This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.


IASB announces IFRS 16 release date

06 Jan 2016

The IASB has announced that it will publish its long-awaited leases standard, IFRS 16 on 13 January 2016. The IASB also announced two live web presentations introducing the new standard which will occur on the same day.

The IASB will present a morning and an afternoon web presentation discussing IFRS 16 Leases, to accommodate stakeholders in time zones around the world. Both 45-minute web presentations will provide an overview of the new requirements and will allow participants to ask questions. Registration is required (on the IASB's website) for the 13 January web presentations:

Stay tuned to UK Accounting Plus for information on IFRS 16; we will have timely, comprehensive coverage of the new leases standard to help readers understand the requirements and implications.

FRC publishes report of its Audit Quality Thematic Review

06 Jan 2016

The Financial Reporting Council (FRC) has published the results of its thematic review in respect of firms’ audit quality monitoring. The report includes good practice observations, an overview of findings and key messages for both auditors and Audit Committees. The FRC comment that the report is intended to “promote a better understanding of the firms’ quality control monitoring programmes and how these can improve justifiable confidence in audit”.

The review “considers the monitoring performed by nine audit firms over their quality control systems for audits of financial statements as required by International Standard on Quality Control (UK and Ireland) 1 and the UK Audit Regulations, including the monitoring performed for 50 audits”.

The review follows other thematic reviews conducted in January 2014 and December 2013.  Thematic reviews analyse further aspects of auditing which are not considered in detail during the FRC’s routine audit inspections of individual firms.  Thematic reviews seek to identify both good practice and areas of common weakness among audit firms.

Overall the FRC indicate that “overall firms allocate substantial resources to their monitoring of the quality of audits”.  However, it does highlight that “given the importance of the firms’ quality controls in supporting the consistency of the quality of audit work performed across the firm, firms do not devote a similar level of resources to their monitoring of the firms’ quality controls”.

A number of good practice observations are provided in the report.  The FRC indicates that “all audit firms are recommended to consider our good practice observations and implement such procedures, where appropriate”. 

Monitoring the firms’ quality control systems

Although the FRC found that all firms undertake annual monitoring of their quality control systems; the frequency, scope of review, resources dedicated to it and follow up of issues “varied significantly”.  The FRC observed the following good practices:

Communicating failures in the application of the firm’s quality control procedures to the individuals concerned and reflecting these in their performance appraisal and remuneration decisions.

Undertaking root cause analysis on issues identified from monitoring the firm’s quality controls as well as reviews of individual audits.  

Monitoring completed audits

The FRC highlight that all firms monitoring activity includes an annual review of a sample of completed audits to cover all individuals signing audit reports at least once every three years.  The FRC observed the following good practices:

Moving away from completing procedural type checklists towards a risk focused review; leading to a more challenging review of the audit.

Undertaking a review of a group audit including reviewing the audit of a significant UK component.

Ensuring that relevant findings are discussed with both the training and the ethics and independence teams.

Undertaking in depth thematic reviews of specific aspects of audits where there are recurring issues as part of the firms’ quality monitoring is a positive step for improving audit quality.

A number of key messages are also provided in the report.  The FRC indicates that the key messages should be considered by all audit firms in seeking to improve their audit quality monitoring procedures.

Key messages in relation to monitoring the firms’ quality control systems

Firms should consider whether:

 - The extent and frequency of their monitoring is appropriate to meet regulatory requirements.

 - The sample sizes for testing the firm’s quality controls are sufficient to obtain reasonable assurance that they are operating effectively

Audit firms should allocate sufficient and appropriate staff to undertake their monitoring and provide them with adequate training and guidance to ensure consistency between reviewers.

Key messages in relation to monitoring completed audits

Firms should require reviewers to provide a clear summary and justification that supports the outcome of a review.

Firms should assess whether individuals involved in the firm’s quality control processes, in addition to the audit partner3, ought to have identified the issues arising and required them to be addressed prior to completion of the audit.

Firms should review the last completed audit for each entity covered by their monitoring.

The report recognises that Audit Committees “play an essential role in reviewing and monitoring the effectiveness of the audit process”.  To enhance their oversight of the effectiveness of an audit and their evaluation of audit quality, the report indicates that audit committees may wish to consider:

enquiring annually for the latest results of the firm’s monitoring and whether their audit was reviewed, discussing the findings and the remedial action taken or planned to address them; and

asking whether the scope of the review included any UK components and whether the audit team have received any feedback from the monitoring performed by network firms responsible for audit work on overseas components.

The FRC “will expect to see improvements ” in future inspections of individual firms.

The press release and full report are available on the FRC website.

HM Treasury issues new financial reporting manual (FReM)

06 Jan 2016

HM Treasury has issued a revised version of the government financial reporting manual (FReM) applicable for accounting periods commencing on or after 1 January 2016.

The Government Financial Reporting Manual (FReM) is the technical accounting guide to the preparation of financial statements. It complements guidance on the handling of public funds published separately by the relevant authorities in England and Wales (HM Treasury and the Welsh Assembly Government respectively), Scotland (the Scottish Government) and Northern Ireland (the Executive Committee of the Northern Ireland Assembly). The FReM is prepared following consultation with the Financial Reporting Advisory Board (FRAB) and is issued by the relevant authorities. 

The FReM applies to “all entities, and to funds, flows of income and expenditure and any other accounts that are prepared on an accruals basis and consolidated within Whole of Government Accounts (with the exception of the accounts of any reportable activities that are not covered by an Accounts Direction)”.  It does not apply to Local Government, those Public Corporations that are not Trading Funds, and NHS Trusts and NHS Foundation Trusts.  

The press release and latest version of the FReM can be accessed on the HM Treasury website, here.

Three reappointments made to the IFRS Interpretations Committee

05 Jan 2016

The IFRS Foundation has announced the reappointment of three members to the IFRS Interpretations Committee. The Interpretations Committee is the interpretative body of the IFRS Foundation.

Current Committee members Tony de Bell, Reinhard Dotzlaw, and Martin Schloemer have been reappointed to second three-year terms, beginning 1 July 2016.

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

IASB member discusses the forthcoming leases standard

05 Jan 2016

In an article for ‘ Compliance Week’, IASB member Gary Kabureck talks about the forthcoming standard on lease accounting and concludes that there is "little to fear".

Mr Kabureck picks up four points.

The business benefits of leasing would remain unchanged

He stresses that the forthcoming changes are about accounting for leases only; the benefits of leases - such as the ability to pay for and use only the portion of an asset’s life the lessee requires, predictable payments, use of assets without legal ownership, an alternative source of financing, and simplified asset disposals - would remain as they are.

Being off-balance had never meant that leases were out of sight

Mr Kabureck explains credit providers have always known about material operating lease commitments and have routinely adjusted entity financial statements. As long as information was not and will not be intentionally distorted, there was no reason to assume that a company's credit rating will be affected.

The reporting entity would still be the exact same company

He admits that a company’s balance sheet for a lease intensive company will look different, yet the leases that were part of the off-balance sheet arrangements were still part of the company’s essence and will continue to be so.

The world would adjust just fine

Mr Kabureck concludes that even though sometimes changes are controversial and meet resistance and sometimes even lead to transitional impacts, the new requirements would operationally be little more than adopting another mandatory accounting change that provides enhanced transparency about what already exists.

Please click to access the full text of Mr Kabureck's article on the IASB website.

We comment on the BIS consultation on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive

04 Jan 2016

We have published our comment letter on the Department for Business, Innovation and Skills (BIS) consultation on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive.

The European Union published the EU Accounting Directive 2013/34/EU (‘the Directive’) on 26 June 2013. The Directive aimed to simplify the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union.

Following a consultation by BIS in August 2014 and government response in January 2015regulations were made (the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015) which implemented the EU Accounting Directive for limited companies.  Changes were also made by the Financial Reporting Council (FRC) to UK accounting standards in July 2015 to implement those changes.  At that time, the Government indicated that it would be consulting separately for LLPs and qualifying partnerships.

The LLPs and qualifying partnerships consultation proposes to introduce similar changes to the regulatory framework for LLPs. 

Overall we support the proposals.  Our key comments are:

  • we believe that maintaining reporting alignment between companies and LLPs is generally efficient and cost effective in the long term and therefore support the proposals;
  • we strongly believe that the regulation alignment should be implemented as soon as possible to allow early adoption of the updated regulations so as to reduce or eliminate any timing difference in application between companies and LLPs; and
  • areas of accounting that have pre-existing differences that are currently in place to reflect the differing characteristics of LLPs compared to companies (such as merger accounting criteria) should not be updated to reflect the changes adopted in the company regulations.

Further comments and full responses to the questions raised in the consultation paper are contained within the full comment letter.

Agenda for the January 2016 IFRS Interpretations Committee meeting

04 Jan 2016

The IFRS Interpretations Committee will meet at the IASB's offices in London on 12 January 2016. The agenda for the meeting was published today.

The Interpretations Committee will continue its discussions on IFRIC 12 — Payments made by an operator to a grantor in a service concession arrangement. The Interpretations Committee is also expected to finalise six agenda decisions, all of which — except for issues around IFRS 5 — will only see very short discussions (15–20 minutes each).

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

We comment on the IASB agenda consultation

04 Jan 2016

We have responded to Request for Views document that the IASB published in August 2015 to launch its second public consultation to seek broad public input on the strategic direction and overall balance of its future work programme.

We support the emphasis the consultation places on completing the remaining major projects. We also note that the Board should allocate sufficient resources to the implementation of these standards, of the forthcoming IFRS 16 Leases, and of the recently published standards IFRS 9 and IFRS 15. We welcome the attention given to research projects.

However, we miss a sense of context how the Board sees its current standard-setting priorities in relation to a wider and more long-term view of financial and corporate reporting.

Please click to access the full comment letter.

IFRS Foundation publishes additional framework-based teaching material

04 Jan 2016

The IFRS Foundation has published the fourth and fifth parts of its comprehensive, framework-based IFRS teaching material for its education initiative. The material is free to download and is designed to enhance educators’ teaching about IFRSs and to help students develop their abilities to make the necessary estimates and judgments when applying IFRSs and the IFRS for SMEs.

Part 4 of the material made available now focusses on accounting for business combinations and consolidated financial statements. Part 5 focusses on changing accounting policies and accounting estimates, correcting prior period errors and reflecting changes in circumstances.

Please click to access all batches of the teaching material on the IASB website.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.