The IAASB issued an Exposure Draft for a revised International Standard on Auditing, ISA 720 ‘The auditor’s responsibilities relating to other information in documents containing or accompanying audited financial statements and the auditor’s report thereon’ in November 2012.  The revised Exposure Draft responds to significant concerns raised in response to the IAASB's original proposals.

The FRC’s equivalent ISAs (UK and Ireland) are largely developed from the ISAs published by the IAASB.  The FRC consider that some of the IAASB proposals are consistent with revisions made to ISA (UK and Ireland) 720 (Revised October 2012) Section A – 'The auditor’s responsibilities relating to other information in documents containing audited financial statements' (link to FRC website).  The FRC also comments that a number of the IAASB proposals would be new in the UK.

The invitation to comment seeks to:

describe and distinguish the proposed changes that the FRC has already incorporated into ISA (UK and Ireland) 720 Section A (Revised October 2012) and the proposed changes that would be required to be made to ISA (UK and Ireland) 720 Section A, if the revised ISA were to be adopted for application in the UK and Ireland.

The FRC are keen to understand from respondents whether, and if so how, the proposed changes should be adopted in the UK through amendments to ISA (UK and Ireland) 720 (Revised October 2012) Section A “having regard to the inter-relationship between the IAASB’s proposals and the changes previously made by the FRC”. 

Comments are invited by the FRC until 18 June 2014.

Click for:

• FRC Invitation to Comment on the IAASB Exposure Draft (April 2014) – ISA 720 (Revised) ‘The Auditor’s Responsibilities Relating to Other Information’ (link to FRC website).
• Our previous UK Accounting Plus news item on the IAASB's revised Exposure Draft.

ESMA discharges of the responsibility of monitoring of compliance of financial information with International Financial Reporting Standards (IFRS) and taking of appropriate enforcement action mainly through the European Enforcers Co-ordination Sessions (EECS) which co-ordinate the enforcement activities of Member States in order to increase convergence amongst European enforcer’s activities. The EECS also provide feedback to the International Accounting Standard Board (IASB) on issues related to the application of IFRSs identified as part of the enforcement process.

In 2013, European enforcers performed full reviews of around 1050 interim and annual IFRS financial statements covering around 14 % of listed entities accounts in Europe. In addition, around 850 financial statements were subject to partial review, representing coverage of 11 % of the population of listed entities.

During 2013, ESMA also considered the application of the 2012 European Common Enforcement Priorities in the 2012 annual IFRS financial statements. In order to ensure a relevant assessment at European level, ESMA selected a sample of 185 issuers from 25 European countries for review by national enforcers. The 2012 priorities related to recognition, measurement and disclosure of impairment of non-financial assets, measurement of defined benefit obligations, and disclosures related to provisions for non-financial liabilities. (An analysis of issues related to financial instruments was performed separately as part of ESMA's review of accounting practices of financial institutions and resulted in the publication a separate report in November 2013.)

As a result of review of the sample of 185 financial statements, national enforcers took 46 enforcement actions (either required public corrective notes or a different form of public announcement or required corrections in future financial statements). 43% of those enforcement actions related to the disclosure of operational assumptions, growth and discount rates (IAS 36), 20% to sensitivity analyses (IAS 36), and 13% to provisions (IAS 37). Nevertheless, ESMA and the national enforcers identified improvement in the quality of elements of disclosure in 2012 IFRS financial statements in comparison with the results of their enforcement activities in the prior year.

Please click for access to the full report on the ESMA website.

The release of the report follows papers and discussions considered at the thirtieth session of the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) which has held in Geneva on 6-8 November 2013 and also focused on the human resource development challenges that arise in high-quality corporate reporting. The report builds on the ISAR discussion and also includes the outcomes of country case studies conducted by the UNCTAD secretariat studies in Chile, Denmark, Malaysia, the Russian Federation and the United Republic of Tanzania.

The report considers the benefits and human resource development challenges of globally recognised corporate reporting standards, including International Financial Reporting Standards (IFRS), International Standards on Auditing (ISAs) and various codes on environmental, social and corporate governance such as the Global Reporting Initiative (GRI) 'G4' guidelines and earlier ISAR guidance. It provides the following introduction:

There are a number of human capacity related challenges that countries face when implementing corporate reporting standards and codes developed at a global level. These challenges occur to a varying extent in all countries regardless of their level of economic development. Reorientation of existing national education systems to integrate globally developed standards and codes could take a considerable amount of time – in some cases an entire generation. Transition to a new accounting framework is challenging and a critical integral component of managing such a transition period is developing the necessary competencies in relation to implementation of the global standards. Thus, developing human resources capacity for corporate reporting in a sustainable manner requires regulatory and institutional support as well as reliable sources of funding.

The report includes many observations and recommendations, including the following:

• The benefits of global corporate reporting standards can only be realised if they are properly implemented, which in turn depends on properly trained human resources developed through education, training and experience
• There is an increasing need for the harmonisation of internationally accepted qualifications for accountants and auditors, through the International Education Standards (IESs) published by the International Accounting Education Standards Board (IAESB) and programmes such as the IFRS Foundation education initiative and various regional programmes
• The development of professional accounting organisations (POAs) operating at full capacity is critical to train qualified professional accountants, with problems cited including a lack of capacity and shortage of accountants, excessive numbers of professional associations in some countries, regulatory framework hurdles, and a need to constantly update programmes in light of rapid and continuous changes in international standards - regional collaboration is seen a critical response in addressing these areas
• High-quality education relies on courses taught by qualified professors in the context of an increasingly complex content of teaching materials, growing numbers of accountants to train, language barriers and lack of English proficiency, an ageing academic population in some countries, and a lack of coordination and harmonisation of curricula
• Challenges are often more difficult in the public sector than the private sector, with low adherence to relevant IFAC Statements of Membership Obligations (SMOs) by many professional organisations, low adoption of International Public Sector Accounting Standards (IPSAS) worldwide, and more severe shortages of professional accountants
• The case studies provide various indications that efforts towards full convergence with IFRSs have been hampered by insufficient knowledge of international standards and difficulties in adjusting the national system of accounting to adapt international standards. Language barriers and the need for collaboration with universities to introduce international accounting aspects into curricula were also evident.

The full report is available on the UNCTAD website.

The revised agenda for the meeting is summarised below:

* Indicates a change in order from the initial agenda.

Agenda papers for the meeting are available on the IASB's website.

The report summarises the use of IFRS around the world and includes audited financial statements and a comprehensive breakdown of the financial support received by the IFRS Foundation during 2013.

In his "Report of the Chairman of the IFRS Foundation Trustees" Michel Prada describes the challenges of "how best to support developed and emerging economies alike at whatever point they are on their journey towards IFRS adoption." He discusses the IFRS Foundation's achievements in 2013 and priorities for 2014 and beyond.

Hans Hoogervorst provided a summary of convergence efforts and discussed the IASB's new work plan in his “Report of the Chairman of the IASB”.

The full report — which also contains statements from the Monitoring Board, Due Process Oversight Committee, IFRS Interpretation Committee, and Advisory Council, as well as audited financial statements — is available on the IASB's website.

Note: The IFRS Foundation announced on 6 June 2014 that the financial statements contained in the annual report are also available in XBRL mapped to the IFRS Taxonomy 2014.  The XRBL files are available on the annual reports page on the IASB website.

The objectives of the joint IASB/FASB project on revenue recognition were to:

• remove inconsistences and weaknesses in existing revenue recognition standards by providing clear principles for revenue recognition in a robust framework;
• provide a single revenue recognition model which will improve comparability over a range of industries, companies and geographical boundaries; and
• simplify the preparation of financial statements by reducing the number of requirements to which preparers must refer.

IFRS 15 will be published at the same time as the corresponding FASB Accounting Standards Update Revenue from Contracts with Customers. Please click for the press release on the IASB website.

In her speech, Ms White provided a brief history of IFRS in the Unites States, including permitting foreign private issuers to report using IFRS without a reconciliation to U.S. GAAP, and the 2012 SEC staff report about the possible incorporation of IFRS into the US financial reporting system.

In referencing speeches by previous SEC Chair Mary Schapiro and SEC Commissioner Elisse Walter, Ms White noted expressed sentiments about the importance of converged accounting standards in global capital markets, but also noted the following:

They also said three other important things: first, the interests of U.S. investors would remain front and center as the Commission considers IFRS; second, the FASB would remain front and center as the ultimate standard setter of accounting standards for U.S. companies; and third, the role the United States plays in the development of global standards must be an important consideration.

Whilst strongly agreeing with these sentiments, Ms White acknowledged increasing pressure from the SEC's international regulatory and accounting counterparts and others for more information about the SEC's intentions on the incorporation of IFRS into US domestic capital markets, saying:

The Commission last spoke on these questions in February 2010 when it said that: “…a single set of high-quality globally accepted accounting standards will benefit U.S. investors and that this goal is consistent with our mission…” That remains true today and I have made it a priority for the Commission to position itself to make a further statement on this very important subject, now that we have six years of experience working on the priority convergence projects with the IASB and over six years of experience with foreign private issuers filing IFRS-prepared financial statements without a U.S. GAAP reconciliation.

Ms White also focused on the importance of accounting standards in financial reporting and the work of the FASB. In discussing the convergence process with the International Accounting Standards Board (IASB), Ms White noted the imminent release of new standards on revenue recognition, and that the joint project "on one of our most fundamental and critical standards is a true success for both FASB and the IASB".

In a wide-ranging speech, Ms White also discussed the importance of the enforcement of accounting standards, the SEC's rule making priorities, and the SEC's disclosure effectiveness project which is "intended to make sure that investors are being well-served by the disclosures they receive" and that the SEC "will work with the FASB to identify ways to improve the effectiveness of disclosures in corporate financial statements and to minimize duplication with other existing disclosure requirements".

The full transcript of the speech can be found on the SEC's website.

The role of the Financial Reporting Advisory Board (FRAB) is “to ensure that government financial reporting meets the best possible standards of financial reporting by following Generally Accepted Accounting Practice (GAAP) as far as possible”.  The FRAB includes representatives from the accountancy profession in the private and public sectors, academia and government bodies.  The board meets regularly to consider proposed changes to policy and practice. 

Key topics discussed during the meeting were:  

• A new “principles based approach” to determining the use of IFRS 13 ‘Fair Value Measurement' in the public sector.  HMRC and CIPFA propose that IAS 16 ‘Property, Plant and Equipment’ is adapted such that IFRS 13 applies to assets which are not held for their service potential and to surplus assets which can be disposed of.    Under the proposal, IAS 16 will continue to be adapted to ensure that assets in use that are held for their service potential are held at current value and for those assets that are surplus where there are no restrictions on disposal, IFRS 13 will apply.  Where there are restrictions, a current value measurement will continue to be applied.
• The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) consultation on accounting for schools in local authorities.
• The use of discount rates in financial reporting.
• An update on the simplifying and streamlining annual reports and accounts project since the December 2013 meeting.
• An update on the European Public Sector Accounting Standards project and discussion of the consultation published by Eurostat.
• The Financial Reporting Advisory Board (FRAB) report on public sector accounting for the period April 2013 to March 2014.

Click here for detailed minutes and other supporting documents on HM Treasury website.

SORPS issued by the IMA apply to UK authorised funds preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique to the sector within which authorised funds operate.

The revised SORP updates the previous SORP to include the requirements of FRS 100 ‘Application of Financial Reporting Requirements’ and FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'; two of the three main standards that were introduced as a package to replace UK GAAP.  The revised SORP includes:

• New disclosures about the methods to determine fair value;
• Revised disclosures about the risks to which funds are exposed; and
• Simplified guidance for the recognition of debt security interest.  The revised SORP permits a choice of methodologies and would still allow the use of the effective interest rate method.

The revised SORP also includes a number of specific requirements aimed at non-UCITS (Undertakings for Collective Investment in Transferable Securities) funds introduced as a result of the Alternative Investment Fund Managers Directive (AIMFD) in July 2013.  The revised SORP includes an appendix as to how to apply the requirements in the context of FRS 102 including a requirement to disclose gains and losses that are realised separately to those that are unrealised in the notes to the statement of total return. 

Additionally the revised SORP includes a new format to present performance and charges in the ‘comparative table” required by the Financial Conduct Authority (FCA) regulations (the Collective Investment Schemes sourcebook).  

The Financial Conduct Authority’s (FCA’s) rules currently require authorised funds to prepare their financial statements in accordance with the 2010 edition of the SORP.  It is expected that that the FCA will propose amendments in order to permit a choice of using either the 2010 or the 2014 edition of the SORP for a transitional period and then to require that the 2014 edition is used for accounting periods beginning on or after 1 January 2015.  The transitional provisions are not expected to apply to the comparative table requirements which are expected to be required from an earlier date to be set by the FCA.   

Click for the link to the Investment Manager Association website (includes links to the revised SORP, feedback statement on the invitation to comment and frequently asked questions on the revised SORP).