ICAEW's Audit and Assurance Faculty brings you the latest technical updates on developments in auditing and assurance, financial reporting and ethics. Please note Only Audit and Assurance Faculty members and Faculties Online subscribers have access to these technical updates.

Future of Corporate Reporting Feedback Statement

Financial Reporting | 30 July 2021

The Financial Reporting Council (FRC) has issued a feedback statement following the publication of its thought leadership paper on the Future of Corporate Reporting. 

There was support for a model accommodating the interests of investors and other stakeholders; the concept of a reporting network (with further development needed before it is practicable); a model that puts digital first and standardisation of non-financial reporting. Respondents also encouraged the FRC to ensure any UK developments are aligned with those internationally.

Annual Enforcement Review 2021

Audit and Assurance | 30 July 2021

The Financial Reporting Council (FRC) has published its third Annual Enforcement Review which shows the FRC's Enforcement Division has grown by 44% in the last year, resulting in the quicker resolution of cases and an increase in the number of investigations opened.

A record number of cases (48 compared to 31) were resolved through constructive engagement. For those matters which were subject to enforcement action, 28 non-financial sanctions were issued with an unprecedented number of requirements and conditions, including firms undertaking root cause analysis and implementing training programmes.

IPSASB issues Exposure Draft 80, Improvements to IPSAS, 2021

Financial Reporting | 30 July 2021

The International Public Sector Accounting Standards Board (IPSASB) has published Exposure Draft (ED) 80, Improvements to IPSAS, 2021. To address issues raised by stakeholders, the exposure draft proposes minor improvements to IPSAS as well as minor amendments as a result of recent IFRS improvements and narrow scope projects. 

The deadline for comments is 30 September 2021.

IPSASB consults on six new projects for its work programme

Financial Reporting | 29 July 2021

The International Public Sector Accounting Standards Board (IPSASB) has released its Mid-Period Work Program Consultation, which proposes adding two major projects and four smaller projects to its work programme. The major projects would cover 'Presentation of Financial Statements' and 'Differential Reporting'. The smaller scope projects would cover 'IPSAS 21 Impairment of Non-Cash-Generating Assets’; ‘IPSAS 31 Intangible Assets’; ‘IPSAS 33 First-Time Adoption of Accrual Basis IPSASs’ and ‘Making Materiality Judgements’.

The deadline for comments is 30 November 2021.

Minor amendment to transition requirements for insurers applying IFRS 17 and IFRS 9 for the first time

Financial Reporting | 28 July 2021

The International Accounting Standards Board (IASB) has proposed a narrow-scope amendment to the transition requirements in IFRS 17 Insurance Contracts. It came to the Board's attention that there were significant temporary accounting mismatches on initial application of the new Standards in circumstances when IFRS 9 is not reflected in the accounting for financial assets in the prior periods presented when IFRS 17 and IFRS 9 are first applied. The amendment would give an option to present comparative information for certain financial assets in a manner consistent with IFRS 9. 

The deadline for comments is 27 September 2021.

Reduced disclosure requirements for subsidiaries

Financial Reporting | 26 July 2021

The International Accounting Standards Board (IASB) has proposed a new IFRS standard that would allow eligible subsidiaries to apply IFRS Standards with reduced disclosure requirements. The proposed Standard would be available to those subsidiaries without public accountability (companies that are not financial institutions or listed on a stock exchange) and whose parent company prepares consolidated financial statements under IFRS Standards. 

The deadline for comments is 31 January 2022.

Proposed new standard for audits of less complex entities

Audit and Assurance | 23 July 2021

The International Auditing and Assurance Standards Board (IAASB) has published an exposure draft of its new, stand-alone standard for audits of financial statements of less complex entities (LCEs). The draft standard responds to an increasing need for a set of high-quality requirements tailored for the audits of LCEs. At a time where several jurisdictional-specific LCE standards are emerging, the IAASB hope that the standard will provide a globally consistent approach.

The deadline for comments is 31 January 2022 with an outreach plan due to be available online in late August 2021.

FRC publishes Annual Report and Accounts

Audit and Assurance | 23 July 2021

The Financial Reporting Council (FRC) has published its Annual Report and Accounts for the year ended 31 March 2021. The report outlines the progress made in 2020/21 and the next steps towards the new regulator, The Audit, Reporting and Governance Authority (ARGA).

Nearly one third of big seven audits still require improvement

Audit and Assurance | 23 July 2021

The Financial Reporting Council (FRC) has published its annual inspection and supervision results for 2020/21 covering the seven largest audit firms: BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC. 

Nearly one third of audits inspected required improvement or significant improvement, with more mixed quality across the firms compared to 2019/20. Of the 103 audits reviewed, 29% (2019/20: 33%) required improvement or significant improvement and 71% (2019/20: 67%) were of a good standard or required only limited improvement. 

Amendments to the Audit Enforcement Procedure

Audit and Assurance | 22 July 2021

The Financial Reporting Council (FRC) is seeking views on amendments made to the Audit Enforcement Procedure (AEP). The FRC intends to bring the amended version of the AEP into force on 1 January 2022.

The deadline for comments is 7 October 2021.

IFAC support for IFRS Foundation constitutional amendments 

Financial Reporting | 22 July 2021

The International Federation of Accountants (IFAC) has reiterated its support for the establishment of a new International Sustainability Standards Board (ISSB) by the IFRS Foundation. The Trustees sought feedback on the proposed amendments to the Foundation's Constitution to accommodate the potential formation and operation of the ISSB. The amendments included revisions to the objectives of the Foundation and the institutional arrangements for the ISSB. 

Webinar on Management Commentary

Financial Reporting | 21 July 2021

On 13 July 2021, the International Accounting Standards Board (IASB) held a live webinar on the Exposure Draft Management Commentary, which proposes a new comprehensive framework for preparing management commentary. A recording and accompanying slide deck are available to view. 

The deadline for comments is 23 November 2021.

Extension of comment period for Exposure Draft Disclosure Requirements in IFRS Standards - A Pilot Approach

Financial Reporting | 21 July 2021

The International Accounting Standards Board (IASB) has extended the comment period to 12 January 2022 for the Exposure Draft Disclosure Requirements in IFRS Standards - A Pilot Approach. It is hoped that this will allow preparers more time to undertake fieldwork and provide feedback on the proposals. 

Board diversity and effectiveness in FTSE 350 companies

Financial Reporting | 20 July 2021

Research published by the Financial Reporting Council (FRC) in conjunction with London Business School Leadership Institute and SQW, entitled, Board Diversity and Effectiveness in FTSE 350 Companies, has found that the effort made to diversify boards pays benefits in terms of boardroom culture and performance. The research concluded that the responsibility to drive inclusion lies with the Chair of a board but that more focus is needed by companies and Regulators on collecting data. The importance of the Nomination Committee itself being diverse was highlighted and it was found that the greater representation of women in the boardroom is reshaping culture and dynamics and benefiting businesses.

Webinars on IASB's Third Agenda Consultation

Financial Reporting | 19 July 2021

On 14 July 2021, the International Accounting Standards Board (IASB) held two live webinars to discuss the Board's Third Agenda Consultation relating to its five-year work plan. The Board is seeking feedback to help prioritise activities within the current scope of its work. A recording and accompanying slide deck are available to view. 

The deadline for comments is 27 September 2021.

Reporting on stakeholders, decisions and S172

Financial Reporting | 19 July 2021

The Financial Reporting Lab has published its latest report on reporting on stakeholders, decisions and S172. The report highlights how information on stakeholders and decisions can help investors understand progress made towards the long-term success of a company, with S172 statements linking this information together. The report discusses the information investors' want to see reported, including examples from current reporting practice. A summary of questions has been published on considering what information to report to meet investors' needs. A podcast is also available discussing the importance of linking this information to the strategy and long-term success of a company.

Challenger firms increase share of FTSE 250 audit market 

Audit and Assurance | 14 July 2021

Challenger audit firms have increased their share of FTSE 250 audits, up from 4.8% to 7.6 %, according to new data from the Financial Reporting Council (FRC). Following the recent Government consultation on major reforms to improve choice and competition in the audit market, improving competition across the FTSE 350 audit market continues to be a key focus for the FRC. They found that the five largest challenger firms outside the Big Four audited 19 FTSE 350 companies, up from 10 the previous year, however, all FTSE 100 companies are still audited by a Big Four firm.

Webinars on new quality management standards

Audit and assurance | 13 July 2021

The International Auditing and Assurance Standards Board (IAASB) is hosting webinars on Resourcing for quality management (29 July), Your firm’s monitoring and remediation process (5 August) and Exploring all the components of a quality management system (18 August), to support implementation of the IAASB’s new International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements.

Workshop on disclosure requirements in IFRS

Financial reporting | 12 July 2021

A recording and accompanying slide deck are available of the IFRS Foundation’s workshop on 1 June, providing an overview of the International Accounting Standards Board’s Exposure Draft, Disclosure Requirements in IFRS Standards – A Pilot Approach.

Webinar on business combinations

Financial reporting | 12 July 2021

A recording and accompanying side deck are available of the live virtual IFRS Foundation webinar on 30 June on the Discussion Paper, Business Combinations under Common Control.

Revised UK quality management standards

Audit and assurance | 9 July 2021

The Financial Reporting Council (FRC) has issued revised quality management standards for an audit firm’s responsibilities to design, implement and operate a system of quality management:

• International Standard on Quality Management (UK) 1, Quality Management For Firms That Perform Audits Or Reviews Of Financial Statements, Or Other Assurance Or Related Services Engagements;
• International Standard on Quality Management (UK) 2, Engagement Quality Reviews; and
• International Standard on Auditing (UK) 220 (Revised July 2021), Quality Control For An Audit Of Financial Statements.

The standards introduce a new quality management approach, focused on proactively identifying and responding to risks to quality. This approach requires a firm to customise the design, implementation and operation of its system of quality management, based on the nature and circumstances of the firm, using an integrated approach that considers the quality management system as a whole.

The standards are effective for audits of financial statements for periods beginning on or after 15 December 2022. Early adoption of the revised standards is strongly encouraged by the FRC.

Necessary action for effective ESG reporting

Audit and assurance | 7 July 2021

The Financial Reporting Council (FRC) has published an FRC Statement of Intent on Environmental, Social and Governance challenges. This paper sets out FRC thinking on the need to address underlying issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information, if companies are to report this in a way that meets the demands of stakeholders, how to address these, and the FRC’s planned related activities.