The topics discussed at the meeting included:

• Leases. The CMAC members discussed the alternative lessee accounting models. Most of the members supported the single model approach because it shows a link between the balance sheet and income statement. The few that supported the dual approach believed that it effectively reveals the economic differences between real estate leases and equipment leases.
• Post-implementation Review of IFRS 3. The CMAC provided feedback to certain questions within the Request for Information paper issued on 30 January 2014. Specifically, the members discussed:
  • Business combinations versus assets acquisitions.
  • Separate recognition of intangible assets from goodwill.
  • Goodwill: Non-amortisation versus amortisation.
• Integrated reporting. The CMAC members provided feedback on the IASB’s role concerning integrated reporting. There were a variety of views ranging from the IASB not focusing on integrated reporting to others believing the information is already present for investors.
• Debt disclosures. The CMAC supported the introduction of a project on debt disclosures and provided additional suggestions to the IASB staff.
• Equity method. The CMAC provided some considerations to the IASB staff on the scope of a project on equity method.
• Disclosure initiative — Materiality. The CMAC supported the IASB project on materiality. They believe that the goal should be to make disclosures more effective, but not reduce the amount of disclosures. They also suggested that the IASB research ways to clearly define the concept of materiality.

The next CMAC meeting is scheduled for 30 June 2014.

For more information, see the meeting page on the IASB website.

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).  

In December 2013 a preliminary agreement between the Lithuanian EU Council Presidency and the European Parliament on the framework for EU audit reform was reached.  This framework was subsequently endorsed by the Legal Affairs Committee (JURI) of the European Parliament in January 2014.­

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 vote has been welcomed within the profession including the Financial Reporting Council (FRC) and the Association of Chartered Certified Accountants (ACCA).  The FRC comment:

The Financial Reporting Council welcomes the positive vote today by the European Parliament in favour of the EU audit reform. We commend the work of the EU institutions in working together, compromising where necessary; to ensure that the EU retains a high quality and competitive audit market.  The FRC is especially pleased that EU legislation will now be following the UK’s example of retendering an audit every 10 years. 

The package of measures must still be formally adopted by the Council of Ministers.  Subject to this formal approval, it is expected that the new rules will be published in the Official Journal of the European Union in the second quarter of 2014.  Both the Directive and the Regulation will enter into force 20 days after their publication into the Official Journal.  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.

Click for:

• Press release (link to European Parliament website).
• Statement by Commissioner Barnier (link to Europa website).
• Frequently asked questions on the EU reform (link to Europa website).
• FRC press release (link to FRC website).
• ACCA press release (link to ACCA website).
• Our previous UK Accounting Plus news item on EU audit reform.
• Our 'Governance in brief' newsletter on the vote by the European Parliament.

The Accounting for Schools in Local Authorities in England and Wales consultation is based on the report of the Joint Working Group of HM Treasury and CIPFA/LASAAC (“the Working Group”).   The working group report (‘The Accounting Treatment of Local Authority Maintained Schools in England and Wales’) concluded that community schools, voluntary controlled, voluntary aided and foundation local authority maintained schools (“local authority maintained schools”) are separate entities controlled by local authorities.  Under IFRS 10 Consolidated Financial statements these local authority maintained schools would need to be included in the local authority group financial statements.  It was also concluded that academies and free schools are not under local authority control.  Under IFRS 10, academies and free schools would not be required to be included in the local authority group financial statements.  

The working group considered whether an adaption to IFRS 10 as adopted by the Code of Practice on Local Authority Accounting in the United Kingdom (“the Code”) was required to allow local authority maintained schools to be included in the local authority single entity financial statements.  

In the consultation, CIPFA/LASAAC are therefore consulting on the proposal that the results of local authority maintained schools should be included within the separate financial statements of local authorities.  They also propose a similar accounting treatment for community special, foundation special and local authority maintained nursery schools.  The consultation also seeks the views of respondents on the working group’s assessment that “the inclusion of schools in the local authority’s single entity accounts, instead of their group accounts, is unlikely to alter decision making”.  The proposals adapt the definition of the local authority single entity financial statements in Chapter 9 of the Code.  

Our key comments include:

We agree with the conclusions in sections C and D of the report ie that schools are separate entities for accounting purposes and that community schools, voluntarily controlled, voluntary aided and foundation schools meet the criteria for consolidation into local authority accounts under IFRS. 

We acknowledge that whilst the technically correct answer would be to include schools only in consolidated financial statements, the additional administrative burden on more local authorities to prepare consolidated financial statements is also an important consideration. 

More emphasis should be given in the Code to consideration of how material the schools may be to the local authority’s financial statements, and the level of disclosure given in the notes to the financial statements to provide readers with a clear understanding of the balances and transactions related to the schools. 

Paragraph 58 of the report does not refer to materiality and uses the term “not produce a substantially different report”.  We believe that the Code should include consideration of materiality and give local authorities the option to include schools in consolidated financial statements if they are material. 

The Code is also unclear as to the treatment where the local authority already prepares consolidated financial statements.  In such cases, the Code could also give the option of including the schools only in the consolidated financial statements. 

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

The event will cover:

• The aspects of reliability and the challenge they pose for auditor.
• Research insights from the Financial Reporting Council (FRC) and the largest accounting firms.
• Views from leading users and stakeholders in corporate reporting. 

More information, including how to attend the outreach event can be found on the ICAEW website.

The compendium contains the FRC’s audit and assurance standards in issue at 1 February 2014.  Accordingly the compendium includes:

• International Standards on Auditing (ISAs) (UK and Ireland) (including ISA 315 ‘Identifying and assessing the risks of material misstatement through understanding the entity and its environment’, ISA 610 ‘Using the work of internal auditors’, and ISA 700 ‘The independent auditor’s report on financial statements’ that were issued in 2013);
• International Standard on Quality Control (ISQC) (UK and Ireland) 1;
• International Standard on Review Engagements (ISRE) (UK and Ireland) 2410;
• Standards for Investment Reporting (SIRs);
• Ethical Standards for Auditors;
• Ethical Standard for Reporting Accountants.

Selected Practice Notes and Bulletins are also included including Practice Note 23 ‘Special considerations in auditing financial instruments’ issued in July 2013. 

The compendium is priced at £60 and is available on the FRC’s website.

The press release can be accessed from the FRC website. 

The guidance has been published in response to the recent financial crisis which highlighted the need to improve the quality of external audits of banks.  The Committee highlight that auditors have a key role in contributing to financial stability by delivering “quality bank audits which foster market confidence in banks’ financial statements.  The Committee comment:

This document aims to enhance the quality of external audits of banks and the effectiveness of prudential supervision, which contribute to financial stability.

The guidelines cover:

• The audit committee’s responsibilities in overseeing the external audit function.  The Committee highlight that “a bank’s audit committee has a key role in fostering a quality bank audit through the effective exercise of its responsibilities with respect to the external auditor and the statutory audit”.  The guidelines “promote an effective two-way communication between the audit committee and the external auditor to enable the audit committee to carry out its oversight responsibilities and to contribute to the effectiveness of the audit process”.  This also provides a framework for the supervisor to assess the effectiveness of the audit committee’s oversight of the bank’s external audit.
• The prudential supervisor’s relationships with external auditors of banks and the audit oversight body.  Guidance is included with respect to the relationship between prudential supervisors and the external auditor and between prudential supervisors and audit oversight bodies in order to emphasise the need for effective relationships that can contribute to enhanced banking supervision.

The guidance also includes “supervisory expectations and recommendations relevant to external audits of banks that the Committee believes will enhance the quality of these audits”.  These expectations include the Committee’s expectations with respect to the external auditor’s knowledge and competence, objectivity and independence, professional scepticism and quality control over the bank’s audit. 

The guidelines apply to all banks that are subject to a statutory audit (including those within a banking group) and holding companies whose subsidiaries are predominantly banks.  The Committee highlights that supervisors should seek to “fully implement” the guidelines but should consider implementation on a proportionate basis taking into account the “size, complexity, structure, economic significance, risk profile and other facts and circumstances of the bank and the group (if any) to which it belongs”.  The Committee also recognises that the guidelines and, expectations and recommendations “should be applied in accordance with national legislation and corporate governance structures applicable in each country”.

The press release and the guidance can be obtained from the Bank for International Settlements website.

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):

Items for continuing consideration

• IAS 12 – Recognition of deferred tax assets for unrealised losses
• IAS 12 – Recognition of deferred tax for a single asset in a corporate wrapper
• IAS 34 – Condensed statement of cash flows
• IFRS 11 – Analysis of implementation issues
• IAS 1 – Disclosures about going concern

Finalisation of tentative agenda decisions

• IFRIC 21 – Identification of a present obligation to pay a levy that is subject to a pro rata activity threshold as well as an annual activity threshold
• IAS 17 – Meaning of 'incremental costs'
• IAS 8 – Distinction between a change in accounting policy and a change in accounting estimate
• IFRS 10 – Definition of investment related services or activities
• IAS 39 – Accounting for repo transactions

New issues

• IFRIC 14 – Availability of refunds from a defined benefit plan managed by an independent trustee
• IAS 19 – Remeasurement at a plan amendment or curtailment
• IAS 16 – Whether 'core inventories’ held in an entity’s own facilities are accounted for as inventories or as property, plant and equipment
• IAS 39 – Classification of a hybrid financial instrument by the holder

Administrative session

Click here to go to the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

GISR is a joint project of Ceres, an investor-founded coalition of investors, companies, policy makers and others, and the Tellus Institute, a not-for-profit research and policy organisation in the field of sustainable development. GISR seeks to design a global sustainability ratings standard that measures sustainability performance and can be applied in other sustainability ratings, rankings and indices on an accredited basis. Accordingly, GISR will not rate companies in its own right.

GISR is developing a three-part standard with three components: principles, issues, and indicators. The first component on principles has recently been finalised after a consultation process, and identifies 12 core principles across two categories, process and content.

The MoU between the IIRC and GISR acknowledges the role of each party in the broader development of corporate reporting frameworks and standards, and contains various contains commitments, including:

• supporting and profiling the work of the other to the extent reasonable and practicable
• striving to align corporate reporting, guidelines and standards to achieve complementary and comparable outcomes between the IIRC's <IR> Framework (and other corporate reporting frameworks) and other guidelines and standards
• achieving optimal alignment between the IIRC's <IR> Framework and GISR standard so that disclosed information is useful to GISR accredited ratings
• working cooperatively on the concept of "integrated ratings" which would reflect human, intellectual, natural, social and financial capital
• working together towards appropriate long-term institutional and governance arrangements.

The agreement is effective until 31 December 2015 and may be extended by agreement. Click for :

• Press release (link to GISR website)
• Full text of the MoU (link to IIRC website).