FRC publishes research on Audit Committee Chairs' views on, and approach to, audit quality

28 Jan, 2022

The Financial Reporting Council (FRC) has published the results of its latest research which looked at audit committee chair's views on, and approach to, audit quality.

The independent research, which builds on similar research in 2020, reinforces the case for developing standards for Audit Committees to help promote a more consistent approach to audit quality.

The research, conducted by YouGov, was based on in-depth interviews with 50 Audit Committee Chairs (ACCs) of Public Interest Entities (PIEs).  The interviews explored:

  • Defining a good quality, and a poor quality, audit;
  • Planning and executing an audit, including evidence gathering and communication with auditors;
  • Reporting on audit quality;
  • The audit tender process;
  • Changes in the audit sector, including familiarity with AQIs;
  • The future of the FRC, and as it transforms into the Audit, Reporting and Governance Authority.

There were a range of different views expressed on audit quality.  The ACCs interviewed highlighted that proper planning - alongside knowledge of the business and the specific sector - communication, and timeliness from the audit team were characteristics of a good quality audit.  The research indicated that the lead audit partner also has a significant impact on perceptions of audit quality.  Some ACCs continue to find it difficult to differentiate audit quality from the quality of service provided by their audit firm. 

When selecting an auditor the ACCs look for expertise, consistency and professionalism of the audit team as well as an understanding of the business.  Audit Committee Chairs consider the ability to build a rapport important and that it is critical that the auditor shows a healthy level of scepticism and offers robust challenge. 

Audit quality is taken very seriously by ACCs and the research highlighted that they are particularly alert to this during the audit tendering process with mandatory tendering being seen as an opportunity to encourage innovation by prospective auditors.  Many ACC were 'pleasantly surprised' by the response by audit firms to the pandemic but did note that the pandemic has impacted the ability to have informal interaction with audit firms and has resulted in more formal and structured interactions between the ACC and the lead audit partner.

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

IFRS Foundation announces ISSB Vice-Chair and Special Advisor to the ISSB Chair

27 Jan, 2022

The Trustees of the IFRS Foundation have announced the appointment of Sue Lloyd as Vice-Chair of the International Sustainability Standards Board (ISSB). In addition, Janine Guillot has been appointed as Special Advisor to the ISSB Chair.

Ms Lloyd currently serves as Vice-Chair of the International Accounting Standards Board (IASB) and Chair of the IFRS Interpretations Committee and will step down from these roles to take up her new position on 1 March 2022. Ms Lloyd has been appointed for an initial four-year term. The press release notes that her appointment completes the current search for ISSB Vice-Chair(s). It also notes that the Trustees have begun the process of identifying successors for her current roles.

Ms Guillot is the current Chief Executive Officer of the Value Reporting Foundation (VRF), which was formed through the merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) in 2021. She has been appointed effective 1 February 2022. Ms Guillot will provide strategic advice and counsel to the Chair of the ISSB with specific responsibilities for the consolidation of the VRF into the IFRS Foundation and the establishment of the ISSB. She will serve a two-year term, renewable for one year. A further Special Advisor to the ISSB Chair from the Asia-Oceania region is expected to be appointed who will focus on the ISSB’s engagement with developing and emerging economies, as well as with smaller companies.

The press release also highlights that the Trustees are progressing with their search for the remaining ISSB members, with potential candidates encouraged to submit their applications. Interviews for these roles are scheduled to begin in early February 2022.

Please click for more information in the press release on the IFRS Foundation website.

Call for applications: Members of the EFRAG SRB

27 Jan, 2022

The envisioned new structure of the European Financial Reporting Advisory Group (EFRAG) would see the establishment of a second Board: the Sustainability Reporting Board (SRB). A call for candidates for the SRB has now been published.

The call for applications is available through the press release on the EFRAG website. Candidates can only be nominated by EFRAG Member Organisations. Nominations for membership are invited by 10 February 2022.

In addition, EFRAG is looking for candidates for both the Chair and the members of its Sustainability Reporting Technical Expert Group. More information is available here.

Pre-meeting summaries for the February 2022 IFRS Interpretations Committee meeting

26 Jan, 2022

The IFRS Interpretations Committee (Committee) meets on Tuesday 1 February 2022. The Committee will discuss an ongoing matter, the comment letter analysis for one tentative agenda decision and an educational paper.

Ongoing matter

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Negative low or new energy vehicle credits: In its November 2021 meeting, the Committee discussed a submission asking whether an entity with negative low emission vehicle credits has a present obligation that meets the definition of a liability in IAS 37. In the meeting, Committee members generally agreed with the staff's analysis that an entity that has generated negative credits has an obligation that meets the definition of a liability in IAS 37. Some Committee members suggested refining the words in the tentative agenda decision and some members suggested the analysis of the implications of the consensus in IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment. The staff recommend publishing the tentative agenda decision with proposed refinements to the wordings.

Comment letter analysis

IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance—TLTRO III Transactions: In its June 2021 meeting, the Committee discussed a submission asking how banks account for the European Central Bank (ECB)’s Targeted Longer-Term Refinancing Operations (TLTRO). Specifically, the submission asked whether the TLTRO III tranches are loans at a below-market interest rate which should be accounted for as a government grant. The staff have analysed the comment letters and recommend finalising the agenda decision with minor editorial changes.

Education session

IFRS 17 Insurance Contracts—Profit recognition for annuity contracts: The Committee received a submission about determining how to recognise unearned profit as revenue based on the services an entity provides to policyholders of annuity contracts in a scenario where an entity includes unearned profit in the measurement of insurance contracts and subsequently recognises it as revenue as the entity provides services. The paper provides an overview of the applicable IFRS 17 requirements and other background related to those requirements.

Administrative matters

Work in progress: The following new matters have not yet been presented to the Committee:

  • Rent Concessions: Lessors and Lessees (IFRS 16 and IFRS 9)
  • Special Purpose Acquisition Companies (SPAC): Accounting for warrants at acquisition (IFRS 2 or IAS 32)
  • Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Liabilities or Equity (IAS 32)

The full agenda for the meeting and our com­pre­hen­sive pre-meet­ing summaries can be found here.

IPSASB issues non-substantive changes to its standards

25 Jan, 2022

The International Public Sector Accounting Standards Board (IPSASB) has issued 'Improvements to IPSAS, 2021'.

The pronouncement includes minor improvements to IPSAS to address issues raised by stakeholders and minor amendments sourced from recent IFRS improvements and narrow scope projects.

Please click for more information and access to the pronouncement on the IPSASB website.

Summary of the November 2021 CMAC meeting

24 Jan, 2022

Representatives from the International Accounting Standards Board (IASB) met with the Capital Markets Advisory Council (CMAC) by video conference on 11 November 2021. Notes and recording from the meeting have now been released.

The topics discussed at the meeting included:

  • IASB update
  • Goodwill and impairment
  • Forthcoming Exposure Draft: Supplier Finance Arrangements — Proposed amendments to IAS 7 and IFRS 7.

The meeting summary is available on the IASB website. In addition, the meeting page offers record­ing of meeting.

The next CMAC meeting will be held on 17 March 2022.

FRC opens applications for its Stakeholder Insight Group

24 Jan, 2022

The Financial Reporting Council (FRC) is opening applications for its Stakeholder Insight Group (SIG), a new cross-stakeholder panel that will represent preparers, investors, audit committee chairs and other key stakeholders, including reporting framework owners and civil society groups.

The FRC is seeking to appoint 20 members to the SIG, 10 to serve a nine-month term and 10 to serve an 18-month term. Membership terms will commence on 1 April 2022 and SIG meetings will be held quarterly. These meetings will be an opportunity for members to:

  • share insights on key opportunities and potential areas of focus for the FRC;
  • share perspectives on key areas of concern and emerging risks relating to accounting, reporting, auditing and governance issues;
  • provide input on policy development, the UK Corporate Governance Code, the UK Stewardship Code and the FRC’s approach to ESG and Climate reporting;
  • provide comments on regular enforcement and supervision activities such as Audit Quality Reviews and Enforcement Reviews; and 
  • consider and respond to requests for input and advice from the FRC relating to thematic reviews and other ad-hoc projects.

Both new participants and members of previous FRC advisory groups can apply to join the SIG. Applications are open until Friday 11 February. 

Further information is available on the FRC website

February 2022 IFRS Interpretations Committee meeting agenda posted

21 Jan, 2022

The IFRS Interpretations Committee has posted the agenda for its next meeting, which will be held by video conference on 1 February 2022.

The Committee will discuss the following:

  • IAS 37 — Negative low emission vehicle credits
  • IFRS 9 and IAS 20 — TLTRO III Transactions
  • IFRS 17 — Profit recognition for annuity contracts
  • Work in progress

The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries as well as observer notes from the meeting on this page as they become available.

EFRAG publishes working papers on sustainability reporting standards

21 Jan, 2022

The Project Task Force on European Sustainability Reporting Standards (PTF-ESRS) of the European Financial Reporting Advisory Group (EFRAG) has released working papers on the first draft standards on sustainability reporting.

The papers reflect the current state of the standard-setting work carried out by the Task Force following the due process the PTF-ESRS has defined for itself.

The cover note that accompanies the set of working papers sets out the intended architecture and structure of the standards, offers a draft index for the European Sustainability Reporting Standards as appendix 1 and access to the individual working papers as appendix 2. The drafts in the working papers published today cover four cross-cutting standards (of a total of five), two conceptual guidelines (of a total of six) and the ESRS E1 Climate change. The cover note highlights that the other working papers will be published in two further batches within the next weeks.

EFRAG emphasises that the publication of the working papers is to ensure a transparent process, it is not a public consultation. A future consultation is mentioned in the cover note, however, not date is given.

Please click to access the cover note linking to the working papers on the EFRAG website.

EFRAG draft comment letter on the classification of debt with covenants

21 Jan, 2022

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the exposure draft 'Non-current Liabilities with Covenants (Proposed amendments to IAS 1)' the IASB published to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability.

In the draft comment letter, EFRAG supports the IASB’s efforts to address the concerns of constituents that have emerged in the context of the IFRS Interpretations Committee’s agenda decision of December 2020 and accepts that liabilities should be classified as current or non-current based on the situation as at the end of the reporting period.

However, EFRAG raises the following points:

  • EFRAG disagrees with the separate presentation of liabilities classified as non-current for which the entity’s right to defer settlement for at least twelve months after the reporting period is subject to conditions during that time.
  • EFRAG suggests changes to the wording for differentiation between covenants that do not affect the classification at balance sheet date and covenants that affect the classification.
  • EFRAG expresses concerns that the targeted scope of the disclosure requirements may be too broad in practice.

Comments on EFRAG's draft comment letter are requested by 9 March 2022. For more information, see the press release and the draft comment letter on the EFRAG website.

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