The Consultation Paper outlines four key strategic themes identified by the IESBA:

• Maintaining a high-quality Code of Ethics for application by professional accountants globally - maintaining a focus on independence standards for audits of financial statements but also to more comprehensively address the particular ethical issues faced by professional accountants in business
• Promoting and facilitating the adoption and effective implementation of the Code - responding to perceived barriers to the adoption of the Code by reviewing the current structure and draft convention of the Code so that it is written in a way that is easier to understand and adopt
• Evolving the Code for continued relevance in a changing global environment - in relation to regulatory developments around the nature and extent of services auditors can provide to their clients and continuing globalisation of capital markets increasing complexity and opacity in some areas, particularly collective investment vehicles
• Increasing engagement and cooperation with key stakeholders - forging closer working relationships with key stakeholder groups, including regulators and auditor oversight bodies, national standard setters, the profession, investors and International Federation of Accountants (IFAC) member bodies.

The paper also outlines the various projects the IESBA intends to undertake in responding to the above themes.

The Consultation Paper is open for comment until 28 February 2014. Click for IESBA announcement (link to IFAC website).

The MoU seeks to assist both organisations in carrying out their respective regulatory responsibilities.  It covers areas such as:

• Information sharing;
• Co-operation in the area of standard-setting;     
• Co-operation on monitoring and enforcement; and
• Co-operation in the area of the FRC’s oversight responsibilities.

Senior directors of the FRC and the PRA will be responsible for the co-ordination set out in the MoU and will meet twice yearly to assess the effectiveness and efficiency of the co-ordination and co-operation.

The MoU can be obtained from the Bank of England website.

The EU Commission proposed amendments in this area in April 2013, which were put before JURI in November 2013, where they were combined with the opinions of several other committees. JURI has now mandated the Rapporteur Raffaele Baldassarre to start negotiations with the Council.

Currently, it is expected that the first reading in the European Parliament will occur on 10 March 2014.

Click here for the European Parliament press release (link to European Parliament website).

In October 2013, the IASB issued an exposure draft proposing changes to the IFRS for SMEs. The FRC has drafted a response to the proposed changes. In its response, the FRC encourages the IASB to reconsider whether:

a) its interpretation of the scope of the IFRS for SMEs is appropriate for an international accounting standard that, if applied in economies with more advanced financial reporting and regulatory frameworks, such as the UK, would have within its scope some very large and complex entities; or

b) whether the stated scope of the IFRS for SMEs should be amended to reflect the IASB’s interpretation of that scope in developing a standard which is designed to be suitable for entities which typically have less complex transactions, limited resources to apply full IFRSs and operate in circumstances in which comparability with their listed peers is not an important consideration.

The FRC also does not agree that the list of principles developed by the IASB for dealing with new and revised IFRSs is appropriate, or that the principles are clear enough to indicate to constituents when amendments to the IFRS for SMEs could be expected as a result of changes to full IFRSs.

As well as responding to the IASB's detailed questions, the FRC also highlights some technical issues with the IFRS for SMEs that have come to their attention as part of the development of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

The draft response can be found here on the FRC website and the invitation to comment here.

FRS 101 Reduced Disclosure Framework was originally published in November 2012 as part of the FRC's project to replace current UK GAAP with a new suite of standards, which also includes FRS 100 Application of Financial Reporting, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and, once finalised, FRS 103 Insurance Contracts (currently at the exposure draft stage).

FRS 101 was published in recognition of the fact that many UK groups prepare their consolidated financial statements in accordance with IFRSs rather than UK GAAP. For subsidiary entities, application of IFRSs is attractive because it would produce numbers consistent with those used to prepare the group accounts. However, many companies are put off using IFRSs for their subsidiaries by the extensive disclosure requirements.  In recognition of this, the FRC identified a number of disclosures that were, in their view, of limited usefulness in a set of subsidiary accounts. FRS 101 allows entities, in their entity only accounts, to apply the recognition and measurement requirements of IFRSs but take advantage of exemptions from these disclosures.

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups. FRED 53 Draft Amendments to FRS 101 Reduced Disclosure Framework (2013/14) is the first of these proposed annual updates.

The main changes proposed by the FRC are:

• to simplify the new disclosure requirements of IAS 36 Impairment of Assets in relation to fair value measurements used in impairment reviews; and
• to clarify how entities applying FRS 101 can adopt the new international accounting practice for investment entities (set out in IFRS 10 Investment Entities and its consequential amendments to IAS 27 Separate Financial Statements), whilst still complying with legal requirements.

It is proposed that these amendments would have the same effective date as the existing standard i.e. periods commencing on or after 1 January 2015.

The comment period for this exposure draft closes on 21 March 2014.

Click here for a link to the press release on the FRC website and here for a copy of the exposure draft itself.

Comply or explain is the fundamental basis of the UK Corporate Governance Code (the Code), where companies and boards do not need to comply with the Code provisions if they can justify non-compliance, and has been adopted widely in Europe and beyond. In its paper, ICAEW argues that the comply or explain approach is in danger of being undermined.

Supporters of comply or explain need to explain its relative advantages if it is not to be replaced by regulatory interventions where corporate behaviour continues to disappoint. ICAEW argues that these advantages are:

• Innovation - introducing aspirational new ideas and changes to company governance.
• Proportionality - measured application of more demanding requirements, especially for smaller businesses.
• Avoiding box-ticking - encouraging companies to think through overarching principles before complying with provisions because they have the option to “explain”.
• Long-term learning - assisting cultural change in companies by encouraging them to think about how to meet the purpose and principles of corporate governance.

Click here to download the ICAEW press release from their website and here for the full report.

In 2013, for the first time, the FRC's Audit Quality Review (AQR) team have begun conducting Audit Quality Thematic Reviews. From 2013 onwards, thematic reviews will supplement their annual programme of audit inspections of individual firms. Two reviews have been conducted in 2013:

• A review of the auditor's consideration and application of materiality; and
• A review of the auditor’s identification of and response to fraud risks and relevant laws and regulations.

The report on materiality considerations has been published today, with the report on fraud risks, laws and regulations expected in January 2014. The report is based on data from a cross-section of audits conducted by the six largest UK audit firms - BDO LLP, Deloitte LLP, Ernst & Young LLP, Grant Thornton UK LLP, KPMG LLP and KPMG Audit plc and PricewaterhouseCoopers LLP.

The report identifies a number of findings:

• Several of the firms have recently made changes to their materiality guidance which may lead to higher materiality levels being set.
• Some firms have significantly higher acceptable percentage ranges than others for determining materiality.
• Auditors did not always appropriately explain and justify their judgments in completing templates for setting materiality.
• In the majority of cases materiality levels set were the maximum permitted under the firm’s guidance, irrespective of the risks identified.
• Auditors did not always appropriately consider revising materiality levels when actual performance was significantly worse than forecast.
• In a number of instances, not all of those errors that should have been reported to the audit committee were communicated by the auditor.

The report also identifies some key messages for both audit firms and audit committees to address these findings. In particular, firms should ensure that appropriate judgement is exercised in setting materiality and that the judgements made are fully documented. Audit committees should seek to understand the materiality level set by their auditors and why it is considered to be appropriate, including the impact that it will have on the audit procedures.

The FRC's press release can be found on their website here and the report itself can be downloaded here.

The proposed International Education Standard IES 8 Professional Competence for Engagement Partners Responsible for Audits of Financial Statements, outlines learning outcomes for professional competence that professional accountants are required to demonstrate when performing the role of an engagement partner responsible for audits of financial statements.

The IES would require member bodies of the International Federation of Accountants (IFAC) to require professional accountants performing this role to undertake continuing professional development (CPD) that maintains and further develops the professional competence required. The exposure draft includes a table of learning outcomes in various competence areas, including technical competence, professional skills and professional values, ethics and attitudes.

In developing the revised exposure draft, the IAESB responded to 'mixed' constituent feedback on an earlier exposure draft published in August 2012, with saw clarifications being sought in a number of areas:

• improving the clarity of the title, objective, and scope paragraphs to ensure that there is focus on professional competence
• focusing the requirement on learning outcomes related to the professional competence required of engagement partners responsible for audits of financial statements
• improving the clarity of the explanatory material by delineating the scope, explaining the concepts of learning outcomes and competence areas, and discussing the importance of applying professional scepticism in assessing audit evidence and exercising professional judgement when determining an appropriate audit strategy
• amending the explanatory material related to engagement partners of small and medium practices to emphasise the relevance of CPD even though they may undertake a much wider range of tasks in performing the audit than would otherwise be the case.

The proposals are accompanied by an explanatory supplement to demonstrate how the text of the existing IES 8 maps to the proposed IES 8, and a marked up version of the August 2012 exposure draft showing changes made in developing the current exposure draft.

Comments on the proposals close on 17 April 2014 and the IAESB intends to finalise the revised standard by the end of 2014. Click for (links to IFAC website):

• IAESB press release
• Full text of the exposure draft
• Supplement to the exposure draft

The FCA has amended the Listing Rules in response to the new directors’ remuneration report and narrative reporting regulations in order to ensure that any duplication in relation to directors’ remuneration is kept to a minimum and that unnecessary requirements are not imposed on UK incorporated listed companies.  These changes follow the FCA consultation, CP13/7 ‘Consequential Changes to the Listing Rules resulting from the BIS Directors’ Remuneration Reporting Regulations and Narrative Reporting Regulations’, in August 2013. 

The key changes are: 

• All of the disclosures relating to remuneration, currently contained in LR 9.8.8, have been removed with the exception of what was LR 9.8.8 (9). This provision now becomes LR 9.8.8 and requires the disclosure of the unexpired term of any director’s service contract where that director is proposed for election or re-election at the forthcoming annual general meeting. This rule remains as it is applicable to both UK and overseas companies with a premium listing and therefore maintains the current requirements for overseas companies. 
• LR 9.8.11 and 9.8.12, which related to the auditors’ review of the disclosures relating to directors’ remuneration, have also been removed. 
• There is a minor change to LR 9.8.13 in response to the narrative reporting regulations which changes existing references to ‘summary financial statements’ to ‘strategic report with supplementary information’ which will reflect the new requirement for the production of a strategic report. 

There are no changes to LR 9.8.6. This rule relates to the disclosure of directors’ share interests at end of the period under review and any changes between this date (LR 9.8.6 (1)); share interests disclosed to the listed company in accordance with Disclosure and Transparency Rule 5 (LR 9.8.6 (2)); a statement that the business is a going concern (LR 9.8.6 (3)); details of any shareholder authority for purchase of its own shares and details of such purchases (LR 9.8.6 (4)); a statement of how the company has applied the principles set out in the UK Corporate Governance Code (LR 9.8.6 (5)) and a statement of compliance with the Code, or details of non-compliance (LR 9.8.6 (6)).  Companies incorporated outside the UK with a premium listing must comply with LR 9.8.6 (5) and (6). 

There are also no current plans to change LR 9.4.1, which deals with the requirement for shareholder approval of employee share plans and long term incentive plans, and LR 9.4.2 which allows exemptions from these requirements for all employee plans and plans put in place for one director to facilitate, in unusual circumstances, the recruitment or retention of the relevant individual, where those plans only operate with ‘market purchase’ shares. However, the policy statement notes the potential overlap between this provision and the requirements of the new regulations and suggests that this may be reviewed again once the new requirements have been in place for a reasonable period of time. 

The new Listing Rules will be effective from 13 December 2013 and apply to all companies with financial years ending on or after 30 September 2013 that have not published their annual financial report before 13 December 2013. 

Companies already preparing their report can continue to publish the report after 13 December 2013 in compliance with both the existing Listing Rules and the new remuneration reporting requirements if they choose to do so. 

Click for (all links to FCA website):

• Press release.
• PS13/11 – ‘Consequential Changes to the Listing Rules resulting from the BIS Directors’ Remuneration Reporting Regulations and Narrative Reporting Regulations’.