September

ICAS publishes new professional judgement framework

05 Sep 2016

Since we are increasingly applying principles-based standards, the Institute of Chartered Accountants of Scotland (ICAS) has developed a professional judgement framework distilling the key principles for making a sound judgement.

The framework A professional judgement framework for financial reporting decision making - An international guide for preparers, auditors, audit committees, regulators and standard setters across business and not-for-profit sectors identifies core principles and provides a structured process to guide decision makers through how to make, assess and document significant judgements. It targets significant judgements across narrative and financial reporting including accounting treatment, materiality and disclosures.

The framework is designed to fit within the context provided by applicable accounting standards. It also provides a useful training guide for students or those new to decision making.

Please click to access the framework and a corresponding press release on the ICAS website.

Summary of the June 2016 joint CMAC-GPF meeting

02 Sep 2016

Representatives from the International Accounting Standards Board (IASB) met with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on 15 and 16 June 2016. Notes from the joint meeting have now been released.

The topics discussed at the meeting included:

  • IASB and Interpretations Committee Update. Members discussed the support of consistent application of IFRSs and the agenda consultation.
  • Materiality. Members discussed a proposed ‘four-step approach’ for making materiality judgements when preparing a financial report:
    • Step 1 — identifying the primary users and their information needs;
    • Step 2 — making a materiality judgement, considering quantitative factors as well as qualitative entity-specific and environmental factors;
    • Step 3 — organising material information within the financial report; and
    • Step 4 — stepping back and reviewing the financial report as a whole.
  • Statement of Cash Flows. Topics discussed were the classification of cash flows (positively defining cash flows from operating activities, presenting cash outflows for acquiring property, plant and equipment as cash flows from operating activities, presentation of cash flows related to financing liabilities, cash received from customers and presentation of cash flows related to tax), cash equivalents and the management of liquid resources, reconciliation of operating activities, and direct or indirect method.
  • Primary Financial Statements. Members discussed the structure and content of the statement of profit or loss and OCI as regards line items and subtotals as well as alternative performance measures, the structure and content of the statement of financial position, and the interaction between items reported in different primary financial statements.
  • Financial instruments with characteristics of equity. Focus of the discussion were shares redeemable at fair value and cumulative preference shares.

The next CMAC meeting will be held on 3 November 2016 and the next GPF meeting will be held on 29 November 2016. The full meeting summary is available on the IASB's website.

Study of the CFA Institute on the role of data and technology in transforming financial reporting

02 Sep 2016

The CFA Institute, a global association of investment professionals, has published 'Data and Technology: Transforming the Financial Information Landscape'. The study examines the current financial reporting process, assesses the inefficiencies in the system, and determines the ways that data, data analytics, and technology could potentially improve or even transform that process.

The study begins by pointing out that the current system presumes that information is consumed by humans, therefore machine-readable formats are often neglected or viewed as secondary. However, the study concludes that the use of data and technology can result in a more effective and efficient overall financial reporting process in which users at every level receive more transparent, better-quality information on a timely basis. The three levels the study identifies are companies, auditors and investors.

  • Companies. Using standardised data from very early on in the process (and not only at the regulatory filing stage) would enable companies to use applications that are able to pull information from different data sources to write automated reports, which will streamline current labor-intensive processes.
  • Auditors. Structuring data early in the process would also allow auditors to use audit data analytics to make the audit more efficient and potentially provide users with a better quality and greater granularity of financial information with greater reporting frequency and possibly a higher level of assurance.
  • Investors. Structured quantitative data not bounded by the document in which the information is contained would give investors the possibility to apply current technology to sift through data and analyse the numbers in a faster and more comprehensive manner.

However, the study also notes that to achieve these changes, regulators need to improve access to and searchability of information within the regulator’s primary source documents.

Please click to access the full study on the CFA Institute's website.

FSB reports to G20 on financial regulatory reforms

01 Sep 2016

Ahead of the Group of Twenty (G20) meeting in China on 4-5 September 2016, the Financial Stability Board (FSB) has published a report on the 'Implementation and Effects of the G20 Financial Regulatory Reforms'. The report also briefly considers international accounting convergence, especially as regards expected loan loss provisioning.

It notes that convergence has not been achieved:

The international and US accounting standard setters have issued separate standards on expected loan loss provisioning (to come into force in 2018 and 2020 respectively), both of which are forward-looking and take account of the lessons of the crisis. These standards have not converged, and the FSB has asked the standard-setters to monitor their consistent implementation and to continue to seek opportunities for meeting the G20’s call for further accounting convergence.

Please click for the full report on the FSB website.

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