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

This page was last updated on: 4 June 2020 Companies and their advisors will need to consider how the spread of coronavirus will affect their business and how these effects should be reported in their financial statements and directors report. The extent of the risk arising and the impact it may have will vary depending on the company’s specific circumstances and exposure. The company’s year-end date, and the information available from the rapidly evolving situation will also affect how the impact will be reported in the financial statements. Over recent months, much has been issued in terms of advice from regulators, and commentary, regarding various financial reporting considerations related to the spread of coronavirus.  We have assembled below some information that we have come across that may be of assistance to members. Commentary should not be taken as advice or as a comprehensive analysis of all aspects. This is a rapidly evolving situation. When reading information at the links below, due care should be taken of the date of issue and any developments in the interim that may not be reflected in the material published, such as updated statements from regulators etc. There is also a need to be cognisant of the accounting framework being applied by an entity (e.g. FRS 102, IFRS etc.), and the jurisdiction, in considering the relevance of any of the information below. From the accounting standard setters/regulators: When they announced a series of actions with the FCA and PRA on 26 March 2020, the FRC published guidance for companies (‘Company Guidance Update March 2020 (COVID-19)’) (26 March 2020) preparing financial statements during the current Covid-19 crisis (followed by a short ‘Covid 19 update’ on 14 April 2020). This March guidance, in which the FRC highlights some key areas of focus for boards in maintaining strong corporate governance and provides high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting, was subsequently updated, with additional notes on interim reporting (‘Company Guidance (Updated May 2020) (COVID-19)') (12 May 2020), and additional company guidance on reporting of exceptional items and APMs (‘Company Guidance (Updated 20 May 2020) (COVID-19)’) (20 May 2020). Previously too, the FRC had issued advice for companies and auditors on disclosure of risks and other reporting consequences arising from the emergence and spread of COVID-19 (18 February 2020). IAASA has published news articles noting the issuing of: the ESMA public statement addressing the implications of the COVID-19 pandemic on the half-yearly financial reports of listed issuers (20 May 2020); the ESMA Q&A on the application of the ESMA Guidelines on Alternative Performance Measures in the context of the COVID-19 pandemic (17 April 2020); the ESMA public statement (27 March 2020) promoting co-ordinated action by National Competent Authorities regarding issuers’ obligations to publish periodic information for reporting periods ending on or after 31 December 2019 in the context of the COVID-19 outbreak; the ESMA public statement (25 March 2020) on the financial reporting implications of the COVID-19 outbreak on the calculation of expected credit losses in accordance with IFRS 9 Financial Instruments; and an earlier ESMA public statement addressing actions that market participants have to take in relation to the COVID-19 outbreak in order to preserve investor protection, the integrity of markets and financial stability (12 March 2020). The IASB has published a document ‘IFRS 16 and covid-19’ (10 April 2020) responding to questions regarding the application of IFRS 16 Leases to rent concessions granted as a result of the covid-19 pandemic. The IASB note that the document is prepared for educational purposes, highlighting requirements within IFRS 16 and other IFRS Standards that are relevant for companies considering how to account for rent concessions granted as a result of the covid-19 pandemic. Further, the IASB proposed amending IFRS 16 Leases to make it easier for lessees to account for covid-19-related rent concessions such as rent holidays and temporary rent reductions, and, following a consultation process, has issued ‘Covid-19-Related Rent Concessions’, amending IFRS 16 (28 May 2020). EFRAG has submitted its Endorsement Advice relating to the Amendment for use in the European Union and European Economic Area, to the European Commission, recommending its endorsement (3 June 2020). The IASB has also published ‘IFRS 9 and covid-19’ (27 March 2020), responding to questions regarding the application of IFRS 9 Financial Instruments during this period of enhanced economic uncertainty arising from the covid-19 pandemic. Again, the IASB note that the document is prepared for educational purposes, highlighting requirements within the Standard that are relevant for companies considering how the pandemic affects their accounting for expected credit losses (ECL). The IASB has reconsidered and extended the timelines on some of its projects. Find out more here. From professional bodies: The Institute Advocacy and Voice Team’s article ‘Going Concern considerations for members preparing or auditing financial statements in the context of COVID-19' (23 April 2020), may assist members that are preparing and auditing financial statements and serve as a reminder of some of the requirements around going concern from an accounting and auditing perspective. The Institute’s Practice Consulting Team held a webinar to assist members in practice (24 March 2020) on ‘Accounting Issues Arising from the COVID-19 Outbreak’, and the link is available here. ICAS and ICAEW have jointly published guidance for owners and directors of SMEs to assess the prospects of their business in the wake of COVID-19 (‘COVID-19 and going concern – Guidance for directors of SME Businesses’ (19 May 2020)). ICAEW’s guide, ‘The financial reporting implications of coronavirus under UK GAAP’ (9 March 2020), is aimed primarily at entities preparing financial statements in accordance with FRS 102. ICAS’s article ‘Coronavirus and its impact on financial reporting’ (18 March 2020) summarises some of the areas to be considered by entities when producing their financial statements in this uncertain period, referring to both FRS 102 and IFRS. Material from some of our member firms or their international networks: Several of the Institute’s member firms have produced material on the financial reporting implications of Coronavirus. The following is a selection: Deloitte’s ‘Need to know — Accounting considerations related to the Coronavirus 2019 disease’ (updated 5 May 2020) discusses accounting considerations related to the Coronavirus 2019 disease for IFRS and FRS 101 reporters, and a series of webcasts discusses certain key IFRS accounting considerations related to conditions that may result from the pandemic. Their short article ‘COVID 19 – The New Normal’ (Financial Reporting Brief April 2020) offers some insight into how this challenge impacts on financial reporting and the article ‘Covid-19 – The Epic Battle Continues’ (Financial Reporting Brief May 2020) continues to look at the accounting considerations that have been magnified by Covid-19. EY's ‘Responding to Covid-19’ resource centre includes material looking at ‘IFRS accounting considerations of the COVID-19 outbreak’ (24 March 2020), with links to two publications, ‘Applying IFRS - IFRS accounting considerations of the Coronavirus outbreak – February 2020’ (which highlights considerations when preparing IFRS financial statements for the year ended 31 December 2019), and ‘Applying IFRS - Accounting considerations of the coronavirus outbreak - Updated March 2020 (highlighting accounting considerations for the financial effects of the coronavirus outbreak when preparing IFRS financial statements for annual or interim reporting periods ending in 2020). EY have also issued an update to their publication ‘Applying IFRS - Accounting considerations for the coronavirus outbreak – Updated April 2020’ (27 April 2020). Grant Thornton's article ‘COVID-19: Financial Reporting and Disclosures – Assessing the financial impact and required disclosures’ (7 April 2020) looks at some key IFRS financial reporting areas that entities need to consider when determining the impact on their business, and on the results, financial position and disclosures in their financial statements. KPMG’s Resource centre on the financial reporting impacts of coronavirus includes FAQs on potentially significant accounting and disclosure implications for companies, for example, ‘How should companies assess COVID-19 events after the reporting date?' (31 March 2020). This resource centre focuses on IFRS standards and the potential financial reporting impacts for 2020 period ends. PWC’s ‘COVID-19: Financial reporting implications of the coronavirus’ (9 April 2020) looks at some key considerations across IFRS and UK and Ireland GAAP for Irish companies dealing with the impact of COVID-19 on their financial reporting, while ‘COVID-19: The impact on impairment calculations’ (3 June 2020) gives some considerations for impairment calculations under IAS 36 and FRS 102. Their IFRS based ‘Accounting implications of the effects of coronavirus: PwC In depth’ (3 April 2020 and various dates up to 3 June 2020) considers the impact on financial statements for periods ending after 31 December 2019 of entities whose business is affected by the virus and illustrative examples demonstrate the practical application of the principles of this guidance. An ‘Accounting implications of coronavirus: PwC In brief’  (February 2020) looks at the accounting implications of the coronavirus for December 2019 year ends in the context of IAS 10, ‘Events after the reporting period’. Other related information ICAS, ICAEW and PRAG have published joint guidance on pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic (2 June 2020). The FCA, FRC and PRA have announced a series of actions (26 March 2020) to ensure that information continues to flow to investors and to support the continued functioning of the UK’s capital markets. The Charities SORP-making body has published guidance for trustees and preparers of charity accounts looking at the potential impact of the control measures to contain COVID-19 on financial reporting by charities (‘Implications of COVID-19 control measures and charity financial reporting’) (23 March 2020). The guidance considers the implications for the trustees’ annual report, going concern and the alternative basis to going concern when preparing accounts under the SORP. For UK pensions: ICAS and ICAEW have prepared an article ‘Relevant accounts for section 179 valuations due by 31 March 2020’ (30 March 2020) to assist both pension trustees and auditors to meet their responsibilities. In their podcast ‘In conversation with ... Jen Sisson’ (6 May 2020) the FRC’s Deputy Director of Investor and Stakeholder Engagement discusses how the FRC's engagement is influencing its guidance for companies, investors and auditors during the Covid-19 pandemic. Chartered Accountants Ireland can accept no responsibility for the content on any site that is linked to from the Institute website. Links are provided in good faith for the potential support of members and students.

Mar 27, 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
Financial Reporting

Chartered Accountants Ireland has warned its members not to be complacent about a Brexit political settlement that might not materialise before 29 March 2019.   In a joint statement, the Chairs of Chartered Accountants Ulster Society and the Chartered Accountants Ireland London Society said that there is no hard evidence that the Brexit Withdrawal Agreement, which would avoid a hard Brexit, will be agreed on 15 January at Westminster.   Both societies are advising businesses to prepare for a no-deal Brexit and for the reintroduction tariffs and quotas on imports and exports between the UK and the EU from the end of March.   The Chartered Accountancy bodies also state that they have particular concerns regarding the readiness of the SME sector to deal with these challenges.   Niall Harkin, Chairman of Chartered Accountants Ulster Society said: “Generally, aside from the agribusiness sectors, it is not the amount of customs duties to be reintroduced that will pose problems for businesses in the UK and NI in particular.    “Rather it is the disruption which will be caused by customs checking at the borders with the EU and the increased administration that this will bring.  Furthermore, many businesses will encounter a new up-front VAT charge on imported goods which will impact on cash flow.”   Gerry Nicholas, Chairman of Chartered Accountants Ireland London Society said: “Chartered Accountants, as business leaders and financial planners and managers, will be at the forefront of dealing with any new trading obligations post Brexit.  We must ensure that businesses will meet any new legal requirements that emerge.   “We are recommending that as a minimum first step, cross-border trading businesses ensure that their business has applied for a UK EORI number required to continue to trade within the EU after 29 March.”   The UK government has released a Partnership pack which covers information on how to prepare for changes at the UK border in the event of a no deal Brexit.  The guide addresses future cross-border trading activity and highlights steps which can be taken to prepare for Brexit.  Chartered Accountants Ireland is publicising this guide.   Chartered Accountants Ireland has also prepared a written guide on how customs operate (and is designed particularly for traders who are dealing with customs for the first time) in conjunction with the Institute of Chartered Accountants in England and Wales (ICAEW) and a free copy is available at www.charteredaccountants.ie.   In terms of financial services, there are definitive reports of firm’s relocating from the UK to Ireland. We would urge such firms to continue with contingency planning with customers and investors in mind.  Chartered Accountants Ireland is also engaging with the relevant regulatory bodies, the FRC and IAASA, to ensure continued cross-border recognition of its members’ qualification and auditing rights across the island of Ireland after Brexit.   UK businesses can apply for an EORI number online at https://www.gov.uk/eori. 

Jan 09, 2019
Audit

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”. 

Dec 21, 2018
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

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