The Financial Reporting Council (FRC) has published anonymised key findings and good practices reported by its Audit Quality Review (AQR) team in relation to their 2020/21 audit quality inspections at the seven largest audit firms. https://frc.org.uk/news/may-2022-(1)/frc-publishes-inspection-key-findings-and-good-(1)

As part of the public consultation on proposed amendments to its fraud standard (ISA 240) the International Auditing and Assurance Standards Board (IAASB) has published a new four-part video series. The series will help stakeholders understand the proposed changes that strengthen auditor’s responsibilities related to fraud, and the rationale behind them. The proposed changes to ISA 240, published in February 2024,  significantly strengthen auditors’ responsibilities relating to fraud and the IAASB askes stakeholders to respond by June 5, 2024.

Chartered Accountants Ireland have responded to the consultation by IAASA on the adoption of a sustainability assurance standard in Ireland.    We believe that ISAE 3000 should be adopted for use for sustainability assurance reporting in Ireland as soon as is practical and that it remains in place until an EU standard is adopted. The first wave of reports will be required in early 2025 therefore it is imperative that a decision is taken quickly. We responded to the IAASB consultation on the proposed new standard ISSA 5000 in December 2023.  We are supportive of the development of this new assurance standard but the timeline for the finalisation and adoption of this standard in the EU means that an interim solution is needed for reporting.  

IAASA has issued a revised version of ISA (Ireland) 505 – External Confirmations. The main changes to the standard relate to: Clarification on what constitutes an electronic external confirmation. Prohibition on the use of negative external confirmations. Strengthened link with ISA (Ireland) 330 The Auditor’s Responses to Assessed Risks. Enhanced requirements concerning the investigation of exceptions. The revised standard is effective for audits of financial statements for periods beginning on or after 15 December 2024, with early adoption permitted. The revised ISA (Ireland) 505 is available here.

Background The Department of Children, Equality, Disability, Integration and Youth (the Department) has recently issued a document1 “Guidance Note for Core Funding Reporting Requirements Transitional Arrangements Year 1 and 2” (“the Department Guidance Note”) to entities providing childcare and early education services regarding the transitional arrangements for the application for funding under a new funding model called ‘Together for Better’.  These transitional arrangements will be in place for the next two reporting periods (years ended 31 August 2023 and 31 August 2024). Reporting regime This reporting regime includes a requirement that the childcare service providers (“client”) engage a professional accountant to submit a document called an ‘Income and Expenditure Template. CCAB-I have made the Department aware of the potential cost implications for an accountant providing this service to their client.  The following matters should be noted: The report is to cover expenses incurred on a cash basis for the year ended 31 August. The requirement is for expenditure incurred in the relevant period only, no accruals or prepayments. Income will be pre-populated in the online platform. Where your client has a different year end, time apportionment is not permitted. Important considerations for CCAB-I members CCAB-I has engaged with the Department over a number of months to discuss the nature and extent of work expected and the respective responsibilities of the client and the professional accountant and, in particular, the concerns regarding the request for the professional accountant to submit the report (as set out in the Department Guidance Note) on behalf of a client. There was positive engagement and much, but not all, of the feedback by CCAB-I on the process was reflected and incorporated into the final guidance. However, given the type of engagement, CCAB-I are making members aware of the potential issues and extant guidance which our members may consult. The Department Guidance Note sets out the responsibility for the data included in the report. See section 2 of the Guidance Note: “The Service Provider is responsible for fully complying with all financial transparency requirements in accordance with their Core Funding contractual obligations. The accountant relies on information provided by the Service Provider, who is responsible for disclosing all relevant information.” The Service Provider/client will make an online declaration on the platform provided by the Department that they have authorised a professional accountant2 to make the submission for them.  CCAB-I members are reminded of the relevant Code of Ethics issued by their professional body.  Independence The Department Guidance Note3 defines an accountant as someone who: "(a) has been admitted as, and is, a member of a prescriber accountancy body, (b) is currently practicing in the profession of accountant, (c) is not and never has been a principal officer or employee, or an owner or part owner, of the licensee in respect of whom he or she is preparing an accountant’s report, and (d) is maintaining such minimum level of professional indemnity insurance as is required by the prescribed accountancy body concerned." .Members should be cognisant of any conflicts with other engagements they may undertake for their clients.  When you are the Auditor  Where the accountant is the statutory auditor the Ethical Standard for Auditors (Ireland)4 applies and Section 5.129 prohibits the audit firm providing accounting services where the services would involve the firm undertaking part of the role of management or initiating transactions.  "S 1.24           In the case of a statutory audit, non-audit services shall not be provided that involve playing any part in management decision-taking of an entity relevant to an engagement. The firm shall not accept any engagement which includes the provision of services where it is probable that an objective, reasonable and informed third party would conclude that the firm or a covered person was playing a part in management decision-taking.  5.128          The provision of accounting services by the firm to an entity relevant to an engagement creates threats to the integrity, objectivity and independence of the firm and covered persons, principally self-review and management threats, the significance of which depends on the nature and extent of the accounting services in question and the level of public interest in the entity. 5.129            The firm shall not provide accounting services to an entity relevant to an engagement where: (a) the entity is a listed entity, relevant to an engagement by the firm, or a significant affiliate of such an entity; or (b) for any other entity: those accounting services would involve the firm undertaking part of the role of management, or initiating transactions; or the services are anything other than of a routine or mechanical nature, requiring little or no professional judgment.” When you are not the Auditor We recommend that members read the Department Guidance Note1 and that an appropriate letter of engagement and representation letter are in place where they undertake these engagements.  Members should refer to guidance documents issued by Chartered Accountants Ireland.  TA 06/2023 Grant Claims5 and the International Standard on Related Service ISRS 4400 (Revised) Agreed-Upon Procedures Engagements6 which give guidance on engagement acceptance and continuance and some general advice on agreeing the terms of engagement.  1 https://earlyyearshive.ncs.gov.ie/downloads/download-corefunding/   2 A professional accountant is defined as a member of a Prescribed Accountancy Body that comes within the supervisory remit of IAASA, •              Chartered Accountants Ireland. (CAI) •              Association of Chartered Certified Accountants (ACCA) •              CPA Ireland (CPA) •              Chartered Institute of Management Accountants (CIMA)  3 See Section of Guidance Note for Core Funding Reporting Requirements Transitional Arrangements Year 1 and 2. 4 https://iaasa.ie/wp-content/uploads/docs/media/IAASA/Documents/audit-standards/Ethical-Standard-Consultation/Ethical_Standard_Nov_2020_updated_June_3.pdf 5 https://www.charteredaccountants.ie/chariot/account/ta/TA06_2023.html 6 https://www.iaasb.org/publications/international-standard-related-services-isrs-4400-revised  

Earlier this year the FRC published an update to its Ethical Standard for auditors, effective from 15 December 2024. The updated ethical standard simplifies the existing ethical standard and provided additional clarity in a limited number of areas. the new standard takes into account recent revisions made to the international IESBA Code of Ethics. there is a new targeted restriction on fees from entities related by a single controlling party. Following feedback to their consultation, the FRC have amended the proposals to ensure that the requirements in the standard are better targeted and proportionate. For example, additional requirements in respect of ethical breach reporting by audit firms to the regulator have been removed. With regard to tax services provided to the controlling shareholders of unlisted companies the FRC is enhancing the independence risk assessment around these services rather than specifically prohibiting them. Alongside the revised Ethical Standard, the FRC has also released guidance for auditors on the application of the Objective, Reasonable and Informed Third Party test, which forms a key part of many requirements in the Ethical Standard. Read the updated Ethical Standard. Read the feedback statement and impact statement. CAI responded to the FRC consultation and you can read our response here.  

Updated 28 February 2022 to include the response from chartered Accountants Ireland.  Corporate reporting by listed companies is the bedrock of capital markets as it gives investors the essential information they need to make sound investment decisions such as information about the financial situation of companies. Moreover, it enables stakeholders to hold companies accountable on, for instance, sustainability issues. The quality and reliability of public reporting by listed companies rely on three main mutually reinforcing pillars: (i) corporate governance in these companies; (ii) statutory audit; and (iii) supervision and enforcement by public authorities. Several recent failures of companies in Europe (e.g. Wirecard, Carillion) suggest that the three pillars that underpin the quality and reliability of corporate reporting by listed companies have not fully played their intended role. European Commission has initiated a broad review on the three core pillars of corporate reporting for large companies. This review will directly feed into an impact assessment that the Commission will prepare in 2022 with a view to: assessing problems with the quality of corporate reporting; and comparing possible options to remedy these problems. Five-part consultation The consultation is divided into five parts seeking views about the overall impact of the existing EU framework for the three pillars of high-quality and reliable corporate reporting: corporate governance, statutory audit and supervision. It also seeks views about the interaction between the three pillars: The first part seeks views about the overall impact of the EU framework on the three pillars of high quality and reliable corporate reporting - corporate governance, statutory audit and supervision. It also seeks views about the interaction between the three pillars. The second part of the questionnaire focuses on the corporate governance pillar, as far as relevant for corporate reporting. It aims to get your feedback in particular on the functioning of company boards, audit committees and your views on how to improve their functioning. The third part focuses on the statutory audit pillar. The first questions in this part aim at getting views on the effectiveness, efficiency and coherence of the EU audit framework. It focuses in particular on the changes brought by the 2014 audit reform. Subsequently, the questions aim to seek views on how to improve the functioning of statutory audit. The fourth part asks questions about the supervision of PIE statutory auditors and audit firms. Finally, the consultation will ask questions about the supervision of corporate reporting and how to improve it This consultation, which runs until 4 February 2022, will directly feed into an impact assessment that the Commission will prepare in 2022 with a view to possibly amend and strengthen the current EU rules. What the Institute is doing A working party from the Institute's committees will be reviewing the consultation, debating the issues and submitting a consultation.  We welcome comments from members interested in the project. Please send any comments to us via email. UPDATE: You can read the Institute's response here.  The three pillars of corporate reporting Corporate governance The consultation questionnaire seeks feedback on the effectiveness, efficiency and coherence of key features of the EU corporate governance framework relevant to corporate reporting. These include board responsibilities for reporting; internal control, fraud prevention obligation to establish an audit committee. Statutory audit The bulk of the consultation document is centred on audit, in particular the impact of the changes brought about by the 2014 EU audit reform package, focused on public interest entities (PIEs). The Commission’s last market monitoring report issued earlier this year had already revealed a number of deficiencies with audit quality (based also on inspection reports) and divergent use of the country options allowed under EU audit rules. General questions are raised on independence, firm rotation, the content of the audit and audit reporting, the provision of non-audit services, transparency rules and the internal governance of firms. Specific questions also ask for feedback on whether joint audits for PIEs should be incentivised or mandated; whether caps on auditor liability should be increased or removed; and whether a passporting system should be established to ease the cross-border provision of audit services.  Supervision Reflecting a number of concerns with the supervision of corporate reporting – the third pillar of the consultation document – feedback is also sought on deficiencies in the EU’s supervisory framework. These address the roles and responsibilities of national authorities, the exchange of information between authorities, the need for greater enforcement powers, as well as the role of the European Securities and Markets Authority. Background High quality and reliable corporate reporting are of key importance for healthy financial markets, business investment and economic growth. The EU corporate reporting framework should ensure that companies publish the right quantity and quality of relevant information allowing investors and other interested stakeholders to assess the company’s performance and governance and to take decisions based on it. High quality reporting is also indispensable for cross-border investments and the development of the capital markets union. In the context of this consultation, corporate reporting comprises the financial statements of companies, their management report that includes the non-financial and corporate governance statements, and sustainability information pursuant to the proposed Corporate Sustainability Reporting Directive. The consultation takes into account the outcomes of the 2018 consultation on the EU framework for public reporting by companies and the 2021 Fitness Check on the EU framework for public reporting by companies. This current consultation focuses on companies listed on EU regulated markets that is a subset of the companies subject to public reporting requirements under EU law. Find out more Commission consultation page and questionnaire ESMA letter to Ms Mairead McGuinness Commissioner in charge of Financial services, financial stability, and Capital Markets Union following Wirecard: Microsoft Word - ESMA32-51-818 Letter to EC on next steps following Wirecard (europa.eu) The European Commission’s second audit market monitoring report which takes stock of changes to the European audit market several years after the implementation of the 2014 audit reform package.

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.