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Stakeholder event in Sydney sees panel discussion on complexity

16 Apr, 2014

On 9 April 2014, the Trustees of the IFRS Foundation jointly hosted a stakeholder event in Sydney, Australia in conjunction with CPA Australia and the Institute of Chartered Accountants Australia (ICAA).

The stakeholder event, which also featured a keynote speech by Michel Prada, Chairman of the IFRS Foundation Trustees, included an interactive panel discussion with senior financial reporting stakeholders. Ian Mackintosh, Vice Chairman of the IASB, was a member of the panel.

The panel discussion was titled Global Accounting Standards: Are they fit for purpose? For the largest part the panel members discussed complexity and materiality.

On the question of what introduces complexity into financial reporting, Mr Mackintosh commented users also "assist" in bringing about complexity by asking for more and more information and for interpretations: "Interpretations make the whole system more complex," he stated and added on the frequent requests regarding implementation guidance:

You need to push back when you hear problems and say: 'Are they really problems at all or are they something, if you went away and thought about it properly, you could solve for yourself?'

After the discussion touched briefly on other topics such as the Conceptual Framework project, the leases project, and integrated reporting, it concluded on the topic of public sector accounting. Hans Hoogervorst, Chairman of the IASB, who had already earlier contributed to the discussion from the audience, commented on the IPSASB governance consultation and the question whether the monitoring and oversight of the IPSASB should be given to the IFRS Foundation's Monitoring Board and Trustees:

I would love to do the job – setting financial standards for the public sector – […] but the big danger would be that it would politicise our work even further than is already the case and we would like to retain our independence and if we get thrown into that sea, we might sink.

Please click to access a video recording of the panel discussion on the IASB's website.

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Results of a limited survey on simplifications of the IASB proposals on leases

15 Apr, 2014

The European Financial Reporting Advisory Group (EFRAG) and the national standard-setters of France (ANC), Germany (ASCG), Italy (OIC) and the United Kingdom (FRC) have conducted a limited survey on the proposed simplifications to the accounting for lessees under IASB’s Exposure Draft ED/2013/6 'Leases'.

At the December meeting of ASAF, the IASB confirmed that in its redeliberations it would explore how to provide relief and and alleviate complexities associated with the proposed guidance for leases. The European delegation offered to consult with European constituents to which areas needed to be simplified the most.

Due to time constraints, the standard-setters did not conduct a public survey but contacted respondents to the prior field-test and other preparers directly. 44 respondents from 10 countries took part in the survey; the majority of which were European listed groups. The industries mostly represented were retail, automotive, telecommunication; and transport and logistics:

  • A majority of respondents supported additional recognition exemptions beyond the current short-term exemption; and
  • a majority of respondents indicated their preference for a single type A model for all leases. However, some respondents would support a single model only if the distinction between leases and services was improved in the forthcoming standard.

The Financial Reporting Council (FRC) has recently published a letter to the IASB outlining the results of outreach they performed on a number of UK preparers regarding simplifications to the leases proposals.  The results of the FRC outreach support the view for a single Type A model for lessee accounting.  

Please click to access the full report of the EFRAG website.

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Latest edition of EFRAG Insider

15 Apr, 2014

The European Financial Reporting Advisory Group (EFRAG) has published a new edition of the publicly available newsletter 'EFRAG Insider'.

In addition to discussing IASB Exposure drafts, recent EFRAG publications and stakeholder liaison, the new issue highlights two topical issues:

  • EFRAG reform - in the beginning of April, the EFRAG Supervisory Board approved the proposed amendments to the EFRAG Statutes and the EFRAG Internal Rules for submission to EFRAG's current Member Organisations and EFRAG's additional future members; it is intended that in the first half of June the EFRAG General Assembly will be called to approve the amendments.
  • Separate financial statements - EFRAG, OIC, ICAC and DASB are conducting a joint project aimed at addressing a number of potential problems that have been revealed by the IAS Regulation option enabling Member States to permit or require non-listed companies to prepare their annual accounts in conformity with IFRS; the publication of a discussion paper is expected in the third quarter of 2014.

The April 2014 edition of EFRAG Insider is available on the EFRAG website.

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Council of the European Union adopts legislative package for audit reform

15 Apr, 2014

The Council of the European Union (“the Council”) has adopted the legislative package for audit reform in the EU.

The new rules will be in the form of a Directive amending the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) and a Regulation on specific requirements regarding the statutory audit of public-interest entities (PIEs).  

Under the new rules, the societal role of auditors will be clarified, with the aim of increasing audit quality, transparency and audit supervision.  The new rules will require that audit reports be more detailed and informative and their work will be more closely monitored with strengthened audit committees.

Mandatory rotation of auditors for PIEs will be introduced, requiring such companies to retender at 10 years and change the auditor at least every 20 years. The reforms include a prohibition on the provision of certain non-audit services to PIE audit clients (including tax advice and services linked to the financial and investment strategy of the audit client) and also introduce a cap on the fees that can be earned from the provision of permitted non-audit services to PIEs.

Additionally the rules prohibit the use of restrictive clauses in contracts which limit a company’s choice of auditor in order to promote market diversity.

The Council has indicated that “the supervision of the system will be carried out within the framework of a Committee of European Auditing Oversight Bodies (CEAOB) with assistance from the European Securities and Markets Authority (ESMA)”.

The directive was already approved by the European Parliament on 3 April. Both the Directive and the Regulation will enter into force 20 days after their publication in the Official Journal of the European Union.  The Directive must be adopted by EU member states within 2 years of that date and the Regulation is effective 2 years from that date.  The restriction on fee income from non-auditing services is to take effect within 3 years.

The Competition Commission (now taken over by the Competition and Markets Authority (CMA)), which has been delaying the release of their package of remedies to increase competition within the provision of statutory audit services to FTSE 350 companies in the UK is now likely to review their package in light of the EU announcement in order to consider the implications of the EU rules on their Orders which bring their measures into law.

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FRC consults on revisions to operating procedures for corporate reporting reviews

14 Apr, 2014

The Financial Reporting Council (FRC) has today published a consultation proposing some changes to the operating procedures of the Conduct Committee. The consultation is open for comment until 16 June 2014.

Under the Companies Act 2006 ("the Act"), the Conduct Committee of the FRC reviews the reports and accounts of public and large private companies to determine whether they comply with the Act and other reporting requirements. Where it appears that those requirements have not been complied with, the Conduct Committee investigates the position and determines the action to be taken, in accordance with their operating procedures, to address any non-compliance.  

The FRC proposals include:

  • Formally reflecting the concept of a ‘Committee Reference’.  Currently, where a Conduct Committee enquiry gives rise to a significant correction or improvement which it considers investors and preparers ought to be aware of but where there is less cause to inform the market at large, it may ask the company to refer to interaction with the Conduct Committee in the annual report and accounts where a change as a result of the investigation is made.  The FRC is now proposing that Conduct Committee operating procedures explicitly refer to Committee References and include the tests that the Conduct Committee applies to ensure that the text included by the company is “fair and balanced”. It also indicates that the Conduct Committee will expect to be given the opportunity to comment on the disclosure that the company makes.
  • An amendment to the operating procedures to allow the names of those companies that have published Committee References and a brief description of the issue to be included within the Corporate Reporting Review Annual Report.  The FRC highlights that this change in operating procedures is proposed as currently Committee References are only known to those who read the specific set of accounts to which it appears.  In the consultation paper, the FRC comments: “we believe that investors and potential investors would benefit if we were clearer about our regulatory outcomes” and that “the citing of corrections which the Committee has secured would allow others to appreciate what has been found to be non-compliant and would illustrate what the Committee finds unacceptable in terms of corporate reporting”.
  • An explanation within the operating procedures that the Conduct Committee’s letter to a company may include references to aspects of reporting other than compliance with mandatory reporting requirements, such as cutting clutter.
  • Amending the operating procedures to clarify how the Conduct Committee manages complaints, including how anonymous complaints are handled and providing a link to the FRC’s reference and advice to whistle-blowers. 

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EFAA publishes paper on implementing the new European Accounting Directive

12 Apr, 2014

The European Federation of Accountants and Auditors for SMEs (EFAA) has published a paper on implementing the new European Accounting Directive 2013/34/EU.

The new Directive came into force on 20 July 2013, and European Member States have until 20 July 2015 to incorporate the rules of the Directive within their national law.

The Directive aims simplifying the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union. The EFAA paper is designed to support governments, standard-setters, EFAA member organisations and other interested stakeholders in their efforts to transpose the new Accounting Directive into national legislation.

Please click to access Implementing the New European Accounting Directive - Making the right choices on the EFAA website.

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EFRAG draft comment letter on disclosure initiative

11 Apr, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB’s Exposure Draft ED/2014/01 ‘Disclosure Initiative (Amendments to IAS 1)’ that was issued on 25 March 2014.

The EFRAG welcomes this initiative by the IASB, which aims to clarify IAS 1 by addressing perceived impediments to preparers when exercising their judgement in presenting their financial reports. The EFRAG supports the changes to the definition of terms in IAS 1 that may have been misinterpreted and believe the changes would put companies in a position to exercise more discretion in the presentation and disclosure of information, and would lead to an improvement of the quality and relevance of information in the notes. However, EFRAG proposes some improvements to the drafting of the proposed changes and recommends consistent use of defined terms relative to the current IASB standards to avoid any future amendments.

Comments are due by 12 May 2014.

For more information, see:

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Agenda for April 2014 IASB meeting

11 Apr, 2014

The International Accounting Standards Board (IASB) will be meeting at its offices in London on 22–25 April 2014. Part of the meeting will be held jointly with the Financial Accounting Standards Board (FASB) to discuss the leases project. Additionally, the IASB will be discussing its research programme, bearer plants, issues from the Interpretations Committee, rate-regulated activities, the equity method in separate financial statements, the conceptual framework, insurance contracts, and the disclosure initiative.

The full agenda for the meeting, dated 10 April 2014, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

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IFIAR publishes report of 2013 survey inspection findings

11 Apr, 2014

The International Forum of Independent Audit Regulators (IFIAR) has today published ‘International Forum of Independent Audit Regulators – Report on 2013 survey of inspection findings’ (“the report").

IFIAR comprises 50 independent audit regulators from jurisdictions in Africa, the Americas, Asia, Europe, the Middle East and Oceania.  IFIAR provides a forum for regulators to share knowledge of the audit market and share the practical experience gained from their independent audit regulatory activity.   The Financial Reporting Council (FRC) is a member. 

The report summarises the key inspection findings from audits of public companies (including systematically important financial institutions) submitted by 30 of IFIAR’s members.  Findings were submitted from the most recent audit inspection reports of members that ended by July 2013. 

The report highlights that, for listed public interest entities or public companies, the common areas of deficiency relate to auditing fair value measurements, internal control testing and procedures performed to assess the adequacy of financial statement presentation and disclosures. 

For audits of systematically important financial institutions, including global systematically important banks, the common areas of deficiency relate to auditing of allowance for loan losses and loan impairments, internal control testing and auditing of the valuation of investments and securities. 

The Financial Reporting Council published its own report of audit quality inspection work carried out by its Audit Quality Review (AQR) team in May 2013.  In their draft plan and budget, the FRC indicated that in 2014/15 there will be a particular focus on bank audits, especially loan loss provisioning. 

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Steve Lim appointed to the IFRS Advisory Council

11 Apr, 2014

The Trustees of the IFRS Foundation have announced the appointment of Steve Lim to the IFRS Advisory Council.

Dr Lim is an Advisor to the Korea Accounting Standards Board (KASB). He previously served as Chair and Vice-Chair of the KASB and Vice-Chair of the Asian-Oceanian Standard-Setters Group (AOSSG). Dr Lim is also Professor of Accounting at the University of Seoul. His appointment to the IFRS Advisory Council commenced on 1 April 2014.

For more information, please see the press release on the IASB website.

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