The Directive and Regulation were published in the Official Journal of the European Union in May 2014.  The Directive which amends the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) applies to all audits required by EU law and the Regulation applies to all audits of “Public Interest Entities” (PIEs).

The consultation builds on a previous Discussion Paper issued by BIS in December 2014.  It is focused on “identifying legislative, and non-legislative, actions necessary to:

• strengthen standards for the audit of PIEs;
• improve confidence in the independence of auditors;
• avoid excessive concentration in the audit market; and
• make audit reporting more informative.

The consultation includes draft implementing regulations and draft amendments to the Companies Act to implement changes in a number of areas.  Some of the key areas included within the consultation include:

Definition of a PIE. 

• BIS intends not to include additional entities in the definition of a PIE.  BIS are, as previously announced, retaining the PIE definition as the EU minimum – in the UK, entities with debt or equity traded on an EEA regulated market, banks, building societies and insurance undertakings will fall within this definition. 

Rotation and tendering

• PIEs will need to put their audit out to tender at least every ten years and change their auditor at least every 20 years. 

Regulation of auditors. 

• The FRC will be the “single competent authority” – with ultimate responsibility for most matters of audit regulation and oversight.  The FRC will only have to conduct audit inspections, investigations and disciplinary cases in relation to PIEs.  It will delegate the conduct of inspections and investigations and application of sanctions for non-PIEs to the Recognised Supervisory Bodies (RSBs) (for instance the Institute of Chartered Accountants in England and Wales (ICAEW)).  The RSB will still be able to agree that the FRC undertakes the work that it has been delegated and the FRC will be able to take over any particular inspection or investigation, if it deemed it to be in the public interest. In practice, this means that the ICAEW Quality Assurance Department (QAD) will take back inspection of the larger private companies, large pension schemes and large charities and larger unit trusts and OEICs, and potentially larger AIM companies, from the FRC’s Audit Quality Review Team (AQRT).
• Audit registration for firms and Responsible Individuals (RIs) and approval of rules on Continuing Professional Development (CPD) will be overseen by the FRC as currently, with the ICAEW dealing with this at an operational level and monitoring CPD.
• Cross-border auditing changes slightly. 

Restrictive clauses in contracts

• From 17 June 2016, such clauses will cease to have any legal effect.

The consultation also includes details on further provisions that will be included in the final implementing regulations on the following areas:

• removal of auditors of PIEs by application to the court by the competent authority or a significant minority of shareholders or members;
• cooperation between competent authorities, transferring information and confidentiality;
• the reporting by auditors of PIEs to supervisory authorities; and
• the role of competent authorities in relation to the functioning of the audit market for PIEs.

The BIS consultation is one of four consultations being consulted on in the context of audit reform in the UK.  The other consultations out for comment are:

• A Financial Conduct Authority and Prudential Regulation Authority consultations on changes to audit committee requirements as a result of EU audit reform.
• A Financial Reporting Council (FRC) consultation on changes to Ethical Standards for Auditors, International Standards on Auditing (ISAs), the UK Corporate Governance Code and the Guidance on Audit Committees arising from the UK implementation of the EU Audit Regulation and Directive.  The underpinning legislation needed for the FRC to introduce these changes is included within the BIS consultation.

Comments are invited until 9 December 2015.  BIS intends that the implementing regulations should come into force for accounting periods beginning on or after 17 June 2016.

Click for:

• The consultation - Auditor regulation: technical legislative implementation of the EU Audit Directive and Regulation (link to BIS website)
• Feedback from the original consultation (link to BIS website)
• Our UK Accounting Plus project page on Audit reform

The paper is an update of a previous paper published in January 2014 to reflect:

• additional commentary in relation to non-interest bearing loans;
• updated commentary on the application of the Disregard Regulations and Change of Accounting Practice Regulations, reflecting the changes made to these statutory instruments in December 2014;
• updated accounting commentary to reflect the amendments to FRS 102 issued in August 2014 and July 2015; and
• updates for any commentary specific to section 1A of FRS 102. 

The paper does not reflect:

• amendments to FRS 102 - Pension Obligations issued in February 2015;
• the requirements of FRS 104 - Interim Financial Reporting; and
• proposed changes to the tax rules, for example changes to the loan relationship and derivative contract rules and changes to the intangibles legislation included in the summer finance bill 2015.

As before it is split into two sections:

• The first section provides a comparison of the accounting and tax differences between ‘old’ UK GAAP and FRS 102
• The second section provides a summary of the key accounting and tax considerations upon transition.  

The paper, which is also relevant for small companies who elect to apply Section 1A of FRS 102, includes the requirements of the law as they stood at the date of the publication.  HMRC intend to update the papers “as further information is available and as new accounting standards and tax law develop”.  

FRS 102 is one of the three main standards that were introduced as a package to replace 'old' UK GAAP.  It must be applied for accounting periods beginning on or after 1 January 2015, with early adoption available, subject to certain conditions.  The July 2015 amendments to FRS 102 are applicable for periods beginning on or after 1 January 2016, with early adoption permitted and required if and only if the entity is early adopting the new Accounting Regulations (or from 1 January 2015 if the entity is not subject to company law).

For companies that transition from Old UK GAAP to FRS 101 a separate paper providing an overview of the key accounting and tax considerations was published in January 2014.

Click for:

• FRS 102 Overview Paper: Tax implications (link to HMRC website)
• Our previous UK Accounting Plus news item

The EC argues that IFRS 14 Regulatory Deferral Accounts is a temporary standard offering an accounting option to companies that adopt IFRS for the first time. Therefore the EC will not propose IFRS 14 for endorsement in the EU as very few European companies would fall within its scope. The Commission will consider any future standard on rate regulated activities for endorsement in the EU under its normal process.

The EC's decision is reflected in an updated EFRAG endorsement status report.

Following the post-implementation review of IFRS 3, several projects related to IFRS 3 were added to IASB’s research agenda. At their joint meeting in September, the IASB and FASB discussed their respective projects related to their Business Combinations Standards, and how the boards could work together on these projects. At its October meeting, the IASB decided to follow a staff recommendation to propose changes to IFRS 3 that are the same as the amendments proposed by the FASB, and to issue an Exposure Draft rather than a Discussion Paper.

Consequently, the new version of the work plan shows the definition of a business project no longer as a research project but as an implementation project with an Exposure Draft expected in the next three months.

One small additional update regards yet again the practice statement on materiality. Although ED/2015/8 IFRS Practice Statement - Application of Materiality to Financial Statements was published on 28 October, the work plan published later that day still had it as "upcoming". This has now been rectified.

For a full analysis any other changes please see our news item dated 27 October. The newly revised IASB work plan is available on the IASB's website.

The full agenda for the meeting is sum­marised below:

Agenda papers for this meeting are available on the IASB's website.

Ms Wood, who herself served as Chairman of the Australian Financial Reporting Council, was convinced that in the 21st century, capital markets are mutually dependent and globally interconnected and that as a country that looks both East and West, Australian capital markets were the perfect example of this. This was the reason international standards were needed.

She noted that one of the most frequent criticisms she heard was the ongoing concern about complexity in financial reporting. However, she also voiced the conviction that people do understand that there are many root causes of complex financial reporting, including increasingly complex business operations. She also conceded that IFRS and financial reporting in general are a long way from being perfect.

Therefore she urged the members of her audience to a) familiarise themselves with developments in IFRS and how they may affect their company and b) to get involved in the process at an early stage. Because she believed that there was no way back or around IFRSs:

I strongly believe that the momentum is now unstoppable towards every country in the world adopting IFRS, and so the question is no longer ‘if’ but ‘when’ we will have truly global accounting standards.

Please click to download the manuscript of Ms Lynn's speech from the IASB website.

The report, the final report into women on boards by Lord Davies, summarises the progress made over the last five years in achieving the initial target set in his 2011 report (link to BIS website).  It also charts the progress made in achieving female representation on the boards of FTSE 250 companies.  The report indicates that:

• The representation of women on boards has doubled since 2011.
• The percentage of female-held directorships on FTSE 100 boards has increased to 26.1% from 23.5% in March 2015, 20.7% in March 2014 and 12.5% as of February 2011 when Lord Davies reported.
• The percentage of female-held directorships on FTSE 250 boards has increased to 19.6% from 18% in March 2015, 15.6% in March 2014 and 7.8% as of February 2011 when Lord Davies reported.
• There are now no all-male boards in the FTSE 100 – this figure was 21 in 2011.  The number of all-male boards for FTSE 250 companies stands at 15; down from 23 in March 2015.  This figure was 131 in 2011. 

The report calls the reaching of the 25% target a “significant achievement”.  However it highlights that this is part of a “longer journey to improving the gender balance at the top of British business” In order to achieve this, the report highlights that “further work and a renewed focus is required”.  Five “next step” recommendations are proposed in order to continue to increase women’s representation further (taken direct from the report):

1. Voluntary approach

• The report recommends that the national call for action and voluntary, business-led approach is continued for a further five year period, ensuring substantive and sustainable improvement in women’s representation on Boards of FTSE 350 companies into the future

2. Increased target, more chairs and action from all listed companies.

The report recommends:

• Increasing the voluntary target for women’s representation in boardrooms of FTSE 350 companies, to a minimum of 33% to be achieved in the next 5 years.
• All stakeholders to work together to ensure increasing numbers of women are appointed to the roles of Chair, Senior Independent Director and into Executive Director positions on boards of FTSE 350 companies.
• All FTSE listed companies now assess the gender balance on their boards and take prompt action to address any shortfall.

3. Focus on the executive layer

• The report recommends that FTSE 350 companies extend the best practice seen at board level to improve gender balance and fundamentally improve the representation of women on the Executive Committee and senior-most leadership positions.

4. Independent steering body

• The report recommends that an independent steering body, made up of business and subject matter experts with a newly appointed Chair and members, is reconvened to support business in their efforts, act as a catalyst for sustained progress, monitor and report periodically upon progress.

5. Maintaining momentum

• The report recommends that the newly convened steering body will review the recommendations 1 to 4 above and in consultation with key stakeholders, publish more detailed comments as appropriate, at the beginning of 2016.

The report comes at the same time as the government announced new measures requiring larger employers to publish information about their bonuses for men and women in addition to extending plans for gender pay gap reporting.  The government also announced plans for the elimination of all-male boards within the FTSE 350.  A government consultation which concluded in September asked employers and employees for their views on how, when and where the data should be published. New regulations to set out how this will be achieved in practice are intended to be set out in due course.

Click for:

• Press release (link to BIS website)
• Women on boards: 5 year summary (Davies review) (link to BIS website)
• The original Lord Davies Women on Boards report from 2011 (Link to BIS website)
• Our previous UK Accounting Plus story on women on boards

The staff are providing the update to help stakeholders prepare for the implementation of the new standard. They point out that it is likely that the first step to be undertaken in implementing the standard will be to determine the population of contracts to which the standard applies - which will be determined by the definition of a lease. Please note that although the IASB has completed its decision making for the leases project, the final standard is still in drafting and is subject to possible further refinements.

Please click to download the update from the IASB website.