IFIAR comprises 51 independent audit regulators from jurisdictions in Africa, the Americas, Asia, Europe, the Middle East and Oceania.  IFIAR provides a forum for regulators to share knowledge of the audit market and share the practical experience gained from their independent audit regulatory activity.   The Financial Reporting Council (FRC) is a member.

The report summarises the key inspection findings from audits of public companies (including systematically important financial institutions) as well as from reviews of audit firms’ own quality control systems.  Findings were submitted from the most recent audit inspection reports of members that ended by June 2015.

The report identifies that the highest number of audit inspection deficiencies were in the areas of internal control testing, fair value measurement, risk assessment and revenue recognition.  In particular, deficiencies relating to audit of internal controls were identified in 23% of PIEs inspected.  

For audits of systemically important financial institutions, including global banks and insurers, the survey found the highest number of deficiencies related to internal control testing, auditing of allowance for loan losses and loan impairments, auditing the valuation of investments and securities and the use of experts and specialists.

IFIAR and the six largest network firms have now agreed on an initiative to improve audit quality globally. The goal is to reduce the number of deficient audits reported by our members in the survey. To provide a means to measure progress, for the first time IFIAR's working group has set a measurable target for the reduction of audits with findings: a reduction of at least 25% in the next four years in audits with at least one finding as reported by the members of this working group.

In May 2015 the FRC published its own report of audit quality inspection work carried out by its Audit Quality Review (AQR) team.  The report indicated that “audit quality is improving” but identified that “there is room for further improvement”.

Click for:

• Press release (link to IFIAR website)
• IFIAR report ‘International Forum of Independent Audit Regulators – Report on 2015 survey of inspection findings’ (link to IFIAR website)
• Our previous UK Accounting Plus news item on the FRC Audit Quality Inspection Report 2014/15 

The FRC has amended Financial Reporting Standard (FRS) 102 following feedback that amending the fair value disclosure requirements applicable to financial institutions and retirement benefit plans would reduce the costs of complying with FRS 102 and allow these entities to provide information to users that is more consistent with EU-adopted IFRS. The amendments, which follow a consultation in November 2015, will also make it easier for users to make comparisons between the financial statements of these entities and those applying EU-adopted IFRS.

The amendments to paragraphs 34.22 and 34.42 of FRS 102 require disclosure of financial instruments held at fair value to be on the basis of a fair value hierarchy consistent with EU-adopted IFRS as follows:

A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability

These amendments apply for accounting periods beginning on or after 1 January 2017. Early application is permitted with immediate effect.  If an entity applies these amendments to an accounting period beginning before 1 January 2017 is shall disclose that fact.

Click for:

• Press release (link to FRC website)
• Amendments to FRS 102 (link to FRC website)
• Our previous UK Accounting Plus news item on the original consultation

Towards the end of 2015 the FRC published letters addressed to larger listed companies and smaller listed and AIM companies. In the light of further increases in economic uncertainty since those letters were written, they have published a supplemental letter addressed to all Audit Committee Chairs. This letter highlights the following potential issues:

• elements of the strategic report that were written some time ago should be carefully reviewed to ensure that they reflect the latest circumstances;
• there may be a wider range of potential outcomes relating to issues identified as principal risks, necessitating increased disclosure around the sensitivities considered and judgements made;
• information that has come to light after the balance sheet date, for example regarding asset valuations, should be carefully considered to determine whether it has an impact on the reported numbers or on the disclosures made; and
• in extreme cases, these events may have a material impact on the appropriateness of the going concern basis of accounting, or give rise to a material uncertainty regarding this.

The press release and full letter can be obtained from the FRC website.

Tracy joins the FRC having just concluded a secondment through the Cabinet Office High Potential Secondment Programme at the Co-operative Group, where she worked initially on the Co-operative Bank recapitalisation, the subsequent Treasury Select Committee Inquiry into the Bank’s problems, and then stayed to implement significant governance reforms at the Co-operative Group, following Lord Myners’ Review of its governance.

The press release can be found on the FRC website.

An accompanying staff questions and answers document is also available. Please click to access the podcast and the Q&A document on the IPSASB website.

Check out the summaries for the forth­com­ing dis­cus­sions on conceptual framework, insurance and IFRS 9, definition of a business, goodwill and impairment, and 2015 Agenda Consultation. We have added them to our meeting note page and will sup­ple­ment them with our popular meeting notes after the meeting.

On 6 April, FEE and the International Integrated Reporting Council (IIRC) will organise the event Corporate Reporting: Enhancing transparency and value. From the Non-Financial Information Directive to Integrated Reporting. More information and registration are available through the press release on the FEE website.

On 7 April, there is a public sector roundtable on Sovereign debt crisis: How can accounting be (part of) the solution? Please click for more information and registration on the FEE website.

On 16 May, FEE, jointly with the the Consultative Committee of Accountancy Bodies (CCAB) and the Chartered Financial Analyst (CFA) Institute, will hold the event Join us to debate the Future of Corporate Reporting. The press release on the FEE website offers more information and an address for registering for the event.

The meeting will feature dis­cus­sions on:

• Conceptual framework — an overview of comments received on the IASB exposure draft ED/2015/03 Conceptual Framework for Financial Reporting.
• Insurance and IFRS 9 — summaries of comments and feedback received on the ED, decision making on direction and plan of the project.
• Definition of a business — wording of the proposed amendments.
• Goodwill and impairment — determining how to improve information provided and whether there is a need to clarify existing requirements for customer relationships acquired in a business combination.
• Agenda consultation — an analysis of the feedback received in relation to the request for views for the 2015 Agenda Consultation.

The full agenda for the meeting can be found here. We will post any updates to the agenda, as well as our Deloitte pre-meet­ing summaries and observer notes from the meeting, on this page as they become available.

The Update reports on EFRAG Board meeting on 11 February, the EFRAG Board conference call on 5 February and the EFRAG Technical Expert Group (EFRAG TEG) meeting on 24 and 25 February.  The Update also lists EFRAG publications issued in February:

• EFRAG’s final comment letter on the Draft IFRIC Interpretation DI/2015/2 Foreign Currency Transactions and Advance Consideration;
• EFRAG’s final comment letter on the draft IFRIC Interpretation DI/2015/1 Uncertainty over Income Tax Treatments and the related feedback statement;
• EFRAG’s final comment letter on the IASB’s Exposure Draft ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts;
• EFRAG’s response to the IFRS Foundation’s Invitation to Comment IFRS Taxonomy Due Process and the related feedback statement; and
• EFRAG’s letter to the European Commission following the publication, by the IASB, of revised amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture postponing their effective date indefinitely.

Please click to download the February EFRAG Update from the EFRAG website.