The feedback statement describes the thirteen comments received by EFRAG in response to its draft comment letter on the IASB's December 2018 ED, and how these comments were considered by EFRAG in finalising its comment letter to the IASB.

For more information, see the press release and feedback statement on the EFRAG website.

This publication includes reports from the EFRAG President Jean-Paul Gauzès and the outgoing TEG Chairman and CEO Andrew Watchman. It also features EFRAG's continued work on IFRS 17 Insurance Contracts including case studies and user outreach culminating in the IASB’s re-deliberations of IFRS 17; EFRAG’s work on the EC requests relating to the potential effect on long-term investment of IFRS 9’s requirements on accounting for equity instruments; and EFRAG’s position on the IASB project Financial Instruments with Characteristics of Equity with inputs resulting from a wide outreach programme as well as an early stage analysis.

The annual review is available on the EFRAG website.

The topics discussed at the meeting included:

• Extractive activities:
  • Proposed scope of the research project
  • Additional disclosures: (1) minerals and resources and (2) other disclosures.
• Financial instruments with characteristics of equity:
  • Presentation of equity instruments
  • Presentation of financial liabilities — presentation of income and expenses arising from particular financial liabilities in other comprehensive income
• Targeted standards-level review of disclosures:
  • IAS 19 Employee Benefits
  • IFRS 13 Fair Value Measurement
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets:
  • Aligning liability definition and guidance with the Conceptual Framework
  • Clarifying which costs to include in the measure of a provision
  • Specifying whether discount rate includes own credit risk
• Management commentary practice statement:
  • Challenges in current practice of reporting performance and position in management commentary
  • The interaction between management commentary and other reports
  • Overview of performance and position
  • Forecasts and targets in management commentary
  • Information about tax in management commentary
• Business combinations under common control

The next CMAC meeting will take place on 13–14 June 2019.

For more information, see the meeting page and the meeting summary on the IASB's website.

During the four minute conference call, DPOC members asked no questions, just gave the go ahead for a shortened comment period.

Please click to listen to the recording of the call on the IASB website.

A press release is available on the FRC website.

The report details four recommendations: audit committee scrutiny, mandatory joint audit, an operational split, and a five-year review of progress by the regulator.

Recommendation 1: Audit committee scrutiny

The goal of greater scrutiny by the new regulator would be to increase accountability and increase the focus on audit quality. The recommendation includes:

• Giving the regulator powers and a requirement to mandate minimum standards for the appointment and oversight of auditors.
• Giving the regulator powers and a requirement to monitor compliance with those standards, including the ability to require reporting or to place an observer on a Committee.
• Remedial action by the regulator where necessary, such as issuing public reprimands or direct statements to shareholders.

The CMA notes that this would be complemented by implementing recommendations from the BEIS Select Committee on transparency of fees and a requirement for the auditor to present at the AGM.

Recommendation 2: Mandatory joint audit

The goal of this remedy is to address choice and resilience problems. The recommendation includes:

• Legislation to give the regulator flexible powers to implement a joint audit regime and adapt it over time. The CMA believes key elements of this remedy would be:
  • Mandatory joint audit, including at least one non-Big Four firm, for most FTSE 350 companies (with certain exemptions for very simple entities or the largest and most complex entities, as well as those that choose a non-Big Four auditor).
  • Gradual introduction enabling adaptation over time, with companies making the transition no later than when their next tender arises.
  • Each firm receiving work that is substantial and relatively equal, representing at least 30% of the audit fee.
  • No changes to the existing liability framework.
• The regulator should have the power to appoint peer reviewers for companies that are not included in the joint audit remedy (which should not be one of the Big Four, unless reviewing an auditor that is outside the Big Four).
• The regulator should monitor the health of the Big Four audit firms, in the event of a risk of failure of one of the firms, using additional powers or taking executive control to limit the movement of clients to the other Big Three.

The CMA notes that joint audit will need to be implemented carefully to take into account challenger firms’ ability to grow and should be monitored and refined as appropriate by the regulator.

Recommendation 3: Operational split

The goal of this remedy is to strengthen the focus of auditors on delivering good audits, to remove the distraction of non-audit work, and to give audit practices incentives to bid competitively for more audits. The recommendation includes:

• Legislation to give the regulator powers to design the specific details of the operational split and to refine it over time. The CMA believes key elements of this remedy would be:
  • No profit sharing between the audit and non-audit practices, with audit partner remuneration linked to the audit practice only.
  • Separate financial statements.
  • Transparent transfer pricing, checked by the regulator, particularly for the use of non-audit specialists on audits.
  • The audit practice to include audit-related services and regulatory reporting requirements.
  • A separate CEO and board for the audit practice, with a majority of independent non-executive directors answerable to investors in audited companies and to the regulator. This board should be responsible for remuneration, career progression and quality standards and should conduct an AGM and produce an annual report.

The CMA notes that whilst an international structural split cannot be undertaken by the UK Government alone, the regulator and / or the government should initiate that debate at an international level.

Recommendation 4: Review of progress

The CMA recommends that the regulator should review the effectiveness of the remedies, initially after a five year implementation period.

The CMA’s recommendations have been made to Government to be taken forward through legislation, rather than the CMA putting in place its own order. This is partly to enable the Government to assess how other reforms proposed under, for example, the Kingman Review into the regulator the Financial Reporting Council, and the Brydon Review into the quality and effectiveness of audit, would work together with the CMA’s remedies.

A press release and the CMA final report are available on the CMA website. 

Views are particularly sought on how the statutory audit of Public Interest Entities could be improved to provide greater assurance to shareholders and other stakeholders, in view of the significant economic and social impact that such organisations have.

The Independent Review is primarily interested in questions around the purpose, scope and quality of audit, rather than the specific role of the audit regulator or the market through which audit services are provided. These other two areas are being addressed, respectively, in the Government’s initial response to Sir John Kingman’s Independent Review of the Financial Reporting Council, and in the Competition and Market Authority’s on-going market study into the statutory audit market. However the Independent Review will take the recommendations of those other reviews into account.

Specifically the Independent Review calls for views, information and evidence on:

• the purpose of audit and for whom it should be carried out;
• whether its scope and purpose should be widened and strengthened to meet changing expectations of audit;
• how the quality of the audit process and product could be improved;
• whether audit findings could be better communicated;
• the role of audit within wider business assurance and in relation to directors’ legal responsibilities;
• the role of audit in detecting fraud; and
• auditor liability.

The comment deadline is 7 June 2019.

The full report is available on the the Department for Business, Energy and Industrial strategy (BEIS) website here.

The topics discussed at the meeting included

• IASB update
• SMEs that are subsidiaries — Application advice in individual jurisdictions
• Onerous contracts — Costs of fulfilling a contract (proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
• Provisions
• Management commentary
• Disclosure initiative — Targeted Standards-level review and user outreach summary

The meeting summary is available on the IASB's website.

The next GPF meeting will be held jointly with the Capital Markets Advisory Committee (CMAC) in London on 13–14 June 2019.

At its April 2019 meeting, the Board gave the staff permission to begin the balloting process for an exposure draft of proposed amendments to IFRS 17. The comment letter period is to be discussed at the May 2019 meeting of the Board.

The staff argues that the matter is narrow in scope and urgent, thus the Board might want to consider a period of less than 120 days. As the comment period needs to strike a balance between the need to allow stakeholders time to consider the proposals and provide further input to the Board and timely finalisation of the amendments, the staff intends to propose that the Board sets a comment letter period of 90 days.

The papers for the conference call have been made available on the IASB website.

The podcast features discussions of the following topics in more detail (length of the podcast: 16 minutes):

• 2 April speech on sustainability reporting and the IASB's work to update the Management Commentary Practice Statement
• 4 April meeting of the TRG for IFRS 17 and 9 April Board discussions on IFRS 17
• Primary financial statements
• Business combinations under common control
• Goodwill and impairment
• Dynamic risk management
• Disclosure initiative - Amendments to IAS 1 IFRS Practice Statement 2

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers at the April IASB meeting.