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European Commission proposals on statutory audits

21 Dec 2007

Charlie McCreevy, the EU Commissioner for Internal Market and Services, has released details of Planned Revisions to the Statutory Audit Requirements in the European Union.

The existing Statutory Audit Directive, also known as the 8th Company Law Directive, was adopted in May 2006. It sets out a framework of principles that Member States are required to implement into their national legislation by 29 June 2008. It also envisages that the European Union will continue to focus on some specific policy areas, such as auditor liability, International Standards on Auditing, inspections of audit firms, and relations with third (non-EU) countries.

Commissioner McCreevy announced his plans regarding the 8th Directive in six areas:

  • Auditor liability. Recommendation in first quarter 2008 asking Member States to limit auditor liability. Each Member State would decide the means by which liability is limited – for instance, a liability cap, proportionate liability, or contractual arrangements between the auditor and the audited firm. Liability would not be limited in cases involving wilful misconduct by auditors.
  • Restrictions on ownership of audit firms. Public consultation will be launched in the first quarter of 2008.
  • Audit quality and inspections. Independent inspections of audit firms that audit listed companies are needed. However, before this could be required, more independent inspectors with sufficient expertise are needed. Meanwhile, the EU should give more responsibilities to the public oversight bodies and, for a transitional period, allow professional bodies and practitioners to take part in the inspection process, with a limited role under the supervision of independent inspectors.
  • Implementation of the Statutory Audit Directive. Publish a 'scoreboard' in Spring 2008 showing where Member States stand in implementing the 8th Directive, particularly as regards the establishment of independent public auditor oversight.
  • International Standards on Auditing (ISAs). Article 26 of the Statutory Audit Directive allows the Commission to make ISAs mandatory for the European Union. However, the Commissioner's intention is not to make a decision on ISAs at this stage but to look at this issue again towards the end of 2008 – following completion of the IAASB's Clarity Project and studies that the EU will undertake.
  • Co-operation with 'third countries'. Under the 8th Directive, Member States are required to register all auditors from outside the EU that audit companies listed in EU markets and to subject them to their systems for overseeing domestic audit firms. However, the Directive allows Member States to exempt auditors from non-EU countries whose oversight system is considered equivalent to the EU system. In January 2008, Commissioner McCreevy will propose transitional measures to allow audit firms from such non-EU countries to continue without registration until 1 January 2011. By then, the EU will complete equivalency assessments of these non-EU oversight systems.

Click to view Planned Revisions to the Statutory Audit Requirements (PDF 80k).

Three revised International Standards on Auditing

21 Dec 2007

The International Auditing and Assurance Standards Board (IAASB) has issued three final International Standards on Auditing (ISAs) that reflect its new clarity drafting conventions.

Click for Press Release (PDF 45k), which has summaries of the three new ISAs and also a hyperlink to the IAASB's website where you can download the ISAs without charge. The new ISAs are:
  • ISA 230 (Redrafted) Audit Documentation
  • ISA 260 (Revised and Redrafted) Communication with Those Charged with Governance
  • ISA 720 (Redrafted) The Auditor's Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements
The IAASB has been redrafting all of its existing standards and developing new and revised standards following 'clarity drafting conventions'. The complete set of revised and clarified ISAs will be effective for audits of financial statements for periods beginning on or after 15 December 2009. The IAASB is releasing standards as they are approved to provide standard setters, regulators, and auditors with sufficient time to plan for the adoption and implementation of the standards.


Revised IASCF constitution reflects changes to IFRIC

20 Dec 2007

The IASC Foundation has published a revised version of its constitution reflecting various amendments relating to the International Financial Reporting Interpretations Committee (IFRIC).

Amendments include enlarging IFRIC from 12 to 14 members, changing the quorum and voting requirements accordingly, and basing the selection of IFRIC members on their awareness of current issues and technical ability to resolve them. The IASC Foundation plans to begin its search for two new IFRIC members shortly. Click for:


We comment on two IAASB proposals

20 Dec 2007

Deloitte has recently submitted letters of comment to the International Auditing and Assurance Standards Board (IAASB) on two proposed International Standards on Auditing:

  • ISA 530 (Redrafted) Audit Sampling (PDF 45k). We express serious concerns about the redrafted ISA 530 regarding (1) the exclusion of certain 'anomalies' when projecting misstatements in samples to the population as a whole and (2) the required approach to evaluating sample results. We note that while these comments go beyond clarity matters, we believe that they relate to current practice problems and that their significance warrants the IAASB's consideration at this time.
You will find our past comments to the IAASB Here.


CEBS report on Basel Pillar 3 addresses IFRS 7 disclosures

19 Dec 2007

The Committee of European Banking Supervisors (CEBS) has published the findings of a survey on regulatory implementation of disclosures by banks and other credit institutions under EU Directive 2006/48/CE, which transposes the Basel Pillar 3 requirements into EU legislation.

The rationale underlying Pillar 3 is that adequate disclosure should allow market participants to assess an entity's capital adequacy. To this end institutions need to disclose information on the scope of application, capital, risk exposures, and risk assessment processes at the highest level of consolidation. The report notes as an 'area of concern' the interrelationship between Pillar 3 disclosures and accounting disclosures under IFRS 7.

"Dealing with the relationship with accounting is of great importance to ensure that the accounting and Pillar 3 disclosures are to the largest extent consistent or at least not such that they lead to major inconsistency problems."

The survey found that, at the moment, EU countries have refrained from taking measures (either official or informal) in this respect, though many countries indicated that disclosures made in the public financial statements as a result of IFRS 7 do not need to be repeated for the purpose of Pillar 3 compliance. Two countries said that they may issue guidance on this matter. Click for:


FAF proposes changes to FASB structure

19 Dec 2007

The Trustees of the US Financial Accounting Foundation (FAF), under which the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) operate, have published for comment proposals for significant changes to the FAF-FASB-GASB structure.

The proposals are designed to make FASB's decision-making more efficient and to strengthen the oversight role of the FAF. Click to download the FAF Proposed Changes to Oversight, Structure, and Operations of the FAF, FASB, and GASB (PDF 83k). Comment deadline is 10 February 2008. Among the proposed changes are the following:

Summary of Main Proposals by the FAF Trustees:

Financial Accounting Standards Board (FASB):

  • Reduce the size of the FASB to five members, from seven currently.
  • Retain the current simple majority FASB voting requirement.
  • Require that FASB have at least one member from each of four backgrounds: investing, auditing, preparing financial statements, and accounting education. The fifth member could be from any background. Currently there is no required mix.
  • Give the FASB chair the authority to add issues to FASB's agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.
Financial Accounting Foundation (FAF):
  • Strengthen the governance and oversight activities of the FAF trustees as to the efficiency and effectiveness of the standard-setting process. Trustees propose taking a more active oversight role in such areas as due process, agenda setting, solicitation of public comment, consideration of comments, and the post-isuance evaluation of the effectiveness and efficiency of standards adopted by FASB.
  • Give the power to choose FAF trustees to the trustees themselves, replacing the current system by which eight non-government trustees are selected by six specified organisations subject only to rejection by the trustees on grounds a nominee is 'not suitable'.
  • Change FAF trustees' maximum terms of service from two three-year terms to one five-year term.
  • Change the number of FAF trustees from 16 currently to a range between 14 and 18.
  • Require that the next chairman of the FAF devote between one-third and one-half time to the job.
Governmental Accounting Standards Board (GASB):
  • Retain the current size, term length, and composition of the GASB.
  • Secure a stable mandatory funding source for the GASB.
  • Give the GASB chair the authority to set GASB's technical agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.

With regard to the future role of FASB and IFRSs, the FAF proposal notes:

Recent commitments by many countries to use International Financial Reporting Standards (IFRSs) have opened a broad-ranging debate on issues related to accounting standards convergence and globalization. At its core, this debate must include a realistic assessment of how IFRS will work in actual application across the world and what contributions can be made by the FAF and FASB to the quality and consistency of those standards. The outcome of this debate will affect the future role, structure, and influence of the FAF and FASB on the global standard-setting process. However, regardless of the outcome, the FASB likely will continue to have a meaningful role in how international standards are set, and it may have continuing responsibility for setting standards for private enterprises and not-for-profit organizations in the United States.

The SEC holds two roundtables on IFRSs

19 Dec 2007

On 13 and 17 December 2007, the SEC hosted two roundtable discussions on the potential use of IFRSs in the United States.

The roundtables were in response to:

The roundtable participants comprised various constituents, including financial intermediaries, investors, and issuers. The roundtables addressed the effect of giving US issuers the choice of using IFRSs or US GAAP on the capital markets and on competition. Practical issues concerning the possible use of IFRSs by US issuers and the impact on investor protection also were addressed. Issues were addressed from both the US market's perspective and the global perspective.

The 18 December 2007 edition of the Heads Up Newsletter (PDF 114k) from Deloitte & Touche LLP (United States) has the details.


New IFAC translations database

18 Dec 2007

The International Federation of Accountants (IFAC) has developed a database that enables professional accountants to locate third-party translations of its pronouncements in more than 30 languages.

The database features information on the languages available, publication titles, names of translating organizations and, where available, lists of translated key terms. To facilitate translation and reproduction of its pronouncements, IFAC has released the following two updated policy statements:
  • Policy for Reproducing, or Translating and Reproducing, Publications Issued by the International Federation of Accountants; and
  • Permission to State that the International Federation of Accountants has Considered a Translating Body's Process for Translating Standards and Guidance.
The translations database and the policy statements can be accessed on the IFAC website at Click for Press Release (PDF 56k).


We comment to IASB on risks eligible for hedge accounting

18 Dec 2007

We have submitted to the IASB our Comments on the Exposure Draft: IAS 39 Exposures Qualifying for Hedge Accounting.

Overall we are supportive of the proposals.

We support the Board's intention to clarify IAS 39 Financial Instruments: Recognition and Measurement in the areas of what risks are eligible for hedge accounting and what portion can be designated as a hedged item. As the amendments' objective is to provide clarity in what is a qualifying hedge accounting relationship it is important that the finalisation of the amendments on risks and portions is very clear. We currently have concerns that some of the drafting is not clear enough and also that the amendments may have unintended consequences for other hedge accounting designations beyond the intended scope of the amendments. We draw this to your attention as well as our proposals to make the amendments clearer and other drafting comments in the answers to the questions in the Appendix to this comment letter.

Click to view Comments on the Exposure Draft: IAS 39 Exposures Qualifying for Hedge Accounting (139k). You will find all past Deloitte letters of comment to the IASB and the IASC Here.


Correction list for hyphenation

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