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PCAOB report on auditors' responsibilities for fraud detection

23 Jan 2007

The US Public Company Accounting Oversight Board (PCAOB) has published a report of its Observations on Auditors' Implementation of PCAOB Standards Relating to Auditors' Responsibilities with Respect to Fraud.

Based on the findings of PCAOB inspections of audit firms, the report discusses aspects of procedures relevant to an auditor's consideration of fraud. The discussion is organised around the following topics:
  • Auditor's Overall Approach to the Detection of Financial Fraud
  • Brainstorming Sessions and Fraud-Related Inquiries
  • Auditor's Response to Fraud Risk Factors
  • Financial Statement Misstatements
  • Risk of Management Override of Controls
  • Other Areas to Improve Fraud Detection
Click for Full Report (PDF 82k).

IASCF trustees meet in Tokyo 18-19 January 2007

23 Jan 2007

The trustees of the International Accounting Standards Committee Foundation met on Thursday and Friday, 18 and 19 January 2007, in Tokyo.

A portion of the meeting on 18 January was open to public observation:

Summary of Discussion

Public Portion of IASCF Meeting, 18 January 2007

  • Financial Statement Presentation. IASB representatives explained that improvement of financial statement presentation is being done in three phases. The exposure draft of Phase A was released in March 2006, and a final standard will be issued in the second quarter in 2007. The exposure draft of Phase A allows either a single-statement approach or two-statement approach for reporting results of operations. Representatives of IASB noted that, under the two-statement approach, determining which items of income and expense should be excluded from determination of net income is arbitrary, and sometimes net income has been manipulated by financial statement preparers. Therefore, the Board would like to move to a single statement of comprehensive income and eliminate the two-statement approach – even though the two-statement approach is widely supported by industry. Some IASCF members expressed the view that both preparers and users of the financial statements are still much concerned about net income. The IASCF members advised that IASB needs to make another field survey before they reach the final conclusion to eliminate the two-statements approach and move to a single statement of comprehensive income. Representatives of IASB agreed with them.
  • Conceptual Framework. Representatives of IASB confirmed that the Conceptual Framework is intended as a guide not only for the IASB in setting standards but also for preparers and users to assist them in practice how to follow the theory where no specific accounting pronouncement addresses a situation.
  • Insurance. This project is now in Phase II, for which a Discussion Paper is expected in first quarter 2007. The key issue is how best to measure future cash inflows and outflows for the purpose of recognising insurance income and insurance liabilities.

Over 1,000,000 e-learning downloads from IAS Plus

23 Jan 2007

On 22 January 2007, we achieved the milestone of one million downloads of Deloitte IFRS e-learning modules from IAS Plus.

Deloitte's IFRS e-learning was launched at the end of January 2004. Downloaders come from nearly 160 countries and include audit firms, accounting bodies, regulators, educational institutions, and many of the world's leading companies. In many cases, these organisations have chosen the Deloitte materials to be their primary source of IFRS learning. Many of the downloaded modules have multiple users because organisations are permitted to install them on their own servers for the internal use of their employees or students. In addition, millions of additional modules have been completed online and offline by Deloitte staff. You can always access IFRS e-learning without charge by clicking on the light bulb icon on the IAS Plus home page.

Update on the SEC and IFRSs

22 Jan 2007

John W White, the Director of the Division of Corporation Finance of the US Securities and Exchange Commission, spoke about "the Commission's role in the ongoing efforts to improve financial reporting through International Financial Reporting Standards (or IFRS) and the promotion of accounting convergence" at a conference last week in London.

His remarks also touched on the Commission's proposed rulemaking concerning deregistration by foreign private issuers and its efforts to improve the implementation of the internal control reporting requirements of the Sarbanes-Oxley Act of 2002 including for foreign private issuers. IFRS-related topics about which Mr White commented include:
  • Financial reporting in an increasingly global market
  • The role of Corporation Finance in the review of IFRS filings
  • Financial reporting with IFRS
  • Convergence of IFRS and US GAAP
  • The importance of cross-border regulatory conversations
Presented below is an excerpt from Mr White's comments concerning convergence of IFRSs and US GAAP. Click to Download Mr White's Speech  (PDF 77k).

Convergence of IFRS and US GAAP

Let me turn for a moment to convergence (and our roadmap). Last year was the first year for many companies to use IFRS. The SEC staff is necessarily also gaining more experience with IFRS, and enhancing our own understanding of the accounting standards. Right now, foreign private issuers must reconcile their financial statements to US GAAP if those statements use IFRS (or another home country GAAP) in the first instance. Many of us would like to see an end to that reconciliation requirement for IFRS filings, and we have a project plan to consider that possibility by 2009. Expanded use of IFRS and the SEC staff's review of those filings (which I have been describing) is an important step in our roadmap for the end of reconciliation. The continuing convergence efforts of the Financial Accounting Standards Board in the US and the IASB are also an important step in that roadmap. It is not an important step, in fact not a step at all, that IFRS be exactly the same as US GAAP. Nor is it part of the SEC staff's roadmap that we become the arbiter of IFRS. As our comments to and correspondence with foreign private issuers that adopted IFRS for the first time last year become available on the SEC website, I encourage you to look directly at those comments and put them to the test. I believe you will see that they reflect this same mindset that I have been sharing with you today.

The SEC staff roadmap laid out a path for a possible end to reconciliation by 2009, and the staff continues to follow that roadmap and to undertake the steps it had contemplated. It's too early now to tell where it will end, but our commitment to doing our part remains as strong as ever. Part of that involves understanding the application of IFRS and understanding the effects of IFRS on investors and the U.S. markets. We are actively engaged in seeking and analyzing the information we need and that is a key project for us in 2007. We are also considering other avenues for gathering information, beyond the reviews I have described, and we may have more to say on that in coming months.

IFAC president speaks on the global profession

21 Jan 2007

Fermin del Valle, President of the International Federation of Accountants and a partner in Deloitte & Touche (Argentina) presented the keynote address at the recent International Conference on the Role of the Profession in the New Milieu, sponsored by the Institute of Chartered Accountants of India (ICAI) in Chennai, India.

Mr. Del Valle's remarks were titled A Strong International Profession to Better Serve the International Marketplace. Click for the full text of Mr Del Valle's Remarks (PDF 30k). Here is an excerpt:

The IFAC Member Body Compliance Program, in which the ICAI is an active participant, is directly related to IFAC's goal of achieving convergence. This program supports the development of high quality auditing, accounting, ethical, educational and related quality assurance and disciplinary standards in IFAC member bodies throughout the world. The program is intended to guide accounting institutes in the full spectrum of their professional responsibilities, to demonstrate a shared commitment to our profession's values of integrity, transparency and expertise.

We know that India is committed both to these standards and to these values. Your participation in the Compliance Program has indicated that you have generally adopted standards as issued by IFAC and the International Accounting Standards Board (IASB) as national standards with very few modifications. This is indeed laudable and shows both great judgment and foresight as your country continues to advance its industries and economy.

News from EFRAG

17 Jan 2007

At its meeting last week, the European Financial Reporting Advisory Group (EFRAG) voted to recommend that the European Commission adopt IFRS 8 Operating Segments for use in Europe.

Their letter to the Commission can be downloaded from the EFRAG Website. Also, EFRAG has announced that it will hold a special meeting of its Technical Expert Group to discuss IFRIC 12 Service Concession Arrangements on Tuesday 23 January at the EFRAG offices in Brussels.

Model IFRS financial statements and checklist for 2006

16 Jan 2007

We have posted Deloitte's model IFRS financial statements for the year ended 31 December 2006, and a related IFRS presentation and disclosure checklist for 2006. The model financial statements illustrate the application of the presentation and disclosure requirements of IFRSs by an entity that is not a first-time adopter of IFRSs.

They also contain additional disclosures that are considered to be best practice, particularly where such disclosures are included in illustrative examples provided with a specific Standard. Click to download:

EC consultation on regulation of non-EU audit firms

16 Jan 2007

The European Commission has launched a public consultation on its future strategy and priorities on statutory audit in relation to non-EU countries (known as 'third countries').

The Commission wants to know the business community's views on how third-country audit firms could be supervised and on how the EU could cooperate with third countries. Comments are requested by 5 March 2007. Click for:

Update on use of IFRSs in South Africa

15 Jan 2007

During 2003, the local standard setting body made a decision to issue the text of IFRSs in South Africa as South African Statements of Generally Accepted Accounting Practice (SA GAAP).

Currently (start of 2007), with the exception of IFRS 1, which applies only to first time adopters of IFRSs, SA GAAP and IFRSs are fully harmonised. To indicate the harmonisation, SA GAAP has a dual numbering system to refer to both the IFRS and SA GAAP numbers.

Four revised International Standards on Auditing

15 Jan 2007

The International Auditing and Assurance Standards Board (IAASB) has issued the first four final International Standards on Auditing (ISAs) redrafted as part of its comprehensive program to enhance the clarity of its standards.

It has also approved amendments to the Preface to International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services. The Preface identifies the conventions to be used by the IAASB in drafting future ISAs and the obligations of auditors who follow those standards. The IAASB has issued the following four redrafted standards:
  • ISA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements
  • ISA 300 Planning an Audit of Financial Statements
  • ISA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment
  • ISA 330 The Auditor's Responses to Assessed Risks
The four redrafted ISAs and the amended Preface were exposed for public comment in October 2005. The IAASB intends to have a common effective date for all redrafted ISAs, which will be determined as the IAASB's agenda progresses. It will not be earlier than 15 December 2008. The four ISAs and the Preface may be downloaded without charge from the IFAC Website. Click for IAASB Press Release (PDF 84k).

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