April

FRC publishes amendments to the FRSSE

29 Apr, 2014

The Financial Reporting Council (FRC) has today published amendments to the Financial Reporting Standard for Smaller Entities (FRSSE) as a result of The Small Companies (Micro-Entities’ Accounts) Regulations 2013 (SI 2013/3008) (“the Regulations”).

The Regulations permit companies qualifying as micro-entities to prepare and file ‘abridged’ accounts for periods ending on or after 30 September 2013 (provided that accounts for such periods have not been filed).  This means that they can use simplified formats for the balance sheet and profit and loss account and are only required to provide notes to the financial statements concerning guarantees and other financial commitments and certain transactions with directors.  

The FRC amendments to the FRSSE enable micro-entities to state compliance with the FRSSE whilst taking advantage of the exemptions contained within the Regulations.  The amendments also avoid the potential conflict with the law under which the accounts are deemed to give a true and fair view without supplementary information. 

The amendments reflect the new primary statement format available in the Regulations and permit micro-entities to disapply all presentation and disclosure requirements of the FRSSE except those that are required by the Regulations. 

The FRC expects a more comprehensive revision to the FRSSE when the EU Accounts Directive (2013/34/EU) has been incorporated into UK law and highlights that the changes published today “represent an interim solution”.  The FRC comments that in response to the EU Accounts Directive it is reviewing the FRSSE and “expects to issue revised accounting requirements for small entities, which will be effective from the same date as the legal changes”.

The amendments are effective for periods ending on or after 30 September 2013 for companies filing their accounts on or after 1 December 2013.

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IFRS Foundation Trustees seeks to fill Advisory Council vacancies

29 Apr, 2014

The Trustees of the IFRS Foundation (IFRSF) are calling for candidates to fill vacancies occurring at the end of 2014 for membership to the Advisory Council.

The main objective of the IFRS Advisory Council is to provide a forum in which the IASB and the Trustees can consult with individuals and representatives of organisations that work with and are interested in the development of IFRS.

As a result of expiring terms at year end, the IFRSF Trustees are inviting applications for membership to the Advisory Council. Candidates for membership to the Advisory Council are expected to have knowledge of and practical experience in the application of IFRS. Advisory Council members are expected to attend up to three two-day meeting annually. Initial terms are either two or three years and are renewable once for an additional three year term.

Those interested in applying for the positions are asked to respond by 31 July 2014.

Please click for the corresponding press release on the IASB website.

IASB announces members of new IFRS Taxonomy Consultative Group

29 Apr, 2014

The IASB has announced the membership and Chair/Vice-Chair for its IFRS Taxonomy Consultative Group. The newly-created group will provide an advisory and review forum for members to actively assist the IASB in the maintenance and development of the IFRS Taxonomy and related activities.

Due to the integration of XBRL into the IASB standard-setting process and the creation of a new IASB staff group for the Disclosure Initiative, the IASB conducted a review of the IFRS Taxonomy Due Process. As a result, IFRS Taxonomy Consultative Group was created. The group replaces the XBRL Advisory Council (XAC) and the XBRL Quality Review Team (XQRT). The XAC is no longer operational, while the XQRT will only remain in existence until the new IFRS Taxonomy Consultative Group is up and running. In addition, the IFRS Advisory Council has taken on some of the general strategic responsibility of the XAC that specifically relate to how technology may impact standard setting and future corporate reporting.

An overview of the membership is available in the press release on the IASB website.

Report from recent IFASS meeting released

29 Apr, 2014

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in New Delhi on 6‐7 March 2014.

Highlights from the meeting included:

IASB and IFRIC developments

  • Participants discussed the status of the projects on the IASB's work plan:
    • The IASB plans to resolve all the major issues related to insurance contracts by June 2014;
    • both the IASB and FASB are hoping to finalise their standards on leases by the end of 2014;
    • good progress is being made on producing a discussion paper on rate regulation;
    • the revenue recognition project is close to being finalised;
    • the goal of the comprehensive review of the IFRS for SMEs is not to have too many changes;
    • the post-implementation reviews of IFRS have not disclosed any major failings so far; and
    • the conceptual framework discussion paper received 220 comment letters so far.
    General comments included that regulators should be reminded that the insurance contracts, and other, standards are meant for general purpose financial statements and not necessarily for regulatory purposes. The opinion was also voiced that that post-implementation reviews are done too soon after the implementation of a standard, with little empirical evidence.
  • Participants then discussed the criteria used by IFRIC to place issues on its agenda. Representatives' comments included the following:
    • IFRIC is not dealing with enough issues and is reluctant to issue interpretations.
    • Leaving issues to the exercise of judgement could result in differing interpretations.
    • There is the danger of jurisdictions writing their own guidance if authoritative interpretations are not issued by IFRIC.
    • Items rejected by IFRIC on the grounds that it will not reach a consensus, should not be treated as non-issues and should automatically be referred to the IASB.
    • Questions to stakeholders should be clear and unambiguous; efforts should be made to ascertain if an issue is widespread and if there is diversity in its treatment; proportionality should be kept in mind.

Report back on IFASS member projects

Participants discussed two projects run by IFASS members: 'Role of the Business Model in financial reporting' (EFRAG) and 'Goodwill impairment and amortisation' (OCI, EFRAG, ASBJ).

IPSASB matters

Participants received a high-level comparison of the IPSASB's and the IASB's conceptual frameworks and discussed user groups and elements of financial statements. The IASB Vice-Chairman said that the IASB was very interested in the IPSASB's work and stated that he thought that both organisations were not that far apart in their views on measurement. Participants also received an update on lastest IPSASB activities.

Conceptual Framework project

Participants received and discussed a presentation on the role and purpose of conceptual frameworks. Also, they reviewed a paper proposing a revised financial performance reporting model and exploring its potential implications for measurement. Finally they discussed the IASB's disclosure initiative and the questions of what factors are influential/ what are pitfalls when considering materiality and how far the IASB should take this project.

Charter

Participants discussed the draft of the new statement outlining relationship of IASB and NSSs and the new IFASS Charter. In both cases participants reached a consensus to express their support for the draft documents.

Topical Issues

Participants then discussed several topical issues:

  • Discount rate issues,
  • Application issues related to IFRS 11 Joint Arrangements,
  • Macro hedging,
  • Accounting for foreign currency embedded derivatives under international competitive bidding,
  • The equity method: A measurement basis or one-line consolidation.

Reports from regional groups

Reports were received from the AOSSG, EFRAG, GLASS, and PAFA representatives.

New IFASS member projects

Participants discussed three new projects taken up by IFASS members: 'The statement of cash flows' (FRC), 'Complexity of the annual report' (EFRAG), and 'The use of information by capital providers' (EFRAG in co-operation with ICAS).

Contribution of accounting standards to economic development

As last point of the technical debate participants received a presentation the opportunities and threats posed by accounting standards in the proper functioning of the capital markets. Matters covered by the presenter included the following:

  • Standards setters are in the information business, but there are increasingly gaps in the information provided. This results in macro-economic, micro-economic, macro-environmental threats and opportunities to the information market.
  • The threats and opportunities are driven by social values and practices with systemic feedbacks across entities and economies.
  • There is a danger that the accounting profession is focused on micro matters.
  • There could be an increasing crisis of confidence in the work of standard setters.

The presenter was encouraged to develop his paper further. It was suggested that the issue of whether financial reporting could affect financial stability might be a topic for consideration.

Administrative matters

The next IFASS meeting will be held in London on 30 September and 1 October 2014. The IFASS meeting in the first half of 2015 will be held in Jordan (23-24 March).

Please click for the full report (link to the website of the Australian Accounting Standards Board).

April 2014 IASB meeting notes — Part 2

29 Apr, 2014

The IASB's meeting was held from 22–25 April 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB's session on insurance contracts.

Click through for direct access to the notes:

Friday, 25 April 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

FRC outlines measures to improve confidence in audit quality

28 Apr, 2014

The Financial Reporting Council (FRC) has today outlined a number of measures designed to “enhance audit quality and strengthen investor confidence”. The measures expand upon projects included within its current three year strategic plan (2013 – 2016) and have been announced in conjunction with the results of a survey commissioned by the FRC which looked at the perception of the value of company audit for a range of key audit stakeholders.

The survey ‘Improving confidence in the value of audit – a research report commissioned by the Financial Reporting Council’ (“the survey”) was undertaken by the FRC to “take stock of where audit is exactly” as the FRC was of the view that “confidence may have been on the decline for a number of years amongst key groups”.  A number of interviews were held across three groups reflecting the varying levels of direct involvement that stakeholders have in the audit process – from policy makers/influencers to auditors and accounting bodies.  Findings indicate that “the level of confidence that stakeholders have in audit has a very close relationship to their experience of the day to day audit process”. 

The survey indicates that “broadly speaking those stakeholders that are most closely involved with the day to day process of audit (financial directors, CFOs, audit firms, some accounting bodies and audit committee chairs) possess the highest confidence in audit and are least likely to advocate large-scale structural reform”.  This group is “confident in the quality of audit” and has a “high confidence in the audit service and auditor qualities” but understands the expectations gap that exists between “what the public understands and expects and what audit is actually designed to do”.  This group of stakeholders would “like to see a more competitive audit market and a better public understanding of the role of audit and its purpose”.   

That level of confidence is not shared by “those with a direct interest in the outputs of audit, but with less involvement in the day to day audit process” such as regulators and investors.  The survey highlights that these groups “have less confidence in the current audit arrangements and are likely to propose changes to the process, culture and competitive environment”.  The concerns of this group focus around auditor objectivity and independence which they see “as a significant issue” and these support measures to increase the “independence and transparency of the audit process, such as mandatory rotation, mandatory retendering or limiting non-audit fees”.     

Those such as journalists and academics are “the least confident group of stakeholders and are more likely to demand large-scale conceptual and structural re-assessment of audit”.  This group of stakeholders would like audit to be “redesigned to refocus on delivering more public protection”.     

In part response to the survey and to improve the quality of audit the FRC has announced: 

In the near to medium term, the FRC will focus on the expansion of its audit inspection work in line with recommendations from the Competition Commission, the implementation of the new EU Directive on statutory audit and enhancing the quality of bank audits, including through its thematic review of audits in this sector. It will also develop best practice guidance for audit committees on assessing audit quality; assess whether the ethical standards for audit remain fit for purpose; and review audit firm governance including whether the declining proportion of audit in the total business of the major audit firms poses unacceptable risk to audit quality and capacity. 

On a longer term horizon, the FRC will “assess whether any change to the scope of audit is necessary to meet investor expectations”.  Such examples may include considering the auditor’s role in connection with narrative reporting and non-GAAP measures

The FRC highlights that their measures are intended to:

  • Enhance transparency of audits;
  • Enhance the transparency of audit quality;
  • Enhance the relevance to users of the auditor’s role;
  • Manage auditor conflicts of commercial self-interest;
  • Address threats to audit quality from close auditor relationships with companies; and
  • Address public confidence in the audit of banks. 

The FRC has recently published their ‘Plan and Budget and Levies 2014/15’ which includes measures aimed at achieving these objectives during the next year. 

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April 2014 IASB meeting notes — Part 1

24 Apr, 2014

The IASB's meeting is being held from 22–25 April 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB's session on the research programme, amendments to IAS 41, rate-regulated activities, and narrow-scope amendment to IFRS 10 and IAS 28.

Click through for direct access to the notes:

Tuesday, 22 April 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

FRC consults on changes to the UK Corporate Governance Code

24 Apr, 2014

The Financial Reporting Council (FRC) has today published a consultation (“the consultation”) on proposed changes to the UK Corporate Governance Code (“the Code”). The proposed changes, if implemented, will apply to financial years beginning on or after 1 October 2014.

The proposals stem from earlier consultations on directors’ remuneration (October 2013) and risk management, internal control and the going concern basis of accounting (November 2013).  As a result of those consultations and feedback received, the FRC is proposing changes in the Code in relation to: 

Directors’ remuneration 

The FRC proposes changes to Sections D and E and Schedule A of the Code.  It proposes that:

greater emphasis be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee;

companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration; and

companies should explain when publishing AGM results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

Risk management and going concern

The FRC proposes changes to Section C of the Code relating to principal risks and monitoring the risk management system and future viability and going concern.  It proposes that:

companies should state in their financial statements whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;

companies should robustly assess their principal risks and explain how they are being managed and mitigated;

companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months; and

companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.

The above will require companies to make two separate statements covering a company’s future viability and going concern.  The FRC comments that “the proposed wording attempts to deal with the matters to be considered when making the assessment, the time horizon that it covers, and the degree of certainty that can be attached to it in a way that would encourage companies to provide meaningful disclosure tailored to the specific circumstances of the company rather than producing standardised or heavily qualified statements”. 

Alongside the proposed changes to the Code, the FRC is also consulting on extracts from its proposed integrated going concern, risk management and internal control guidance for directors of listed companies.  The FRC proposes, in an appendix to the consultation, draft guidance to directors on adopting and reporting on the going concern basis of accounting and also draft guidance to directors on providing the longer term viability statement.  This draft guidance reflects comments received to its earlier consultation Risk management, internal control and the going concern basis of accounting: Consultation on draft guidance to the directors of companies applying the UK Corporate Governance Code and associated changes to the code’.  

Aside from the changes to the Code the FRC highlights that: 

  • It intends to issue separate guidance to the directors of banks on solvency and liquidity risks and the going concern basis of accounting as indicated in its November 2013 consultation.  The previous guidance consulted on in November will be updated to reflect the outcome of the consultation.
  • It will revise auditing standards to maintain consistency with the results of the consultation and will issue those revised standards alongside the revised Code.

Location of corporate governance disclosures 

The consultation also seeks views on “whether there would be benefits in allowing companies to publish some or all of the information currently contained in the corporate governance report on a website rather than in the annual report and accounts”.  If respondents agree that this would be beneficial this change will be considered in 2016. 

The FRC invites comments, in writing, until 27 June 2014. 

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IPSASB responds to Review Group consultation paper

23 Apr, 2014

The International Public Sector Accounting Standards Board (IPSASB) has responded to the IPSASB Governance Review Group consultation paper on its future governance. The IPSASB is unanimous in its support of the option of establishing separate oversight for its operations under the auspices of the International Federation of Accountants (IFAC), and further does not consider extending the scope of the IFRS Foundation Monitoring Board and Trustees activities to public sector accounting standard setting as feasible in the short or medium term.

The IPSASB Governance Review Group consists of members from the International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD), the World Bank, Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the International Organization of Supreme Audit Institutions (INTOSAI).

The Review Group's consultation paper responds to concerns that the existing governance arrangements of the IPSASB are not subject to a formal public interest oversight mechanism, outlining a number of possible options for strengthening the IPSASB's governance arrangements:

  • Option 1 - extending the scope of the IFRS Foundation Monitoring Board and Trustees activities
  • Option 2 - establishing separate monitoring and oversight bodies for the IPSASB while it remains under the auspices of the IFAC
  • Option 3 - re-establishing the IPSASB outside of IFAC with its own monitoring and oversight bodies.

The IPSASB's response to the consultation paper, in unanimously supporting Option 2, sets out the IPSASB's view that "this alternative meets all of the characteristics for strong public interest oversight... accountability, independence, competence and credibility" and that it is "a practical and timely solution".

In addressing concerns outlined in the consultation paper that retaining IPSASB under the auspices of IFAC results in perceived conflicts of interest, the IPSASB response notes the following:

The factual experience of the IPSASB has been that there has never been any interference by IFAC with respect to the IPSASB’s independence or any interactions that have been negative in any way. We have found that in many respects IFAC’s involvement is in fact a strength - because the participation of the accountancy profession adds an element of independence from the principal users of our standards, governments and international organizations. This is unlike other IFAC standard-setting boards which are setting standards for IFAC member body members themselves.

In addressing the structure and mandate of an oversight body under its preferred option, the IPSASB notes its view that the monitoring and oversight function could be merged and carried out by a single body. In the IPSASB's view, membership of the body would not require technical expertise, but members "should be enthusiastic about the need for public interest oversight... and have strong support for fiscal transparency". IPSASB's proposed role for the oversight body would include an ability to approve or comment on the IPSASB's strategic and work programmes. In addition, the IPSASB supports the creation of a Consultative Advisory Group (CAG), whose roles would include providing advice on the IPSASB's agenda and project timetable (including priorities) and the provision of technical advice on projects.

The IPSASB's response outlines a number of reasons as to why the IPSASB does not believe that extending the scope of the IFRS Foundation Monitoring Board and Trustees activities to encompass public sector accounting standard setting is appropriate, including:

  • Considerable questions as to whether the IFRS Foundation would be willing to take on IPSASB oversight and commit appropriate resources
  • A lack of clarity about how the oversight of the IPSASB would be integrated into the IFRS Foundation's oversight framework, and the impacts on the structures and processes of the IPSASB and International Accounting Standards Board (IASB)
  • Some criticism that International Public Sector Accounting Standards (IPSASs) are already "too close" to International Financial Reporting Standards (IFRS).  The IPSASB comment that the Eurostat report on the suitability of IPSASs for EU Member States highlight this criticism of the IPSASB and that bringing IPSASB under the oversight of the IFRS Trustees would "reinforce that criticism".

In terms of the third option of re-establishing the IPSASB outside of IFAC, the IPSASB believes there is insufficient detail in the consultation paper to enable debate about whether this is a realistic option and that it "raises significantly more issues".

Click for the full IPSASB consultation response (link to IFAC website).

IAASB re-exposes proposals on an auditor's responsibilities relating to 'other information'

23 Apr, 2014

The International Auditing and Assurance Standards Board (IAASB) has published a revised exposure draft of a revised International Standard on Auditing (ISA) dealing with an auditor's responsibilities relating to 'other information'. The revised exposure draft responds to significant concerns raised in response to the IAASB's original proposals.

The IAASB issued an exposure draft for a revised International Standard on Auditing, ISA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor’s Report Thereon in November 2012.

Changes included in the revised exposure draft for a revised IAS 720, The Auditor’s Responsibilities Relating to Other Information, include:

  • Introducing a definition of an 'annual report' and limiting the scope of other information reviewed by an auditor to information contained in annual reports as defined, thereby excluding consideration of separately issued industry or regulatory reports, corporate social responsibility reports, sustainability reports, and similar documents
  • Clarifying the obligations of an auditor in respect of other information, requiring an auditor to consider whether there is a material inconsistency between the other information and the auditor's knowledge obtained during the course of audit, and requiring the auditor to remain alert for other indications that the other information appears to be materially misstated
  • Including a definition of 'misstatement' to address concerns the ordinary meaning of this word in the context of other information is subjective and could lead to divergence in practice
  • Addressing the auditor's responsibilities in relation to other information obtained after the date of the auditor's report.

Comments on the revised exposure draft close on 18 July 2014. Click for press release (link to IFAC website).

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