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August

IAASB publishes Discussion Paper on challenges for Assurance Engagements

19 Aug 2016

The International Auditing and Assurance Standards Board (IAASB)’s Integrated Reporting Working Group, dedicated to exploring emerging forms of external reporting, has released a Discussion Paper, Supporting Credibility and Trust in Emerging Forms of External Reporting: Ten Key Challenges for Assurance Engagements

The Discussion Paper explores:

  • the factors that can enhance credibility and trust, internally and externally, in relation to emerging forms of external reports;
  • the types of professional services most relevant to these reports;
  • the key challenges in relation to assurance engagements; and
  • the type of guidance that might be helpful in this context.

The paper and several supporting documents are available on the IAASB website.

New member of the IFRS Foundation Monitoring Board

19 Aug 2016

The IFRS Foundation Monitoring Board (MB), responsible for the oversight of the IFRS Foundation, has published a press release announcing that the Ministry of Finance of the People’s Republic of China (China MOF) is now a member of the Monitoring Board.

In its Final Report on the Review of the IFRS Foundation’s Governance published in February 2012, the Monitoring Board announced that it wants to expand its membership to include up to four members, primarily from major emerging markets. In January 2014, the Brazilian Securities Commission (CVM) and the Financial Services Commission of Korea (FSC) were appointed as members. The application from China triggered an extended screening, however, it was found that the China MOF fulfils the revised membership criteria approved by the Monitoring Board in February 2016. The United States Securities and Exchange Commission (SEC) abstained from the final vote on the membership. Please click for the press announcement on the IASB website.

IIRC, ACCA and IAAER publish two research reports on Integrated Reporting

18 Aug 2016

The International Integrated Reporting Council (IIRC), the Association of Chartered Certified Accountants (ACCA) and the International Association for Accounting Education and Research (IAAER) have published two research reports on Integrated Reporting.

The first research report Meeting users’ information needs: The use and usefulness of Integrated Reporting explores how providers of financial capital perceive integrated reporting (<IR>) and its potential for providing decision-useful information, through interviews with senior capital market participants and other significant reports users.  The report highlights investors’ information needs and identifies the key challenges to widespread <IR> adoption.

The report indicates that “there is still work to do in raising awareness of <IR> principles among equity investors and other providers of finance so that integrated reporting is expected and demanded”.

A number of recommendations are put forward which focus on increasing the current market penetration of and familiarity with <IR> among equity investors and other providers of finance/users and increasing the demand and perceived usefulness of <IR>.  The recommendations include: 

  • Empirical research should be undertaken to establish the capital market benefits of <IR>.  The report indicates that if such benefits were more clearly established, this would provide companies with greater incentive to adopt <IR>.
  • Greater promotion of <IR> by current institutional investors in the <IR> investor network in client meetings and associated agendas.
  • Current <IR> preparers should present their use of <IR> and its benefits for investment decision-making at capital market events outside of the results season.  The report indicates that this could be a platform to introduce <IR> and explain its value to company analysts and fund managers including the benefits for consistency of KPI reporting, risk monitoring, risk monitoring and key risk reporting and long-term drivers of value that underpin corporate strategy.

The second report Factors affecting preparers’ and auditors’ judgements about materiality and conciseness in Integrated Reporting explores the issues of materiality and conciseness in Integrated Reporting from the perspectives of corporate report preparers, company auditors and users of reports.  Evidence was gathered about current <IR> practices and issues faced by practitioners in determining materiality and conciseness in <IR>. 

Click for (all links to ACCA website:

FRAB minutes for June 2016 meeting released

17 Aug 2016

The minutes of the Financial Reporting Advisory Board’s (FRAB’s) meeting of 23 June 2016 have been made available on the HM Treasury website.

The role of the Financial Reporting Advisory Board (FRAB) is “to ensure that government financial reporting meets the best possible standards of financial reporting by following Generally Accepted Accounting Practice (GAAP) as far as possible”.  The FRAB includes representatives from the accountancy profession in the private and public sectors, academia and government bodies.  The board meets regularly to consider proposed changes to policy and practice.

Key topics discussed during the meeting included:

  • HM Treasury consultations on proposals for applying International Financial Reporting Standard (IFRS) 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers for the public sector and amendments to the Government Financial Reporting Manual (FReM) to incorporate the two standards.
  • Discussion of IFRS 16 Leases and consideration of the impact that the standard will have on the public sector.
  • An update on the activities of the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) and their exposure draft of the 2017/18 Code of Practice on Local Authority Accounting in the UK.
  • An update on European Public Sector Accounting Standards (EPSAS).

Click here for detailed minutes and other supporting documents on HM Treasury website.

Joint IASB and FASB webcast on revenue

15 Aug 2016

On 15 September 2016, the IASB and FASB will host a joint webcast to discuss implementation of the requirements in IFRS 15 'Revenue from Contracts with Customers' and ASC 606.

Topics of discussion will include:

  • an overview of the revenue model;
  • an update on recent implementation activities, including standard-setting and the Transition Resource Group for Revenue Recognition;
  • resources available to help with implementation questions;
  • disclosures; and
  • an audience question-and-answer session.

Please click for more information and registration for the webcast on the IASB website.

HMRC updates its papers on the tax implications of FRS 101 and FRS 102

12 Aug 2016

HM Revenue and Customs (HMRC) has updated its papers which provide an overview of the key accounting changes and the key tax considerations of moving from ‘old’ UK GAAP to either FRS 101 ‘Reduced Disclosure Framework’ or FRS 102 ‘The financial reporting standard applicable in the UK and the Republic of Ireland’.

The FRS 101 paper updates a previous paper published in January 2014 to primarily 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 a number of the amendments to FRS 101 issued in September 2015

The paper does not reflect:

  • FRS102 or FRS102 section 1A – this is provided in the separate paper as highlighted below
  • FRS103Insurance Contracts
  • FRS104Interim Financial Reporting
  • amendments to European Union (EU) endorsed International Financial Reporting Standards (IFRS), yet to be effective
  • new IFRS, yet to be EU endorsed.

The paper has also not been updated for changes to the tax rules included in Finance (No.2) Act 2015 or that are included in Finance Bill 2016. In particular, it does not reflect changes to the loan relationship and derivative contract rules and changes to the intangibles legislation.

An updated FRS 102 paper is also available on the HMRC website reflecting amendments (from a paper originally published in January 2014) that were covered in our news item in October 2015.  

Both papers are are split into two sections:

  • The first section provides a comparison of the accounting and tax differences between ‘old’ UK GAAP and either FRS 101 or FRS 102.
  • The second section provides a summary of the key accounting and tax considerations upon transition.

The papers include 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”.     

Update 16 December 2016 - HMRC have added an additional overview paper on key income tax considerations of moving from ‘old’ UK GAAP to FRS 102.

Click for:

HMRC consults on changes to lease taxation as a result of IFRS 16

12 Aug 2016

HM Revenue and Customs (HMRC) has published a consultation on the impact of International Financial Reporting Standard (IFRS) 16 ‘Leases’ on the taxation of leases of plant or machinery and possible options to address those impacts.

Changes to the existing tax rules for the leasing of plant or machinery are required in order to cater for the new accounting requirements for leases under IFRS 16.  The changes will affect both IFRS and Financial Reporting Standard (FRS) 101 Reduced Disclosure Framework reporters.  They will not affect the rules for companies accounting under UK GAAP (except FRS 101).

The consultation covers:

  • current lease accounting rules and current tax treatment of plant and machinery leases;
  • new lease accounting under IFRS 16 and tax impacts; and
  •  options for tax changes.

The consultation offers a number of solutions including preserving the effects of the current regime or introducing a new tax regime for the tax treatment of leases of plant or machinery. 

Comments are invited until 30 October 2016.  After considering all responses to the options in the consultation, HMRC will issue another consultation on the preferred option.

 Click for (all links to HMRC website):

2016 IFRS 'Green Book' coming soon

11 Aug 2016

The IFRS Foundation has announced that 'A Guide through IFRS 2016' will be available in September.

This volume (nicknamed the "Green Book") will include the full text of the Standards and In­ter­pre­ta­tions and ac­com­pa­ny­ing documents (such as the Basis for Con­clu­sions) issued by the IASB as at 1 July 2016 with extensive cross-ref­er­ences and other an­no­ta­tions. This edition does not contain documents that are being replaced or su­per­seded but remain ap­plic­a­ble if a reporting entity chooses not to adopt the newer versions early.

The new re­quire­ments since 1 July 2015 include:

The Green Book will sell for £98 plus shipping for the two book set. More in­for­ma­tion and ordering details are available on the IASB's eIFRS website.

The Bruce Column — The growth in the importance of corporate culture

11 Aug 2016

Combining effective corporate culture and good corporate governance is increasingly seen as being down to people rather than processes. Our regular, resident columnist Robert Bruce takes a look at the latest thinking on how to achieve this.

Combining effective corporate culture and good corporate governance is increasingly seen as being down to people rather than processes. Our regular, resident columnist Robert Bruce takes a look at the latest thinking on how to achieve this.

As recent events and parliamentary inquiries have clearly shown corporate success or failure and reputational risk or failure, is often down to people rather than processes.

And the latest survey and resulting report from the Financial Reporting Council confirms this. It engaged the consultants Independent Audit to carry out an extensive survey of 44 FTSE chairmen and 33 FTSE company secretaries, and to interview 22 FTSE chief executives and 58 FTSE chairmen. This was added to the work from FRC roundtables and discussions and has produced ‘a rich insight into the views and practices of companies’. The result is an FRC report: ‘Corporate Culture and the Role of Boards’. At its heart is the FRC view that ‘the UK governance model remains an efficient and effective means of meeting the objectives of, and arbitrating between, the many stakeholders in the market’. It goes on to say: ‘Leaders, in particular the chief executive, must embody the desired culture, embedding this at all levels and in every aspect of the business. Boards have a responsibility to act where leaders do not deliver’. But it also adds a caveat: ‘Success depends, however, on the spirit with which companies and investors apply the principles and use the flexibility they have’. And the report also makes clear that the importance is in the achieving of the cultural goals rather than devising more processes. ‘While legislation, regulation and codes influence individual and corporate behaviour, they do not ultimately control it’, the report says. 

This is important. In the wake of recent events there has inevitably been a rising tide of the public wanting more regulation, process, and legislation. There is a telling quote in the report from Javed Ahmed, chief executive at Tate & Lyle. ‘I do not believe you can just command and control anymore’, he says. ‘Business now is just not like that – especially with so many outposts and the “instancy” in this internet age. You have to work by having and sharing very deep-seated beliefs across the organisation. It is about beliefs, not just rulebooks’.

Where this falls down and produces less than optimal results is in two areas: remuneration and non-executive directors. And it falls down because it is harder, in the present structures, for the jobs to be done satisfactorily. The FRC survey reports that: ‘Remuneration practices are often cited as a driver of poor behaviour. The incentives created by performance related pay, and the corresponding impact on employee behaviours, is something that should be of utmost concern to boards and remuneration committees, which could do more to apply a cultural and values lens to the design of remuneration policies and individual remuneration decisions’. And the difficulties for non-executive directors are the traditional ones. It is difficult for them to find the right balance. They occupy a business space which is too ambiguous, ranging from being too close to the company to be fully objective to having a certainty in their views which may not be borne out by the underlying corporate facts. They need to be tough on the executives, to hold their feet to the fire, as the old cliché has it. But it is difficult to do so with the absolute confidence that they are right. ‘An important role for boards and audit committees’, says the report, ‘is to spot misalignment between behaviour, purpose and values. Where they spot gaps or misalignment, they should be challenging robustly and taking action to investigate further and where necessary to redirect management. Boards need to challenge themselves and build a cultural lens into their discussions and decision-making, for example, by asking questions with a culture focus’. 

The FRC also draws attention to the complexity of the external auditors’ work and responsibilities around the culture within a company. It says that this is important particularly in auditors’ work ‘around the control environment and in identifying specific risk issues’. But this will not cover the full range of the culture within the organisation. ‘The external auditors’ focus will be on behaviours which impact integrity over the financial statements and hence some aspects will fall outside the scope of a typical external audit. This makes it difficult’, says the FRC, ‘to give a formal view on culture as part of their audit opinion’.

But the external auditors’ privileged access gives them advantages in observing what is going well, and what is not. A comment from Rupert Soames, CEO at Serco, in the Independent Audit report, illustrates this. ‘They say a fish rots from the head, but it can rot from the finance department in corporate life, if they forget that their job is to make sure that management and owners understand the truth and know what is going on’, he says. ‘Culture goes wrong when people are more interested in what they would like the truth to be, rather than in what it is’. The finance function needs to underpin a healthy culture.

But examining and reporting back on that culture can be difficult. Participants at one of the FRC roundtables, this time for audit committee chairs, ‘agreed that external auditors are a useful source of insight into culture, but observed they can be reluctant to share views that are not backed up by hard evidence’. 

Corporate culture, in other words, can still be an elusive element in the governance structure. 

IASB provides updates to insurance project

10 Aug 2016

The IASB has provided additional information on its upcoming insurance standard related to field work, feedback statement on its Exposure Draft (ED), “Insurance Contracts”, and the effect of board redeliberations.

For more information, see the insurance project page on the IASB’s website.

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