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FRC responds to IESBA proposed independence changes

29 Sep, 2014

The Financial Reporting Council (FRC) has published its response to the International Ethics Standards Board for Accountants (IESBA) consultation on proposed changes to independence rules around non-audit services. The FRC supports the objective of the proposals but notes that they are very limited in comparison with those contained in the recently finalised EU Audit Regulation.

IESBA's exposure draft contains three key proposals in the following areas:

  • Management responsibility. The exposure draft proposes additional guidance and clarification regarding what constitutes 'management responsibility' and enhanced guidance on how the auditor can be satisfied that management are fulfilling their responsibilities.
  • Preparing accounting records and financial statements. The exposure draft proposes guidance and clarification on the concept of "routine or mechanical" services relating to the preparation of accounting records and financial statements.
  • Emergency exception. The exposure draft proposes removing the provision that permits an audit firm to provide certain bookkeeping and taxation services to public interest entity audit clients in emergency situations.

In relation to these proposals, the FRC support the majority of the proposals around management responsibility, as well as the changes in relation to the emergency exception and "routine or mechanical" services.

One area in with the FRC has concerns is IESBA's proposal that:

"providing advice and recommendations to assist management in discharging its responsibilities is not assuming a management responsibility."

In this regard, the EU Audit Regulation prohibits auditors from playing any part in the management or decision-making of an audit client which is a Public Interest Entity (PIE), which the FRC believes may potentially conflict with the IESBA proposal. They recommend IESBA consider this further.

The full response can be accessed on the FRC website.

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CMA finalises UK audit market reforms

29 Sep, 2014

The Competition and Markets Authority (CMA) has published its final Order implementing reforms of the audit market in the UK, following on from the Competition Commission's report into the market and in light of agreement at a European level on audit reform.

Following on from the draft Order published in July, the CMA has now finalised its package of remedies to increase competition within the provision of statutory audit services to FTSE 350 companies in the UK.

The final Order includes:

  • a requirement for FTSE 350 companies to put their statutory audit engagement out to tender at least every 10 years, in line with the EU Regulation on the statutory audit of public interest entities; and
  • measures to strengthen the accountability of the external auditor to the Audit Committee and reduce the influence of management.

The Order will come into force on 1 January 2015 and apply to financial years beginning on or after 1 January 2015.  This means that the audit committee’s terms of reference will need to be revised for 2015.  However, in relation to tendering it contains transitional provisions, which align with those contained in the EU Regulation.

See below for:

ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

ICAEW webinar on financial reporting changes for small companies and micro-entities

29 Sep, 2014

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar on 21 October 2014 on the planned financial reporting changes for small companies and micro-entities in light of the implementation of the EU Accounting Directive (“the Directive”).

The Financial Reporting Council (FRC) has issued a consultation setting out proposed amendments to UK accounting standards proposing, among other things, that the Financial Reporting Standard for Smaller Entities (FRSSE) is withdrawn.  For small companies and micro-entities, the FRC proposes that:

  • FRS 102 The Financial Reporting Standard Applicable in the UK and Ireland will replace the FRSSE for small companies and will be amended to include a new section for the presentation and disclosure requirements for small entities; and
  • a new Financial Reporting Standard for Micro-Entities (FRSME) will be published and will only contain the requirements applicable to micro-entities.  It will include only those disclosures required by law for micro-entities. The recognition and measurement criteria of FRS 102 (from which the FRSME will be developed), will be simplified.

The webinar will provide an overview of these changes and will be of benefit to those interested in small company reporting.

Registration details for the webinar can be found on the ICAEW website.

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ACCA roundtable on 'Evaluating the impact of IFRS in the EU'

28 Sep, 2014

On 25 September, the Association of Chartered Certified Accountants (ACCA) organised a high level conference in order to both present and discuss the recently published consultation on the evaluation of the IAS Regulation and the potential ways forward. The event was hosted by Theodor Dumitru Stolojan, MEP, at the European Parliament.

MEP Stolojan opened the event. He noted that the Commission's report following the consultation should send signals regarding the Conceptual Framework project and that the progress with respect to IFRSs to date was encouraging.

Didier Millerot, Head of the Financial Reporting and Accounting Unit in the Internal Market and Services Directorate General, gave an overview of the Commission's consultation. He noted the need to ensure regulation delivers and is meeting objectives, pointed out that the report will not necessarily lead to legislative proposals and mentioned that certain MEPs are 'passionate' about IFRSs, which makes discussion difficult.

The speakers at the conference discussed various topics in the EC's questionnaire:

Quality

  • Speakers noted that IFRSs meet investors' expectations but that there are areas for improvement. However, they stressed that this is not unique to IFRSs and for example also the case with US GAAP.
  • They pointed at some 'avoidable complexity' for example regarding hedge accounting and suggested that the presentation of some matters could be improved.
  • Some speakers noted limited comparability, but stressed that this might also be a question of enforcement.
  • One speaker noted a lot of 'noise' in financial statements which would make for challenges.
  • It was also suggested that the business model could be used as a 'filter'.
  • Speakers underlined the benefits of a 'common vocabulary'.

Cost

  • It was pointed out that any system has costs and they have to be balanced with the efficiencies gained. It was noted that it is difficult to really identify the costs, which the EC should be mindful of. It was also pointed out that it is hard to compare local GAAPs with IFRSs as the former would have evolved in last decade too - it is not sure that the maintenance costs would have differed much. The same would hold true for implementation costs from changes ahead.
  • It was noted that IFRSs are very helpful from a competitiveness point of view for Europe.

Enforcement

  • Speakers stressed that tremendous improvements have been made in national enforcement and that the 'different accents' in the 'single language' are slowly fading.
  • ESMA's common enforcement priorities were considered helpful. However, speakers also stated that they were wary of 'standard setting via the back door'. It was suggested that ESMA should focus on disclosures.
  • It was also pointed out that there is a need for a level playing field but also for some flexibility in member states.
  • Concerns voiced mainly regarded the question of how to interpret IFRSs with respect to materiality.

Scope

  • Some speakers saw a possible benefit in group and subsidiaries' accounts alignment and also suggested that the use of IFRSs by small listed companies would help attract investment.
  • Other speakers confessed they were 'nervous' and mentioned that there was a need to draw boundaries based on the simplicity of the business model.

Endorsement mechanism

  • Speakers showed themselves pleased with the conclusion that more flexibility was not endorsed - they didn't want to lose the benefits of global standards. They questioned whether it was necessary to more criteria for endorsement when considering the primary purpose of IFRSs.
  • Others mentioned that the process must be 'European' while making sure at the same time that the Commission's advice is stemming from technical expertise.
  • Speakers placed hope in the new EFRAG structure and stressed that lengthy legislative processes should be avoided.
  • It was also pointed out that standards should be endorsed before the IASB's effective date.

After some questions from the audience, Olivier Boutellis-Taft of the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) closed with a spirited summary statement.  He noted:

Today our panel of experts struggled a bit to clearly identify the costs – but they were very clear in saying that the benefits outweigh the costs. It was also outlined that some of these costs are not related to IFRS but indeed to other sources such as local regulation. However it seems that this does not prevent a few people to blame IFRS. [...] I fail to understand why the IFRS debate often becomes so emotional. It should be dispassionate, objective and factual; it should not be hijacked to pursue objectives that are not related to improving transparency and quality of companies' financial information. It is good to consult on this matter but feedback will have to be interpreted with caution. Although the panel today was very consensual, there is a risk of over-representation of "unhappy customers" which should not lead to frustrating the silent majority – silent majority that expressed itself loudly today.

He also warned against flexible endorsement: "Some are calling for a "more specific version of IFRS (EFRS)": the result will be sub-global standards i.e. sub-optimal standards. It means less consistency, less comparability, less transparency and more cost e.g. reconciliation cost."

Please click for a transcript of Mr Boutellis-Taft's concluding remarks on the FEE website.

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IASB issues work plan update for September

26 Sep, 2014

Following its September meeting, the International Accounting Standards Board (IASB) has updated its work plan. The revised plan updates the expected redeliberation periods in the amendments to IAS 1 and recognition of deferred tax assets for unrealised losses projects, as well as noting the extension for the expected timing of the exposure draft in the conceptual framework and liabilities projects. The rate-regulated activities project now appears as a major project, while the principles of disclosure remained as a research project. Both the rate-regulated activities and unit of account project have their public consultation periods noted in the revised work plan. Further, the revised plan provides an expected date for a final IFRS on amendments to IAS 1 (Q4 2014) as well as a discussion paper on principles of disclosure (Q1 2015). Lastly, it includes updates to the expected timing of board discussions for various research projects.

 

Current status

The revised time table for the major projects is now as follows:

Project Current status Next project step Expected timing

Conceptual Framework — Comprehensive IASB project

Redeliberations

Exposure draft

Q1 2015

Financial instruments — Macro hedge accounting

Discussion paper

Public consultation

Q4 2014*

Insurance contracts

Re-exposure

Redeliberations

Q4 2014

Leases

Re-exposure

Redeliberations

Q4 2014

Disclosure initiative — Principles of disclosure

Board discussion

Targeted Discussion Paper

Q1 2015*

Disclosure initiative — Amendments to IAS 1

Exposure draft

Redeliberations and Target IFRS

Q4 2014*

Disclosure initiative — Reconciliation of liabilities from financing activities

Redeliberations

Exposure draft

Q4 2014

IFRS for SMEs — Comprehensive review

Exposure draft

Redeliberations

Q4 2014

Rate-regulated activities

Discussion paper

Public consultation

Q4 2014 and Q1 2015*

* Indicates a change since the previous work plan update on 30 July 2014.

In addition, the expected timing of board discussion has been deferred for the following research projects:

Click for the IASB work plan dated 26 September 2014 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

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September 2014 IASB meeting notes — Part 1

25 Sep, 2014

The IASB's meeting was held on 22–24 September 2014. We have posted Deloitte observer notes from Monday's discussion on the research programme, and Tuesday's session on insurance contracts.

Click through for direct access to the notes:

Monday, 22 September 2014

  • Research programme
    • Project update
    • Research project on post-employment benefits
    • Business combinations under common control

Tuesday, 23 September 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

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Updated EFRAG endorsement status report includes 2012-2014 annual improvements cycle

25 Sep, 2014

The European Financial Reporting Advisory Group (EFRAG) has updated its Endorsement Status Report to include 'Annual Improvements to IFRSs 2012–2014 Cycle', published on 25 September 2014.

The amendments respond to issues addressed during the 2012–2014 cycle and affect IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits, and IAS 34 Interim Financial Reporting. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. Endorsement for the use in Europe is currently expected in the third quarter of 2015.

The endorsement status report, dated 25 September 2014, is available here.

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IASB concludes the 2012-2014 Annual Improvements cycle

25 Sep, 2014

The IASB has issued 'Annual Improvements to IFRSs 2012–2014 Cycle', a collection of amendments to IFRSs, in response to issues addressed during the 2012–2014 cycle. Four standards are affected by the amendments.

Annual Improvements 2012–2014 Cycle makes amendments to the following standards:

Standard Amendments

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Changes in methods of disposal.
Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued.

IFRS 7 Financial Instruments: Disclosures

(with consequential amendments to IFRS 1)

Servicing contracts.
Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required.

Applicability of the amendments to IFRS 7 to condensed interim financial statements.
Clarifies the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements.

IAS 19 Employee Benefits

Discount rate: regional market issue.
Clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level).

IAS 34 Interim Financial Reporting

Disclosure of information 'elsewhere in the interim financial report'.
Clarifies the meaning of 'elsewhere in the interim report' and requires a cross-reference

The amendments are effective for annual periods beginning on or after 1 January 2016, but can be applied earlier. For more information, please see the press release on the IASB's website or our Annual improvements page.

A 'Need to know' publication explaining the amendments can be accessed here.

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Minutes of the EFRAG Supervisory Board meeting 19 September 2014

25 Sep, 2014

On September 19, 2014, the Supervisory Board of the European Financial Reporting Advisory Group, (EFRAG) held a meeting in Brussels. The meeting was the last meeting under the old governance structure.

During the meeting the EFRAG Supervisory Board received a report from the EFRAG Chairman on the status of key IASB projects, including the upcoming endorsement of IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’.

Additionally the EFRAG Supervisory Board was updated on the developments in relation to the call for candidates of the President of the EFRAG Board and the evaluation of the IAS Regulation.

An update was provided on the EFRAG reform and it was noted that members of the new EFRAG Board including the President of the EFRAG Board will be appointed on 31 October 2014.

Finally, the EFRAG Supervisory Board reviewed the comments received as part of EFRAG’s due process on the EFRAG draft comment letter on the IASB’s quality control procedures prior or post issuance of a final standard or major amendment to a standard.  A number of respondents supported the EFRAG’s request for a public fatal flaw and at the meeting the EFRAG supervisory Board approved the letter to the IASB recommending such a public fatal flaw prior to finalisation of a standard or a major amendment to a standard.

The full meeting minutes are available on the EFRAG website.

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We comment on EFRAG's DP regarding the amortisation of goodwill

24 Sep, 2014

We have published our comment letter on the European Financial Reporting Advisory Group (EFRAG), the Accounting Standards Board of Japan (ASBJ), and the Organismo Italiano di Contabilità (OIC) Discussion Paper 'Should Goodwill still not be Amortised? Accounting and Disclosure for Goodwill.'

Issued in July, the Discussion Paper is intended to contribute to the global discussion on how goodwill should be accounted for and disclosed.

Whilst we recognise the conceptual merits of the current model of non-amortisation coupled with a full annual impairment test, its application imposes significant costs on the preparers of financial statements. Specifically, we continue to see a significant proportion of the resources for preparing and auditing financial statements of many entities devoted to the annual impairment review of both goodwill and indefinite-life intangible assets. Similarly, we are aware of concerns over the costs of identifying and valuing separate intangible assets. We are not convinced that this level of cost is justified by the resulting information provided to users of financial statements.

We encourage the IASB to re-open its deliberations (with global convergence in mind) on these areas of business combination accounting and to re-examine the value of information provided by an annual impairment review of unamortised goodwill and indefinite-life intangible assets.

Click for the full comment letter.

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