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

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
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

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