The first independent research report, The Capability and Competency Requirements of Auditors in Today’s Complex Global Business Environment, explores the views of key audit stakeholders from Australia, South Africa and the UK.  Interviews were focused on six of the most significant public companies from different sectors in each of the countries.  Interviews were conducted on the audit engagement partners, the Chief Financial Officer, the Audit Committee Chair and the internal auditors.  Additionally, individuals who had some oversight, public policy or educative role with regard to audit in each of the three countries were also interviewed.  Questions focussed on the current and future role and responsibilities of the auditor, what capabilities auditors need to perform their role now and in the future, how recruitment models should be adapted to ensure that those recruited can meet the demands today and in the future and how should training and development programmes be changed to ensure that auditors are appropriately trained to perform their roles today and in the future.

The report concludes with a “proposed strategy to ensure that auditors of today and tomorrow have the necessary capabilities and associated competencies to deliver high quality public interest audits”.  Among other things the report recommends (taken directly from the report):

• A need for constructive debate around the future of audit
• An increasing need in audit teams for people with more diverse backgrounds
• That specialists should be recruited and then trained in audit to become an effective part of the audit team
• That competency maps and frameworks and CPD offerings should be adapted for the development of data interrogation and analytical skills, broad business acumen and forensic skills
• That there should be more focus on the development of mid-career professionals
• With the exception of the financial services industry, audit trainees should be exposed to a wide range of industries before specialising as specialising too early “can sacrifice breadth of experience”. 

The second independent research report, Skills, Competencies and the Suitability of the Modern Audit, explores the views of key audit stakeholders from the UK, Belgium, France, Germany and Sweden which were gathered as part of focus groups.  Rather than identifying a list of specific skills and competencies required of auditors, it identifies 11 “pressure points” or areas of difficulty where the challenges lie for auditors.  These cover four broad categories namely, the context of the specific audit engagement, the development of audit personnel, firms as suppliers of audit services and interactions with stakeholders and society.  

This report indicates that:

the challenge will not be met by a checklist of skills but rather by more fundamentally considering the ‘functional competence’ of audit and the ‘value proposition’ it offers to business and society

 The issues for auditors, according to the report, revolve around (taken directly from the report):

• Making sure that audit is recognised as a skilled, judgemental activity;
• Recruiting and developing suitable audit professionals; and
• Managing the delivery of the audit as a professional service.

Both reports have been overseen by a Steering Committee which intends to publish its own report based on the results of these findings. 

Click for:

• Press release (Link to FRC website)
• The Capability and Competency Requirements of Auditors in Today’s Complex Global Business Environment (link to ICAS website)
• Skills, Competencies and the Suitability of the Modern Audit (link to ICAS website)

FEE notes that many member states of the European Union have already embraced accrual accounting but the discussion on its potential contribution to improving transparency and accountability is still ongoing. Currently, there are no harmonised EU-wide rules, but the European Commission is working on this and plans to issue European Public Sector Accounting Standards (EPSAS) within the next 4 years. In the meantime, the European Commission is encouraging member states to switch to accrual accounting and potentially use International Public Sector Accounting Standards (IPSAS).

Among the benefits of accrual accounting FEE notes the following:

• using assets effectively;
• managing liabilities;
• managing performance;
• addressing the citizens’ right to know;
• improved transparency;
• improved comparability; and
• saving for future generations.

Please click to access the briefing paper on the FEE website.

The drafts are:

• Framework for International Professional Standards
• IPS 101: Initial Professional Development – Entry Requirements to Professional Valuer Accreditation Programmes
• IPS 102: Initial Professional Development – Professional Skills and Ethics
• IPS 103: Initial Professional Development – Technical Knowledge
• IPS 104: Initial Professional Development – Practical Experience
• IPS 105: Initial Professional Development – Assessment of Professional Competence
• IPS 201: Continuing Professional Development

Comments are requested by 30 June 2016; final standards are expected to be published in fall 2016.

Please click for a press release and access to the drafts on the IVSC website.

All proposed amendments with the exception of amendments 4 and 14 were accepted. Amendment 14 was the suggestion that IFRSs could be included in the current Transatlantic Trade and Investment Partnership (TTIP) negotiations between the European Union and the United States.

A recording of the vote is available on the European Parliament website (vote on this topic begins at 17:46 hours).

UK companies (except listed companies) and Limited Liability Partnerships (LLPs) will be required to keep a Person with Significant Control (PSC) register of people with significant control over the company.  A person with significant control is someone who own or controls more than 25 per cent of a company’s shares or voting rights or who otherwise exercises control over a company or its management. 

Such companies and LLPs will need to hold their own PSC register from 6 April 2016 and from 30 June 2016 they will need to give this information to Companies House when they deliver their confirmation statement (which replaces the annual return).

The PSC register will need to include details on the individuals who own or control companies including name, month and year of birth, nationality and details of their interest in the company. 

Click for:

• Press release (link to BIS website)
• Non-statutory guidance published by BIS (link to BIS website)
• The Register of people with Significant Control Regulations 2016 (link to Parliament website)
• The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (link to Parliament website)
• Our previous UK Accounting Plus news item

The ICAEW “broadly” supports the proposed amendments.  However it comments that there is “ongoing confusion about the requirement for a qualifying entity to notify its shareholders in writing about its intention to apply the reduced disclosure regime in FRS 101”.  The ICAEW believes that this area should be considered further by the FRC, potentially as part of its 2016/17 review of FRS 101.  Due to the uncertainty, the ICAEW believes that there is a “strong case” for the FRC to develop some guidance in this area.

The full comment letter is available on the ICAEW website.

The TRG on credit losses acts in a manner similar to the joint TRG that the FASB and IASB established to discuss the recently issued revenue recognition standards. However, unlike the revenue recognition TRG, the FASB established the credit losses TRG before the issuance of the final standard on credit losses to understand whether the guidance is understandable and to avoid potential implementation issues. The FASB will consider the feedback received from the credit losses TRG before finalising the guidance on credit losses (currently expected in Q2 2016).

The first discussions included the TRG’s observations on how an entity would estimate expected credit losses on loans, specifically relating to the draft measurement guidance that states an entity:

• may use various methodologies to determine their expectation of credit losses;
• will not be required to forecast conditions over the entire life of a financial asset;
• has flexibility when determining the historical loss information to which it would revert and the method of reversion;
• should incorporate information in its expectations of credit losses that are relevant to the entity and accessible without undue cost or effort and would exclude external information that is less relevant than an entity’s own internal information.

Information is available on the FASB website:

• FASB project page
• Agenda paper for the first TRG meeting

The EU Non-Financial Reporting Directive was approved by the council of the European Union in September 2014. It requires large public-interest companies with more than 500 employees to disclose relevant and material environmental and social information in their annual report. Public interest companies are those with securities admitted to a regulated market in the EU together with credit institutions and insurance undertakings.

Those within scope will also be required to provide information on their diversity policy, covering age, gender, geographical diversity, and educational and professional background. Disclosures shall set out the objectives of the policy, how it has been implemented, and results.

The EC consultation was published in January 2016.

The FRC believes that “non-mandatory guidance can be helpful to companies when implementing legal requirements” and “can lead to improvements in the quality of corporate reporting”.  However it has “some concerns about the direction of travel of the Commission’s proposals”.  Additionally it believes that any guidance should be “concise, principles based” and should “allow companies flexibility to tell their story”.  The FRC does not support prescriptive guidelines which can lead to boiler plate reporting.  Additionally the FRC comments that the guidance should not go beyond the scope of the Directive and should provide Member States with flexibility to use their own guidance.

The full comment letter is available on the FRC website.