Check out the summaries for the forth­com­ing dis­cus­sions on insurance contracts, goodwill and impairment, IFRS implementation issues, and financial instruments with characteristics of equity. We have added them to our meeting note page and will sup­ple­ment them with our popular meeting notes after the meeting.

FRED 62 proposes to amend paragraphs 34.22 and 34.42 of FRS 102 to require disclosure of financial instruments held at fair value on the basis of a fair value hierarchy consistent with EU-adopted IFRS as follows:

A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

Level 3: Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

Overall we support the proposals.  Our key comments are as follows:

• the proposals will reduce the costs of complying with FRS 102 for many financial institutions and enable them to present information on a basis consistent with International Financial Reporting Standards (IFRSs); and
• it is important that the amendments are issued in final form as early as possible in 2016 and in particular in time for financial institutions with 31 December 2015 year ends to approve their accounts and meet regulatory filing deadlines without having to incur unnecessary costs in complying with the existing FRS 102 requirements for only one year.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

ED/2015/11 proposed two options for entities that issue insurance contracts within the scope of IFRS 4:

As stated in the comment letter, we agree:

• The exposure draft has identified valid reasons to introduce a temporary solution to issues arising from transitioning to two major and interrelated new standards at different times.
• An option to defer IFRS 9 should be available for insurance activities and that a predominance criterion based on the carrying amount of liabilities is appropriate means to determine when that option should be available. However, we have concerns over the methodology for measuring that criterion and also disagree that it should be assessed only at the reporting entity level.
• The proposed expiry date for the deferral approach is appropriate, but recommend that the IASB conclude its deliberations on the new insurance contracts standard taking into account the inputs received from comment letters and outreach activities, so that the effective date of the new standard is within this timescale.

In addition, we do not believe that a clearly defined insurance business should be excluded from the deferral approach only because it is part of a larger group and recommend the predominance test be permitted at the reporting entity level or each level below the parent entity (“waterfall” approach). Further, we provided some suggestions on how the predominance test could be modified to ensure that the temporary deferral can be applied by an appropriate population of entities.

The FRC’s AQR team visited nine audit firms “to review their audit methodology, guidance and training provided to partners and staff in respect of the engagement quality control review (EQC review) process”.  Meetings were also held with a selection of EQCRs “to understand how they perform this role and the challenges they face”.

The review follows other thematic reviews conducted in January 2016, 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 indicates that “all firms have established EQC review procedures for financial statement audits”.  However it does indicate that whilst there were instances where the EQC review “had directly contributed to improving the quality of the audit”, for a tenth of audits the review “identified weaknesses in the audit work performed which the EQC review process had not identified”.

The review provides a number of areas where firms should consider making improvements to their procedures and the application of these procedures in practice.  The key messages from the review are that audit firms should consider whether:

their EQCR eligibility criteria include adequate levels of technical expertise, experience and authority for audits of listed entities and/or in specialist sectors, consistent with that required by the individual signing the audit report;

their processes can be improved for the EQCR to evaluate whether they have maintained their objectivity throughout the audit so that any potential threats are identified, considered and safeguarded. It should be clear to the Audit Committee that the EQCR is not a member of the audit team but part of the firm’s quality control processes;

actions are needed to ensure that on all audits the EQCR’s involvement is timely and effective in maintaining audit quality and that matters identified by the EQCR are appropriately addressed; and

the evidence of the EQCR’s review and challenge requires improvement to meet the increased requirements of the EU Audit Regulation and Directive.

The FRC comments that it “expects to see improvements in the areas identified by [the] report in future inspections of individual firms”.

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

The Update reports on EFRAG Board meeting on 14 January, the EFRAG Technical Expert Group (EFRAG TEG) conference call on 7 January and the EFRAG TEG meeting on 27-28 January.  The Update also lists EFRAG publications issued in January:

• EFRAG’s final comment letter in response to the IASB’s Request for Views: 2015 Agenda Consultation;
• EFRAG’s summary report of the outreach event held in Copenhagen on 25 November 2015, jointly with the Confederation of Danish Industry (DI), the Danish Accounting Standards Committee (DASC), on EFRAG and IASB agenda consultations (link to EFRAG website); and
• EFRAG’s summary report of the outreach event held in Brussels on 23 September 2015 on the IASB’s Conceptual Framework for Financial Reporting and the results of an academic study, sponsored by EFRAG and the Institute of Chartered Accountants of Scotland (ICAS) on professional investors’ financial information usage (link to EFRAG website).

Please click to download the January EFRAG Update from the EFRAG website.

The first hearing took place on 1 December 2015 and featured an introduction by the ECON Chair Roberto Gualtieri followed by short presentations by four invited experts. The presentations were followed by a joint discussion with ECON members.

The second hearing took place on 11 January 2016. IASB Chairman Hans Hoogervorst gave a short presentation of the current work of the IASB. Afterwards, he and Michel Prada, Chairman of the IFRS Foundation Trustees, answered questions of the ECON members.

The FEE paper summarising the statements and providing addition anwers can be downloaded from their website.

In the interview, Mr Carruthers talks about the IPSASB and the importance of International Public Sector Accounting Standards (IPSAS) for transparency and accountability in public sector financial management. Please click to access the recording on the IPSASB website.

The meeting will feature discussions on:

• Insurance contracts — whether to grant permission to begin the balloting process or whether it considers that it needs to re-expose the new insurance contracts Standard.
• Goodwill and impairment.
• IFRS implementation issues — IFRIC Update.
• Financial instruments with characteristics of equity — current and next steps.

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