July

FRC publishes audit quality inspection reports of the major audit firms

15 Jul, 2020

The Financial Reporting Council (FRC) has published individual audit quality inspection reports for the major audit firms.

The results highlight that 67% of the 88 audits reviewed required “no more than limited improvements” with 33% of audits requiring “more than limited improvements” which the FRC has indicated “remains acceptable”.

Whilst the FRC acknowledges that there have been some improvements including in the areas of group audit oversight and effective integration of specialists into the audit team, it highlights that “firms are still not consistently achieving the necessary level of audit quality”. The FRC flags that improvements can be made in the areas of impairment of goodwill and intangibles, revenue and contracts and provisions including loan loss provisions. Finding across firms were also identified in the auditing of inventory, group oversight, going concern and investment property valuations.

The reports set out the principal findings arising from the audit quality inspection work carried out by the FRC’s Audit Quality Review (AQR) team for 2019/20. The priority sectors for inspection were Financial Services, General Retailers, Business Support Services, Construction and Materials and Retail Property. The reviews focused on going concern and the viability statement, the other information in the annual report, long-term contracts, the impairment of assets and fraud risk assessment.

The press release and links to individual reports are available on the FRC website.

FRC publishes the results of its review of audit firms' going concern policies and procedures

08 Jul, 2020

The Financial Reporting Council (FRC) has published the results of its review of the seven largest UK audit firms' policies and procedures in relation to going concern, in light of COVID-19.

The FRC reviewed the seven largest UK audit firms' going concern policies and procedures in accordance with IAS (UK) 570.

The key findings of the review are:

  • All firms enhanced their audit policies and procedures relating to going concern from the end of March 2020 for increased risk of material uncertainties of going concern due to COVID-19.
  • Firms have focused on improving the consistency of execution in the audit of going concern through providing additional central support and oversight.
  • The additional policies and procures implemented by the firms have been consistent with the requirements of ISA (UK) 570 and the additional guidance issued in March 2020 by the FRC. 
  • Additional policies and procedures have been similar across the firms.

The FRC's review followed guidance issued in March 2020 and a recent FRC Lab Report on going concern, risk and uncertainty.

In the next stage of the review, the FRC will review a sample of completed audits to assess how the revised going concern policies and procedures are being applied in practice and will report on this later this year.

Please click for the press release and review letter on the FRC website.

Please click for the following additional information on the FRC website:

FRC publishes thematic review findings on financial reporting effects of COVID-19

21 Jul, 2020

The Financial Reporting Council (FRC) has published the results of a thematic review looking at company reporting since the onset of the COVID-19 pandemic.

The review analysed a sample of March 2020 interim and annual reports and accounts and found that although companies provided sufficient information to enable a user to understand the impact COVID-19 had on their performance, position and future prospects, some - particularly interim reports - would have benefited from more extensive disclosure.

The FRC reminds companies that they should:   

  • explain the significant judgements and estimates made in preparing their accounts and provide meaningful sensitivity analysis or details of a range of possible outcomes to support any disclosed estimation uncertainty;
  • describe any significant judgements made in determining whether there is a material uncertainty about their ability to continue as a going concern;
  • ensure that assumptions used in determining whether the company is a going concern are compatible with assumptions used in other areas of the financial statements;
  • apply the requirements of IAS 1 to any exceptional or similar items, with income statement sub-totals comprising only items recognised and measured in accordance with IFRS;
  • apply existing accounting policies for exceptional and other similar items to COVID-19 related income and expenditure consistently and should not split income and expenses between COVID-19 and non-COVID-19 financial statement captions arbitrarily; and
  • prepare interim reports that provide sufficient information to explain the impact that COVID-19 has had on their performance, position and future prospects.

Please click to access the thematic review on the FRC website.

IASB announces third webinar on PFS ED

03 Jul, 2020

In December 2019, the IASB published the exposure draft of a new standard 'General Presentation and Disclosures' that is intended to replace IAS 1 'Presentation of Financial Statements'. The IASB is introducing the exposure draft in a series of webinars.

The third webinar on 9 July 2020 will explain the Board’s detailed proposals for disaggregation including general guidance, the analysis of operating expenses and unusual income and expenses. The webinar will last approximately 60 minutes and will include a question-and-answer session. More information is available here.

IASB defers effective date of IAS 1 amendments

15 Jul, 2020

The International Accounting Standards Board (IASB) has published 'Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Amendment to IAS 1)' deferring the effective date of the January 2020 amendments to IAS 1 by one year.

 

Background

On 23 January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1) providing a more general approach to the classification of liabilities under IAS 1 Presentation of Financial Statements based on the contractual arrangements in place at the reporting date. The amendments had an effective date of 1 January 2022.

In April 2020, the IASB held a supplementary IASB meeting to consider COVID-19-related matters including the Board's timelines in view of the COVID-19 pandemic. The Board tentatively decided to delay by one year the effective date of Classification of Liabilities as Current or Non-current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023 and published a corresponding exposure draft in May 2020.

The finalised amendment published today defers the effective date of the January 2020 amendments by one year.

 

Changes

The changes in Classification of Liabilities as Current or Non-current — Deferral of Effective Date defer the effective date of Classification of Liabilities as Current or Non-current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023. Earlier application of the January 2020 amendments continue to be permitted.

 

Additional information

Please click for:

IASB issues podcast on latest Board developments (July 2020)

30 Jul, 2020

The IASB has released a podcast featuring IASB Chair Hans Hoogervorst and Vice-Chair Sue Lloyd discussing deliberations at the July IASB meeting.

The podcast discusses:

  • IBOR Reform and its effects on financial reporting — Phase 2;
  • Disclosure initiative — Accounting policies;
  • Management commentary;
  • Extractive activities; and
  • Maintenance and consistent application.

The podcast (8 minutes) can be accessed through the press release on the IASB website.

The detailed notes taken by Deloitte observers at the meeting are available here.

IASB issues third webcast related to its request for information on the IFRS for SMEs Standard

20 Jul, 2020

The IASB has issued the third in a series of webcasts related to the ‘Request for Information: Comprehensive Review of the IFRS for SMEs Standard' issued on 28 January 2020.

This webcast discusses “how the Board has applied the alignment principles in requesting views on how the IFRS for SMEs Standard should be aligned with IFRS Standards in the scope of this review.”

The IASB, in co­op­er­a­tion with the SME Im­ple­men­ta­tion Group (SMEIG), has developed and issued a request for in­for­ma­tion seeking comments on strategic and general questions, specific sections of the IFRS for SMEs, as well as new topics and other matters related to the IFRS for SMEs.

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

IASB issues webcast on amendments to IFRS 17

30 Jul, 2020

The IASB has issued a two-part webcast that provides an overview of the amendments in IFRS 17.

The IASB issued amendments to IFRS 17 in June 2020 to address concerns and implementation challenges. Specifically, the webcast focuses on implementation issues related to the amendments related to (1) requirements other than transition and (2) transition requirements.

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

IASB member discusses benefits and costs of digital reporting

07 Jul, 2020

On 7 July 2020, IASB member Ann Tarca delivered a speech at the virtual annual conference of the Accounting & Finance Association of Australia and New Zealand (AFAANZ). She discussed digital reporting and included questions for practitioners, standard-setters and researchers.

Ms Tarca began her speech by talking about what XBRL is and who uses it. She explained about tagging financial statements, the different versions of XBRL, and gave examples of different uses in the US, in the EU, in the UK, in Japan, in Denmark and in Australia.

This led her to four questions:

  • Why have we been slow to embrace digital financial reporting, when the benefits of technological innovation have been profound in other areas of accounting and finance?
  • What does research tell us about the US experience from a company preparer/auditor perspective?
  • Do investors want digital reporting?
  • Are there benefits for capital markets?

On the first question, Ms Tarca explained tat when lodging annual reports in XBRL format is not mandatory, listed companies need a compelling case to take on an activity that consumes resources as tagging financial statements will involve software, systems, expertise, staff and consultants.

On the second question, Ms Tarca mentioned experiences at the SEC pointing to some significant problems relating to the accuracy of tagging and excessive or erroneous use of extensions. However, later errors became less prevalent and some ‘learning’ took place.

Turning to the third question, Ms Tarca pointed at the fact that there seems to be low demand from investors for regulators to make tagged data mandatory as the financial data investors use is already digital in many cases as they get it from database providers. Tagging of data would, therefore, likely help the database providers, who could then focus more on ‘standardising’ and ‘normalising’ data and providing their various other value-adding activities for their clients.

Finally, in discussing the fourth question, Ms Tarca noted research that concluded that XBRL has the potential to decrease information risk and information asymmetry through greater transparency and leads to reduced information processing costs. However, she warned that because of limited use of XBRL data by financial statement users research in this area is still in its early stages.

Ms Tarca concluded her speech mentioning some opportunities for further research around comparability, quality, financial statement presentation, and disclosures.

Please click to access the transcript of her speech on the IASB website.

IASB publishes editorial corrections and errata on IFRS 17

14 Jul, 2020

The IASB has published its first batch of editorial corrections in 2020.

The corrections affect IFRS 17 Insurance Contracts. In addition, the IASB has published a list of errata on Amendments to IFRS 17 published in June 2020.

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. Both, the editorial corrections and the list of errata, can be viewed on the editorial corrections page of the IASB's 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.