Technical update July/August 2019
The Audit and Assurance Faculty's roundup of new and updated legal and regulatory changes and guidance.
Audit and Assurance
IAASB discussion paper on audit of less complex entities
The International Auditing and Assurance Standards Board (IAASB) has issued a discussion paper on the audit of less complex entities which explores the challenges of applying International Standards on Auditing (ISAs) in less complex entities (LCEs) and possible options to address these challenges.
The IAASB recognises the global call for action to address issues of complexity, length, understandability, scalability, and proportionality related to using the ISAs and calls to continue the global debate on these strategic issues.
The discussion paper explores how the IAASB and others could further support auditors working in evolving environments. It sets out identified challenges that are not within the boundaries of IAASB work relating to audits of LCEs, and then, as context for the possible actions below, the paper also describes those identified challenges that are within the boundaries of its work related to audits of LCEs.
Possible options explored in the paper include:
- revising the ISAs;
- developing a separate auditing standard for audits of LCEs; and
- developing guidance for auditors of LCEs or other related actions.
The consultation is open for comment until 12 September 2019.
Study on effects of EU Audit Reform
The European Parliament Think Tank has published a study (requested by the parliament’s Economic and Monetary Affairs Committee) investigating the effect of EU statutory audit reform on costs, concentration and competition in the EU statutory audit market based on data from the years 2013-2017.
The study focuses its research on three key questions:
- Is there a quantifiable result of the audit reform in terms of reduced market concentration and increased market competition in the EU?
- Is there a material difference in costs for auditees after the reform?
- Are there inconsistencies in implementation of the reform by Member States and what are the effects of specific aspects of the reform on concentration, competition and costs in the EU?
Learn more about the task force, the study and download a PDF of the report.
Financial reporting guide for smaller listed companies
A practical guide to help smaller listed and AIM-quoted companies improve their financial reporting has been published jointly by ICAEW and the FRC.
Consultation on SIR revisions
The Financial Reporting Council (FRC) is consulting on revisions to the standards for investment reporting (SIRs), and on an exposure draft for a new standard dealing with quantified financial benefits statements.
The SIRs set requirements and provide guidance for accountants carrying out reporting engagements on UK investment circulars. These engagements include private reporting, for example on working capital statements, as well as public reporting engagements on published financial information.
Consultation comments are due by 26 July 2019.
IASB considers feedback on IFRS amendments
The International Accounting Standards Board (IASB) is considering feedback on its proposed changes to the old and new financial instruments standards, in light of the reform of interest rate benchmarks such as interbank offer rates (IBORs).
Proposals cover amendments to IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform.
IFRS standards require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, uncertainty exists about when the current interest rate benchmarks will be replaced and with what interest rate.
The IASB has said that without the proposed amendments, this uncertainty could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments. This could result in reduced usefulness of the information in the financial statements for investors.
IFRS consults on changes to its due process handbook
The trustees of the IFRS Foundation are inviting stakeholder comment on proposed amendments to its Due Process Handbook, the procedural requirements followed by the IASB and the IFRS Interpretations Committee.
The due process is based on three principles: transparency; full and fair consultation; and accountability. The main proposed changes are to:
- update procedures relating to the use of effects analysis – assessing the likely effects of a new or amended IFRS standard – to ensure they are
consistent with current activities and make clear that such analyses take place at all stages of the standard-setting process; and
- clarify the role and status of agenda decisions published by the Interpretations Committee and amend the Handbook to make agenda decisions a tool for the board.
The trustees are also proposing narrow-scope amendment to the IFRS Foundation’s Constitution.
Comments are invited by 29 July 2019.
IPSASB consults on public sector measurement proposals
The International Public Sector Accounting Standards Board (IPSASB) has issued a consultation paper addressing how measurement bases are determined in the public sector. The paper includes an illustrative Exposure Draft (ED) Measurement showing how IPSASB envisages a final pronouncement (and it is the first time it has used such an approach).
The paper lays out proposed guidance for measurement bases for the assets and liabilities most commonly used by public sector entities when applying IPSAS. It proposes the development of a single standard that will provide definitions and guidance on the main measurement bases, while other IPSAS will continue to provide guidance on which particular measurement basis is to be used.
The consultation paper and ED respond to a number of drivers including:
- the need to consider existing measurement requirements in light of measurement guidance in IPSASB’s Conceptual Framework;
- that it is necessary to standardise usage of the term ‘fair value’ within IPSASB’s literature following the issue of private sector guidance in IFRS 13; and
- the need to provide guidance on difficult issues, such as borrowing costs and transactions costs.
The final pronouncement will underpin IPSASB’s approach to measurement for many years, so it is essential that IPSASB hears the views of respondents on the preliminary views and the other matters this paper raises for comment.
Comments on the consultation paper are invited by 30 September 2019.
FRC transition to ARGA
The FRC has published its 2019-20 plan and budget for the coming year, with a commitment to push forward quickly its transition to the new regulator, the Audit, Reporting and Governance Authority (ARGA). This work will progress alongside the reform programme already in place in relation to the audit market.
The Department for Business, Energy & Industrial Strategy is consulting on 48 of Sir John Kingman’s recommendations, many of which the FRC has a lead role in implementing (see tinyurl.com/AB-IndRev). The FRC budget includes investment in audit and corporate reporting supervision and enforcement.
The FRC’s work programme and transition will run in parallel with, and contribute to, other reviews, notably the Brydon Review of the quality and effectiveness of audit and the Competition and Markets Authority review into audit competition.
The FRC’s strategic priorities for 2019/20 include:
- supporting the transition to the new ARGA;
- driving a step-change in audit quality in the UK, using its supervisory and standard-setting powers;
- increasing the planned number of corporate reporting reviews and work to address the independent review’s recommendations that it should cover the whole of a company’s annual report;
- using its expanded enforcement resources to manage an increasing caseload and accelerate decisions; and
- promoting high-quality corporate governance and investor stewardship, including through a new Stewardship Code.