January

Changes made to the NAO draft Code of Audit Practice for the audit of local public bodies following consultation

20 Jan, 2015

The National Audit Office (NAO) has published the results of its public consultation on a new draft code of audit practice for the audit of local public bodies. The summary highlights the responses received to the consultation and the main changes made to the draft Code as a result.

The consultation responses indicated that there was “strong support” for a single Code covering all audited bodies within the new arrangements for local public audit and also support for a principles-based Code rather than a rules-based based Code.  The NAO has now made changes to the initial draft Code consulted on in September 2014 and issued a final draft Code which is due to be laid before Parliament for debate and approval.  In the preface to the final draft Code the NAO comments:

We have taken a principles-based, rather than a rules-based, approach to developing the Code. This is in line with predecessor codes and has allowed us to prepare a concise, high-level code applicable to the audit of all local public bodies within the local audit model established by the Act, providing a clear framework for the auditor to meet their statutory duties. A principles-based approach also helps to ensure that the Code does not quickly become out of date as the regulatory environment evolves.

Once approved by Parliament, the Comptroller and Auditor General (C&AG) will publish the final Code which will take effect for audit work relating to the 2015-16 financial year onwards.

In addition to the final Code, the NAO has indicated that it will provide “high quality, timely guidance to auditors” to support the Code in response to those who commented that this would enhance the effectiveness of the Code.

The final draft Code and the summary of responses received to the original consultation are available on the NAO website.

IFRS Foundation appoints new Trustee

20 Jan, 2015

The IFRS Foundation has announced the appointment of Kurt Schacht as Trustee of the IFRS Foundation. The appointment will begin with immediate effect and will expire on 31 December 2017.

Mr Schacht is Managing Director of the CFA Institute, leading its advocacy and regulatory affairs activities across Asia, Europe and the Americas. He currently serves as Chairman of the US Securities and Exchange Commission's Investor Advisory Committee and is on the advisory board of the Millstein Center for Global Markets at Columbia Law School.

For more information, see the press release on the IASB's website.

Agenda for the January 2015 IFRS Interpretations Committee meeting

20 Jan, 2015

The IFRS Interpretations Committee will meet at the IASB's offices in London on 27 January 2015. The agenda for the meeting is now available.

The Committee will:

  • continue discussion of issues arising on IAS 12, IAS 16, IAS 39, IAS 21, and IAS 32;
  • consider finalising tentative agenda decisions on IAS 28, IFRIC 21, IAS 39, IFRS 13, and IFRS 12;
  • consider new issues on IAS 40 and IAS 24.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

We comment on the proposed amendments for measuring quoted investments in subsidiaries, joint ventures and associates at fair value

16 Jan, 2015

We have published our comment letter on the International Accounting Standards Board's (IASB) Exposure Draft ED/2014/4 'Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value'.

The IASB's proposed amendments would confirm that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole, but that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments. The IASB also proposed to align the fair value measurement of a quoted CGU to the fair value measurement of a quoted investment. Lastly, the proposed amendments also included an addition to the Illustrative Examples for IFRS 13 to illustrate the application of paragraph 48 of that standard to a net risk exposure of Level 1 financial assets and financial liabilities.

We disagree with the departure from the principle that fair value measurement should be consistent with the unit of account of the asset or liability to be measured.

Click for the full comment letter.

New appointment to the Codes and Standards Committee of the FRC

16 Jan, 2015

The Financial Reporting Council has announced the appointment of Nick Land as the new chair of its Codes and Standards Committee.

Nick will take up the position immediately, replacing the current chair, Jim Sutcliffe.

The press release can be found on the FRC website, here.

EFRAG final comment letter on the IASB's Discussion Paper on rate regulation

16 Jan, 2015

The European Financial Reporting Advisory Group (EFRAG) has published a final comment letter on the IASB’s Discussion Paper (DP) 2014/2 Reporting the Financial Effects of Rate Regulation. The aim of the discussion paper was to solicit feedback from constituents as to whether, and under which circumstances, financial effects arising from rate regulation should be accommodated in financial reporting.

EFRAG “welcomes” the IASB’s comprehensive project on rate-regulated activities and the publication of DP/2014/2.  EFRAG believes that it is necessary for the IASB to consider how to account for the effects of rate regulation in the IFRS financial statements not least as it will provide users that cover rate-regulated entities information to assess the effects of rate regulation in the financial statements and how rate regulation affects an entity’s rate-regulated activities.

EFRAG supports the IASB's decision to initially examine a generic type of rate regulation called 'defined rate regulation' in order to understand the economic impact of rate regulation on a limited range of activities before moving to the next stage of the project.  However, EFRAG stresses that the DP can only represent a starting point in the project:

As the IASB progresses the project, we believe it will need to consider in which circumstances an entity’s right to recover an agreed amount of revenue and obligations to perform certain rate-regulated activities create enforceable rights and obligations that should be recognised in the IFRS financial statements. The IASB might also need to consider whether it should eventually widen the scope of any potential future accounting guidance, in order to require disclosures of a wider range of schemes, to enable a necessary understanding of the impact of rate regulation in the IFRS financial statements.

EFRAG supports an accounting approach that is principles-based and “which can be applied to different rate regulatory regimes that evolve over time”.  It believes that the revenue approach “has an important role to play in any future accounting guidance” and remain open” to a ‘cost deferral’ approach recommending that the IASB “explore in more detail cases where such an approach might provide relevant information”. 

Regarding disclosure, EFRAG believes that “the disclosures in IFRS 14 Regulatory Deferral Accounts are a good starting point”.  EFRAG supports the separate presentation of regulatory balances in the IFRS financial statements “on the basis that it will enhance the relevance and usefulness of the information about the financial effects of rate regulation” and notes that it is important for the IASB to “consider a balanced approach” with respect to disclosure requirements, ensuring the disclosures are focused on those that are most useful to users of financial statements.

The press release and full comment letter are available on the EFRAG website.

EFRAG final comment letter on the IASB's Exposure Draft regarding the unit of account

16 Jan, 2015

The European Financial Reporting Advisory Group (EFRAG) has published a final comment letter on the IASB Exposure Draft (ED) proposing amendments to six standards regarding the unit of account for investments in subsidiaries, joint ventures and associates.

The amendments (in Exposure Draft (ED) 2014/4) would confirm that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole, but that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments.

EFRAG supports the clarification that the unit of account for investments within the scope of IFRS 10 Consolidated Financial statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures is the investment as a whole rather than the individual financial instruments included within that investment.

However, EFRAG is concerned that determining the fair value measurement of quoted investments in subsidiaries, joint ventures and associates as the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments will not always result in relevant information because where the unit of account is the investment in a subsidiary, joint venture or associate, the price paid may include control premiums or discounts and consequently differ from the mathematical product price × quantity. EFRAG believes that the resulting financial information would lack relevance, impair the assessment of management stewardship and would not faithfully represent the substance of the transaction. 

EFRAG believes that before the IASB reaches the conclusion that there is no better method to measure the fair value of an investment in a subsidiary, joint venture or associate quoted in an active market, the IASB should perform an analysis of current practices in measuring this type of quoted investment and “reassess where to strike the balance between relevance and reliability”.

Additionally, before finalising these proposals, EFRAG believes that the IASB should “consider developing guidance to bring fair value estimates that are consistent with the unit of account of the investment to a reasonable level of reliability”.

The press release and full comment letter are available on the EFRAG website.

Application of IFRS 15 to permitted Islamic finance transactions

16 Jan, 2015

At the upcoming meeting of the Joint Transition Resource Group for Revenue Recognition (TRG), participants will discuss the implications of IFRS 15 for certain instruments common in the Islamic financial industry.

As Islamic financial instruments do not include interest on loans (riba), an Islamic Financial Institution (IFI) must legally possess the underlying assets, even for very short time, with all risks and rewards incidental to ownership before it can resell or lease the underlying assets. The question in connection with the new requirements on revenue recognition is whether deferred-payment transactions have to first pass through IFRS 15 Revenue from Contracts with Customers before being reported under IFRS 9 Financial Instruments.

The agenda paper prepared for the TRG meeting sets out arguments for and against such contracts being within the scope of IFRS 15 or whether they warrant specific treatment. The different paragraphs supporting each view are cited.

The idea behind the submission is not to determine whether particular transactions are Shariah compliant but to prevent possible diversity in practice and to address the concern that IFIs might incur significant costs to analyse the possible application of the standard. To this end the IASB's Consultative Group for Shariah-Compliant Instruments and Transactions asks for a timely communication to the marketplace of the applicability of IFRS 15 in this case.

Please click for access to the meeting paper on the IASB's website.

IAASB releases new and revised standards on auditor reporting

16 Jan, 2015

The International Auditing and Assurance Standards Board (IAASB) has released its new and revised auditor reporting standards that are designed to significantly enhance auditor's reports for investors and other users of financial statements. Most notable enhancement is a new requirement for auditors of listed entities' financial statements to communicate 'Key Audit Matters' that the auditor views as most significant, with an explanation of how they were addressed in the audit.

The complete suite of new and revised standards consists of

  • ISA 700 (Revised) Forming an Opinion and Reporting on Financial Statements
  • ISA 701 Communicating Key Audit Matters in the Independent Auditor's Report
  • ISA 570 (Revised) Going Concern
  • ISA 705 (Revised) Modifications to the Opinion in the Independent Auditor's Report
  • ISA 706 (Revised) Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report
  • ISA 260 (Revised) Communication with Those Charged with Governance and
  • Conforming Amendments to ISAs 210, 220, 230, 510, 540, 580, 600, and 710

The new and revised auditor reporting standards will be effective for audits of financial statements for periods ending on or after 15 December 2016.

The Financial Reporting Council’s (FRC's) equivalent ISAs (UK and Ireland) are largely developed from the ISAs published by the IAASB and are amended, where necessary, to address specific UK and Ireland legal and regulatory requirements and other matters that are appropriate in the UK and Ireland national legislative, cultural and business context.  The FRC is expected to consult on these changes as well as those that arise from the UK implementation of the EU Audit Directive and Audit Regulation (which is currently being consulted on by the FRC) as part of a joint consultation in due course.   

Please click for the IAASB press release and access to all documents, including the new and revised standards, an At a Glance summary, an Auditor Reporting Fact Sheet The New Auditor’s Report: Greater Transparency into the Financial Statement Audit and a Basis for Conclusions (all links to IFAC website).

We comment on the IASB discussion paper on rate regulation

16 Jan, 2015

We have published our comment letter on the International Accounting Standards Board's (IASB) Discussion Paper DP/2014/2 'Reporting the Financial Effects of Rate Regulation'.

Our comment letter offers an anylsis of the main points of the discussion paper and we agree that that the hybrid scheme described as 'defined rate regulation' captures many of the features of regulatory regimes encountered in practice. We also agree that a focus on the rights and obligations arising from rate regulation is necessary to determine whether these give rise to assets and/or liabilities that meet the criteria for recognition per the Conceptual Framework for Financial Reporting. We recommend that the next step in the project be an accounting discussion paper preceding the development of any new Standard or amendment to existing standards.

Please click for a summary of our main points and access to the full comment letter

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