Audit and Assurance news

Chartered Accountants Ireland has responded to the IAASB consultation on the Proposed Part 10, Audits of Group Financial Statements of The Proposed ISA For Audits of Financial Statements of Less Complex Entities (ISA for LCE).  The initial proposed ISA for LCE (in 2022) excluded all groups from the scope of the standard, the proposed changes would include some groups, a move we welcome in our response. The IAASB envisions approving a final standard in December 2023. Institute responses to recent consultations can be read here.

The Law Society has published new Solicitors Accounts Regulations which come into operation on 1 July 2023 replacing the current regulations issued in 2014. The key impacts on the reporting accountants are:  Reporting accountant’s reports are to be filed within five months of the accounting date. Reporting accountant to test check postings before and after accounting date. Reporting accountants to test check that withdrawals of fees are notified to the clients. Reporting accountants may report, directly to the Law Society, an opinion or a suspicion of a deficit, rather than waiting to submit annual report. Closing reporting accountant’s reports are to be filed within three months of cessation. Reasons are to be provided for withdrawal of approval of a Reporting accountant. A listing of client ledger balances outstanding two years or more is to be prepared at the accounting date and furnished to the Law Society by the Reporting Accountant. For further information on the significant changes that impact on solicitors see the Law Society webpage.  The new regulations can be accessed here  Further information and updated guidance will be published by Chartered Accountants Ireland in due course. 

The Financial Reporting Council (FRC) has published a new Audit Firm Governance Code for the Big Four audit firms and firms that audit FTSE-350 companies and significant numbers of public interest entities (PIEs).   The new Code is a result of the findings of a monitoring programme undertaken by the FRC which identified scope to further strengthen its oversight and governance and to align the provisions of the Code with Operational Separation for the Big Four firms.   It separates the roles of the board chair and senior partner/chief executive, clarifies the role played by partnership boards in holding management to account and introduces criteria for board composition, reinforcing the position of independent non-executives within audit firms. For the largest audit firms, it sets out a clearer distinction between the role of Independent Non-Executives (INEs) and Audit Non-Executives (ANEs). The new Code also more closely aligns with the UK Corporate Governance Code, emphasising the importance of long-term sustainability, culture and employee engagement.

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.