Auditors of UK charities have a duty to report any matters of material significance that they identify in the course of their work to their respective charity regulator as soon as they become aware of it. This duty to report is included within the revised Practice Note 11: The audit of charities in the United Kingdom, issued by the Financial Reporting Council in November 2017.

With effect from 1 May 2017, the list of reportable matters to the Charities Commission includes where an auditor intends to give a modified audit opinion and/or an audit opinion that includes paragraphs about an emphasis of matter or material uncertainty regarding going concern.

The review by the charity commission focussed on the period from 1 May to 31 October 2017. During this period, 114 charities gave audit opinions containing information that auditors were required to report to the Charity Commission as a matter of material significance.

Findings from the review include:

• Of the 114 audit reports that should have been reported to the Charity Commission as a matter of material significance, only 28 reports were given.
• Of the 28 reports received, only four were reported to the Charity Commission in a timely manner.
• Only 16 of the 114 charities filed their audited accounts promptly (measured as being no later than one day after the audit report was signed). Seven charities waited more than 100 days to file their accounts.

The Charities Commission indicates that:  

We are keen to work with the accountancy profession to raise standards of accountability and transparency within the charity sector. Auditor reporting on all matters of material significance has a key part to play in this. Therefore, we are writing to all of the firms or practitioners that did not file a report, reminding them of their responsibility to report a matter of material significance to us and asking them to explain why they have not done so.

The Charities Commission review reminds trustees of the list of matters of material significance that they need to be aware of and the duty placed upon an auditor to report these to the regulator. The report also highlights the need for Trustees to consider whether a serious incident report is required where an auditor has reported a matter of material significance.

The FRC has indicated that it, along with the audit professional bodies, will work with the charities regulators to promote and enforce these reporting requirements.

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

Previous guidance in this area stated that companies may be obligated to disclose cybersecurity risks and incidents, but it did not provide specific disclosure requirements. The new guidance clarifies that the SEC expects companies to disclose cybersecurity risks and incidents that are material to investors, including financial, legal, or reputational consequences.

For more information, see the press release and interpretation on the SEC’s website.

Although the ACCA notes that the quality of audit has improved and continues to improve, there are still improvements that can be made and initiatives to be explored to drive better audit quality.

The guide builds on the framework for audit quality published by the International Auditing and Assurance Standards Board (IAASB) in 2014 which aimed to raise awareness of the key elements of audit quality, encourage key stakeholders to do more to increase audit quality, and facilitate greater dialogue between key stakeholders on the topic. It recognises that the features of a good quality audit can sometimes exist in mutual tension and highlights that “as a result, an open and honest debate is needed about how audit quality can be maximised”.

The guide, Tenets of a quality audit, identifies the following five factors that, in the opinion of the ACCA, contribute to audit quality:

• Thoroughness and timeliness – thoroughness in an audit is required to ensure all risks are addressed and all issues are resolved prior to issuing the audit report. The value of audit to investors and the public also lies in its timeliness.
• Independence and closeness – the auditor should remain independent at all times when performing the audit. Audit quality is also enhanced by the closeness to an audit client that is acquired through repeated involvement in the engagement.
• Standardisation and autonomy – quality audits require a certain degree of standardisation (at a basic level the auditor must follow auditing standards) and, at the same time, require the auditor to exercise some autonomy in deciding where risks lie and, therefore, where to do more of less work.
• Delivering a holistic opinion and responding to fraud – a quality audit requires the delivery of a holistic opinion – the ‘true and far’ view – over the financial statements. A risk-based approach is vital to ensuring that, as far as possible, the auditor spends most of their time on the riskiest parts of the audit and that the opinion is holistic. Audit quality also requires the auditor to respond to fraud of suspected fraud.
• Backward-looking and forward-looking – a quality audit requires backward-looking testing, in which the auditor tests historical transactions in the company’s ledgers. A quality audit also requires the auditor to have regard to forward-looking information and to incorporate considerations of that information into the audit report.
• Transparency and confidentiality – a quality audit requires transparency by the auditor and users do not expect the auditor to withhold salient information from the audit report. At the same time, the audit process relies upon a share understanding that private information disclosed to the auditor will remain confidential.

A press release and the full guide are available on the ACCA website.

The full agenda is summarised below:

There are eight topics on the agenda.

Tuesday 20 February

Disclosure Initiative

The Board will discuss the detailed feedback received on the Disclosure Initiative—Principles of Disclosure Discussion Paper. There are 12 papers for this session, plus a cover note.

Primary Financial Statements

The Staff are responding to the Board’s request in January to clarify what is meant by a ‘key performance measure’ and a measure that is ‘specified or defined in IFRS Standards’. The staff are also recommending that when a management performance measure (MPM) is reported an adjusted EPS that is calculated consistently with the MPM must be presented, together with supporting disclosures.  Finally, the staff are also recommending that, within the investing section of the statement of cash flows, a distinction be made between cash flows arising from integral and non-integral associates and joint ventures.

Thursday 22 February

Dynamic Risk Management

In this paper, the Staff set out the qualifying criteria for designating an item into the asset profile, which defines which items are managed for interest rate risk and are therefore subject to performance assessment under the DRM model. They also discuss some technicalities about designation and situations requiring de-designation, as well as documentation requirements.

Business Combinations under Common Control

The Staff are recommending that the Board use the acquisition method in IFRS 3 as the starting point in developing proposals for accounting for business combinations for which all of the parties to the combination are under common control.

Research

The Staff will give the Board a status update on its research programme. The Staff are recommending that the Board start work in the next few months on variable and contingent consideration; provisions; extractive activities; pension benefits that depend on asset returns; and SMEs that are subsidiaries. Work on equity method; pollutant pricing mechanisms; high inflation (the scope of IAS 29); and post-implementation reviews of IFRS 10-12; and IFRS 5 should commence in 2019 or early 2020.

Insurance

The staff will give the Board a summary of the first Insurance Contracts TRG meeting. 

Analysis of due process documents

This Staff have set out for the Board the different purposes of Discussion Papers (DP) and Exposure Drafts (ED). This session is being held in anticipation of the Board’s decisions about whether it should publish a DP or an ED for the projects on primary financial statements, goodwill and impairment as well as rate-regulated activities.

Rate regulated Activities

The staff are recommending that the model being developed specify the unit of account as the individual timing differences (as opposed to the net of all timing differences) arising from the regulatory agreement. The staff also explain why they consider that rate-regulated rights and obligations meet the revised definitions of assets and a liabilities in the forthcoming Conceptual Framework.

More information

Our pre-meeting summaries are available on our February meeting note page and will be supplemented with our popular meeting notes after the meeting.

The complete set of information around the TRG meeting is now:

• audio recordings of the individual sessions
• meeting summary
• podcast (7 minutes)
• Need to know — Transition Resource group discusses implementation of IFRS 17 'Insurance Contracts'

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:

• The FReM 2017-18 and 2018-19 and illustrative statements.
• An update on IFRS 16 Leases in the public sector context.
• Discount rates.
• The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) 2018/19 Code of Practice on Local Authority Accounting in the UK.
• A first draft of the 2018-19 Group Accounting Manual (GAM) which interprets the FReM for the health sector and is proposed to be published in April 2018.

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

The webinar will cover:

• an overview of the Integrated Reporting Framework;
• integrated Reporting within a UK context; and
• practical tips when preparing integrated information.

Further details are available on the ICAEW website.

The purpose of the fitness check exercise will be to assess whether the public reporting obligations including financial and non-financial reporting requirements for EU companies are meeting their objectives (effectiveness, relevance and EU added value). It will cover various reporting requirements including the Accounting Directive including the Non-Financial Reporting Directive, the Regulation on International Accounting Standards (IAS Regulation), the Transparency Directive (TD), the Banks Accounts Directive, and the Insurance Accounts Directive.

The Commission aims to assess whether the EU financial reporting framework is still fit for purpose. Aspects in this context are cross border businesses in a more integrated Single Market and well-functioning capital markets, the emergence of new business models, the increasing importance of intangibles in the digital economy, and the role of IFRSs and their interaction with the broader EU accounting framework. The Commission also notes the increased demand for public reporting on a broader range of topics as for example reporting on sustainability issues and long term value creation. Interaction and integration of the different sets of public reporting by companies (financial, non-financial and other reports) will also be looked at. And finally, the Commission will look at digitalisation and its long-term challenges and opportunities.

The first step in this fitness check will be an open public consultation that is expected to be launched in 1st quarter of 2018 and will last for a period of at least 12 weeks. In particular, participants will be asked for their views on the following:

1. Whether the current financial reporting framework meets its objectives and will continue to do so in the digital economy, whether the level of harmonisation and simplification meets the needs of respectively the large cross border groups and the SMEs, the role of IFRS for non-listed and listed companies including governance aspects to ensure these are not detrimental to long term and sustainable investments, and the coherence of sectoral accounting legislation for banks and insurance companies with other EU reporting and prudential legislations;
2. Whether the financial and non-financial disclosures in the area of Environmental, Social and Governance (ESG) reporting by companies are fit for purpose, including as regards sustainability disclosures;
3. Whether to encourage experimentation with integrated reporting as a way to make the EU reporting framework more effective and efficient and if yes how;
4. Whether public corporate reporting does take enough consideration of – and at least is not a hindrance to – technological progress and how to make the best use of these new tools to do more with less.

Please click to access the full fitness check roadmap on the EC website. Note that roadmaps can also be commented on - feedback on this roadmap is requested by 8 March 2018.

The High-Level Expert Group (HLEG) on Sustainable Finance, established by the EC, has also suggested in its final report setting out strategic recommendations for a financial system that supports sustainable investments that changes to the IAS Regulation might be warranted.

A summary of the agenda is set out below:

Agenda papers for the meeting are available on the IASB website.