’) within IAASA’s supervisory remit in Ireland for the year 2017. The Companies Registration Office annual report for 2017 is now available as a pdf from the  CRO Corporate Publications webpage or as a webpage: CRO report. The Registry of Friendly Societies annual report for 2017 is now available from the CRO Corporate Publications webpage. UK  The FRC has published its first list of companies whose reports and accounts have been reviewed by its Corporate Reporting Review function. International The June IASB podcast now available

Jul 05, 2018
Financial Reporting

This week Chartered Accountants Ireland was delighted to host the 28th Audit & Assurance Conference of the British Accounting & Finance Association (BAFA). This is a major event in the academic conference calendar which attracts academics from Ireland, the UK, and beyond.  The Institute welcomed some 90 leading academics specialising in the area of statutory audit and who received a number of academic research papers and case studies on statutory audit and the role of auditors. Plenary sessions addressed the future of audit and assurance, and the future of audit standard setting and included contributions from Big 6 audit partners, regulators, and standard setters. At the commencement of the 2 day conference, Dr Ilias G Basioudis, chairman of the Auditing Group of BAFA said: "This conference is taking place at a critical time for the auditing profession.  Over the next two days we shall be discussing major challenges facing audit and possible measures that might be considered to underpin public confidence in the profession and provide a greater understanding of the role of audit.  "Crucially, we shall also debate what more can done by auditors to provide assurance on company viability, recognising that this debate will require legislative change and input from audit practitioners, regulators and legislators.  The fact that this conference has attracted contributors from around the world also demonstrates the global nature of the auditing profession and the importance of identifying confidence building measures and initiatives that have global acceptance and are capable of global application." Click here for images from the conference. 

May 25, 2018
Financial Reporting

Conal Kennedy writes In the past few years, accountants in practice have had to deal with a wave of change that has washed over them, including the new accounting frameworks in the UK and Republic of Ireland. In both jurisdictions, small and micro company regimes have been introduced which are generally welcome, but like any change in standards, can present challenges in just getting it right first time. In Practice Consulting we have given assistance and support to a large number of members and firms as they applied the new frameworks. Most of the firms that we have encountered have been successful in the transition process. However, we thought that you would be interested in a list of some of the more common issues that we have encountered, with a view to avoiding them, of course! OK, so here’s what we have observed… Directors’ remuneration disclosures. In ROI, including the directors’ remuneration information on the face of the profit and loss account does not mean it can be omitted from the abridged financial statements.  Section 353 of the Companies (Accounting) Act (‘2017 Act’) specifically requires this information to be included in the abridged financial statements filed with the CRO. Mixing and matching. Care should be taken when early adopting the ‘specified provision’ of the 2017 Act. For instance, we came across some ROI companies preparing statutory financial statements under the small companies regime but using the old abridging rules. Departure from FRS 102 or Company Law. This is expected to be rare and only to arise in very unusual circumstances.  We have seen instances where preparers departed from legislation or standards to account for relatively straightforward transactions and balances. Non-disclosure of critical accounting judgements and estimates. FRS 102, when applied in full, requires these to be disclosed in the notes to the financial statements.  Section 1A of FRS 102 encourages entities applying the small companies regime to disclose critical accounting judgements (but not estimates).  We have seen cases where these disclosures were omitted altogether, or where standard boilerplate wording was used, not reflecting the circumstances of the preparing entity. Connected entity or connected person loans. Under FRS 102, loans which are interest free or are low interest may be required to be classified as financing transactions and valued at the present value of future payments discounted at a market rate of interest if they are due after more than one year. This is a difficult area and some preparers have struggled to apply the accounting standard correctly. In some instances, a loan whose terms were undocumented was mistakenly treated as being due after more than one year. A loan whose terms are undocumented may be considered to be repayable on demand, notwithstanding the intentions of the parties to repay it over a longer period. The solution: if the loan is repayable on demand, then, unless there is an impairment issue, it should be carried at the original transaction price with no adjustment, and as an amount due in less than one year. In ROI, reference may also need to be made to the Evidential Provisions in Sections 236 and 237 of the Companies Act. See also the new concession applying to small entities for loans from persons who are within a director’s group of close family members (including the director), when that group contains at least one shareholder in the entity - for details, please see the Amendments to FRS 102 publication issued by FRC in December 2017 (this publication is also mentioned later in Technical Signpost). We hope that this article will prove useful in identifying issues. Naturally, it is not a comprehensive list in part because we have concentrated on errors which are completely new and particular to the new frameworks. The article has been written in general terms, and should be viewed as a pointer towards issues that may have been overlooked and should not be relied upon.

Feb 01, 2018
Financial Reporting

The FRC issues amendments to FRS 102 which includes those made to incorporate the new small entities and micro-entities regimes in the Republic of Ireland (the latter by amendments to FRS 105). The Financial Reporting Council (FRC) has completed a triennial review of FRS 102 and has published Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland - Triennial review 2017 - Incremental improvements and clarifications.  The amendments include those made to incorporate the new small entities and micro-entities regimes in the Republic of Ireland (the latter by amendments to FRS 105). These include, for example, the introduction of a new Appendix D to Section 1A in FRS 102 ‘Disclosure requirements for small entities in the Republic of Ireland’ and similarly a new Appendix B to Section 6 in FRS 105 ‘Company law disclosure requirements for micro-entities in the Republic of Ireland’. The amendments to incorporate the small entities and micro-entities regimes in the Republic of Ireland are effective for accounting periods beginning on or after 1 January 2017, with early application permitted provided the Companies (Accounting) Act 2017 is applied from the same date.  The FRC in announcing the completion of the triennial review and the issuing of the amendments document also confirmed the simplification of the measurement of directors’ loans to small entities, following the interim relief granted earlier this year and note the other principle amendments to FRS 102:  require fewer intangible assets to be separated from goodwill in a business combination; permit investment property rented to another group entity to be measured by reference to cost, rather than fair value; expand the circumstances in which a financial instrument may be measured at amortised cost, rather than fair value; and simplify the definition of a financial institution. In general these amendments are effective for accounting periods beginning on or after 1 January 2019, with early application available.  Read the full press release and access the amendments document here.  

Dec 15, 2017
Professional Standards

The Professional Standards Department (PSD) Quality Assurance Team has recently compiled a list of common matters arising on audit and investment business inspection visits, which are set out below. Please note that, where PSD returns to firms that have had a relatively recent visit, it conducts follow-up procedures to ensure that the firm has taken action to address matters raised at the previous visit. Audit Inspections Financial  Reporting Firms need to perform audit procedures to evaluate whether the overall presentation of the financial statements, including the related disclosures, is in accordance with the applicable financial reporting framework which, in recent years, has been substantially changed by the introduction of FRS 100-105 and amendments to company law. PSD found that, for the most part, firms had adequately addressed the requirements of FRS 102 and, in RoI, the Companies Act 2014 (‘CA 2014’) through the use of checklists. However, non-application of FRS 102 by audit clients was sometimes not identified. Firms should ensure that their audit procedures to assess the appropriateness and completeness of disclosures are up to date for the relevant financial reporting regimes. Certain common omissions were identified: Statement of Changes in Equity or Statement of Cash Flows, where relevant; Significant judgements and key sources of estimation uncertainty in relation to amounts recognised in the financial statements (FRS 102 s8.6-8.7); Where relevant, material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern (FRS 102 s3.8-3.9); The measurement basis (or bases) used for financial instruments and the other accounting policies used for financial instruments that are relevant to an understanding of the financial statements (FRS 102 s11.40); Disclosures relating to creditors required by CA 2014 Schedule 3, such as terms of payment/repayment and the rate of any interest payable on debts. (N.B.The specific FRS 102-related matters noted above relate to financial statements prepared in accordance with the full requirements of FRS 102 and may not be relevant to financial statements where the small/micro companies regime is applied.) International Education Standard (IES) 8 (Revised) IES 8 Professional Competence for Engagement Partners Responsible for Audits of Financial Statements (Revised) was issued by the International Accounting Education Standards Board (IAESB) in December 2014 and is effective from 1 July 2016. Its objective is to establish the professional competence that professional accountants develop and maintain when performing the role of an Engagement Partner. During an audit monitoring visit, the inspector will make enquiries to assess whether a firm is familiar with IES 8 (Revised), including consideration of the learning outcomes which are listed in Table A to the Standard. Firms can obtain a copy of IES 8 (Revised) at: http://www.ifac.org/system/files/publications/files/IAESB-IES-8.pdf Investment Business inspections Investment Business (IB) inspections carried out by PSD over the last few years had focused on firms holding IB1/IB2 authorisation. However, PSD is now conducting an increased number of IB inspections to firms holding all levels of IB authorisation, including a sample of firms holding IA1/IA2 authorisation. Firms should be mindful of, and ensure they address, the following  matters Investment business procedures (IBR 2.56) All authorised firms are required to establish and maintain adequate written investment business procedures. These should include managing conflicts of interest, maintaining ‘Chinese Walls’ and the consequences of breaching them, along with the handling of errors and complaints. A firm must adequately train its principals carrying on investment business and its employees using these procedures. Training (IBR 2.60) Authorised firms must make arrangements to ensure that principals and employees involved in investment business maintain an appropriate level of competence and comply with Institute CPD requirements. Firms authorised in Category IA2 and above must make arrangements to ensure compliance with the Central Bank Minimum Competency Code, which has recently been updated. A copy of the Code can be obtained on the Central Bank of Ireland’s website. Investment Business Compliance Review (IBR 2.58) An authorised firm must carry out an Investment Business Compliance Review (IBCR) at least annually. PSD found that, for some firms, an annual IBCR had not been carried out, or did not include a whole firm review, a review of accounting records and a sample of client files. Some IBCRs did not identify different types of IB advice provided by the firm or non-compliance with the IBRs. Corrective action was not always taken in a timely manner. Engagement letters (IBR 3.19-3.20) PSD found that some firms did not have an engagement letter in place, or the letter had not been agreed with the client prior to investment business advice being provided, as required by IBR 3.19 or did not include the minimum details required by IBR 3.20. Commission consent and disclosure (IBR 3.30-3.32) If a firm receives commission it must account to the client for that commission, and both the terms (%) of the commission and the amount (€/£) must be disclosed. In cases where the firm retains the commission, it must have the client’s written consent to do so. Consent to retain commission can be obtained in the client engagement letter. The Quality Assurance Committee views non-compliance with commission consent and disclosure requirements very seriously. Section 30 receipts (IBR 4.44-4.46) Firms must issue receipts when they receive client premiums or investment business clients’ money. Details of what must be included on the receipt are specified in IBR 4.45. Other matters Firms should ensure that they are aware of their category of IB authorisation and the limits of that category. Category IA2 is required to hold client premiums; Category IB2 is required to hold investment business clients’ money; and If handling or holding client premiums or investment business clients’ money, the firm must appoint an independent accountant and submit an independent accountant’s report to the Institute. Carrying on investment business, when not authorised to do so, is an offence under the Act. Firms may wish to review their category of investment business authorisation and assess whether it is suitable for their needs. Firms should refer to Schedule 1 to Chapter 1 of the IBRs for activities which may be undertaken under the various categories. For further details on the above matters, please look out for PSD’s forthcoming Regulatory Bulletin. For advice or support on the above matters, firms may contact, in strict confidence, the Practice Consulting Team, which is independent of the Professional Standards Department.

Oct 01, 2017
Financial Reporting

The International Public Sector Accounting Standards Board ('IPSASB') has issued a consultation paper seeking constituent views on potential recognition and measurement approaches for revenue and non-exchange expenses. Conceptually robust and understandable accounting treatments of taxes, transfers and other major sources of public sector income as well as expenses on universally accessible and collective services are fundamental to high-quality financial reporting. The publication of IFRS 15, Revenue from Contracts with Customers, by the International Accounting Standards Board, has provided the IPSASB with an impetus to consider its approaches both to commercial transactions and public sector specific transactions. Further details can be found here. 

Aug 24, 2017
Financial Reporting

The IFRS Foun­da­tion has announced a Middle East IFRS con­fer­ence in Dubai on Wednesday 4 and Thursday 5 October 2017.  In addition to updates on major IFRSs (IFRS 17, IFRS 9, IFRS 15, IFRS 16), better com­mu­ni­ca­tion in financial reporting, and ma­te­ri­al­ity, the con­fer­ence will also feature a panel dis­cus­sion on Islamic accounting. Please click here for further details.

Aug 24, 2017
Financial Reporting

The Financial Reporting Council’s (FRC) consultation on amendments to its Guidance on the Strategic Report, recently published, encourages businesses to consider the interests of stakeholders.  These proposals reflect the FRC’s desire to improve the effectiveness of section 172 of the Companies Act 2006. The publication and further details can be found here.  

Aug 16, 2017
Financial Reporting

In the audit regulator’s second annual Developments in Audit report recently issued, the Financial Reporting Council (FRC) sets out evidence from its own and delegated audit quality reviews, thematic reviews and from audit committee and investor feedback.  Leadership of audit firms’ focus on, and investment in, improving audit quality, together with promoting a culture of continuous improvement, is beginning to pay off, particularly for audits of larger companies where the FRC has targeted improvement.

Aug 03, 2017
Financial Reporting

The IFRS Foun­da­tion has published a report with findings of a rep­u­ta­tion research study conducted between February and May 2017. The objective of the study was to learn about the perceived per­for­mance of the Foun­da­tion as regards rep­u­ta­tion at­trib­utes and whether it is felt that the Foun­da­tion meets its public interest mission and delivers on its ob­jec­tives. The report can be read in full here.

Aug 03, 2017
Financial Reporting

A paper entitled ‘The auditors’ response to the risks of material misstatement posted by estimates of expected credit losses under IFRS 9’ has been issued by the Global Public Policy Committee (a group which focuses on public policy issues for the profession and comprises representatives of the six largest accounting networks).  The paper notes that introduction of new requirements for the accounting of expected credit losses in IFRS 9 Financial Instruments will be a significant change to the financial reporting of banks when required in 2018.

Aug 03, 2017