Global Update

IFAC and CIPFA Release Important New Framework for Good Governance in the Public Sector

The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) have together developed the International Framework: Good Governance in the Public Sector, to encourage more effective public sector governance.

Over the past few years, governance in public entities has become a pressing issue gaining greater exposure as a result of the financial and sovereign debt crises and a constant stream of governance failures, including nepotism, inefficiency, corruption, and poor financial management. In response, the Framework encourages better governed and managed public sector entities by improving how they set and achieve their intended outcomes. Enhanced stakeholder engagement, robust scrutiny and oversight of those charged with primary responsibility for determining an entity’s strategic direction, operations, and accountability leads to more effective interventions and better outcomes for the public at large.

Increased focus on the critical role that good governance plays in the public sector has been an all-too-recent development. Growing awareness of the substantial role of poor public sector governance in the sovereign debt crisis and other public sector failures has made the appropriate application of governance standards and arrangements more pressing than ever.

On the launch of the Framework, IFAC CEO Fayez Choudhury said, “Good governance in the public sector requires an eye to the future, transparency, and accountability-principles that IFAC has consistently promoted, in particular with respect to the effects they have on the capacity to attract capital, global financial stability, and long-term sustainability. While adopting the International Public Sector Accounting Standards (IPSASs) is a critical step, improvement of other governance arrangements is essential if governments worldwide are to be successful in the sustainable development of our economies and societies.”

Good Governance in the Public Sector establishes good practice principles for the fundamental aspects of public sector governance. The Framework also facilitates the review and update of national governance codes for the public sector and, where specific principles and guidance do not already exist, stimulates improvement.

Ethics Board Proposes Enhancements To Certain Non-Assurance Services Provisions In Ethics Code

In May the International Ethics Standards Board for Accountants (IESBA, the Ethics Board) released for public comment the Exposure Draft (ED), Proposed Changes to Certain Provisions of the Code Addressing Non-Assurance Services for Audit Clients. The proposed changes aim to enhance the independence provisions in the Code of Ethics for Professional Accountants (the Code) by:

  • Providing additional guidance and clarification regarding what constitutes management responsibility, including enhanced guidance regarding how the auditor can better satisfy itself that client management will make all judgments and decisions that are the responsibility of management, when the auditor provides non-assurance services to an audit client;

  • Providing better guidance and clarification on the concept of “routine or mechanical” services relating to the preparation of accounting records and financial statements for non-public interest entity audit clients; and

  • Removing the provision that permits an audit firm to provide certain bookkeeping and taxation services to public interest entity audit clients in emergency situations.

The Ethics Board is also proposing enhancements to the corresponding non-assurance services provisions in Section 291 – Other Assurance Engagements with respect to assurance clients. “In developing the proposals, the board took into account the results of a benchmarking survey of G-20 countries and a number of other jurisdictions with respect to certain types of non-assurance services,” noted IESBA Technical Director Ken Siong. “The proposals are also responsive to recommendations from a working group established by the board that looked into the unique and challenging issues professional accountants in small- and medium-sized entities and practices face when complying with the Code, and to feedback from the regulatory community.”

IAASB Notes Progress Toward A Single, Robust Language For Audit

As today’s global economy becomes increasingly interconnected, the International Auditing and Assurance Standards Board (IAASB) is pleased to note that the number of jurisdictions using, or committed to using, the clarified International Standards on Auditing (ISAs) has passed 100-marking an important achievement in global convergence.

The ISAs were thoroughly redrafted and revised during the IAASB’s Clarity Project, which finished in early 2009. Since then, the IAASB has monitored the uptake of the clarified ISAs. With the recent addition of several African countries – a development noted by IAASB Chairman Prof. Schilder during his recent speech in Cameroon in May – there is significant use of the clarified ISAs across six continents. “We have seen a steady increase in the use of the Clarified ISAs over the years, with the ISAs also now translated into many languages. This demonstrates the importance the global community attaches to a set of global auditing standards that can be used for high-quality audits in both the private and public sectors,” noted Prof. Schilder.

IAASB Proposes Enhancements To Auditing Standards Focused On Financial Statement Disclosures

In May the International Auditing and Assurance Standards Board (IAASB) released for public comment proposed changes to the International Standards on Auditing (ISAs) to clarify expectations of auditors when auditing financial statement disclosures.

The proposals include new guidance on considerations relevant to disclosures – from when the auditor plans the audit and assesses the risks of material misstatement, to when the auditor evaluates misstatements and forms an opinion on the financial statements. “Addressing financial reporting disclosures has always been an integral part of an audit of financial statements in accordance with the ISAs. Over the past decade, however, financial reporting disclosure requirements and practices have evolved, and disclosures now provide more decision-useful information that is often more narrative and subjective in nature,” notes IAASB Chairman Prof. Arnold Schilder. “This gives rise to challenges from an auditing point of view, and the proposals enhance certain areas in the ISAs to support the proper application of the standards’ requirements.”

The IAASB’s work has been informed by the feedback to its January 2011 Discussion Paper, The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications. The board has also benefited from liaison and outreach with stakeholders, including accounting standard setters, which are also actively exploring initiatives relating to disclosures. The IAASB acknowledges that many of the issues around disclosures cannot be solved by the IAASB alone, and that collaboration and cooperation between many interested stakeholders is necessary to further enhance the public’s confidence in financial statement disclosures.

Legislative package on audit policy published in the Official Journal

The European Union has published the legislative package on audit policy in the Official Journal. EU Member States will have two years to transpose (adopt and publish) the provisions to comply with the amended Directive after its entry into force, namely on 16 June 2016. As far as the Regulation is concerned, it will technically come into effect on 16 June 2014. Nevertheless, mainly due to the fact that the Regulation refers to the Directive, which will need two years to be transposed into national law, there is a two-year delay in the application of most provisions included in the Regulation from the date it enters into force. Until now, the European Commission has not issued any further material in relation to the audit reform but more details are available in a set of FAQs that have been published by FEE (Fédération des Experts Comptables Européens).

These question and answers are provided with the intention of informing all stakeholders at European and national level, in regulatory institutions, in professional bodies and in practice seeking clarification on the many questions raised by this legislation with a view to facilitating implementation, helping resolve practical issues and preserving and enhancing audit quality.

Fourth EU Anti-money Laundering Directive on the way – progress in Council

Earlier in June, Ambassadors of the 28 EU member states (Permanent Representatives Committee – Coreper) agreed on a general approach on the Anti-Money Laundering (AML) legislative package, comprising the 4th AML Directive and the new Fund Transfer Regulation.

The June agreement follows the completion of a first reading in the European Parliament in March, and paves the way for the start of trilogues in the Autumn, as soon as the European Parliament resumes activities following the recent elections. This agreement constitutes the negotiating mandate for the incoming Italian Presidency to conduct trilogues with the European Parliament.

Internal Market Commissioner Michel Barnier today welcomed the general agreement in Council on the anti-money laundering package: “The agreement in Council today represents an important step towards the adoption of stronger rules to combat money laundering and terrorist financing. Europe must lead by example by putting in place a framework which focuses on greater effectiveness and improved transparency in order to make it harder for criminals to abuse the financial system. Enhancing beneficial ownership transparency has been at the heart of the international agenda and I particularly welcome the ambition of both the Parliament and Member States to introduce new investigative tools. I consider that significant progress has been achieved. The Commission will now work with Council and Parliament during the forthcoming trilogues to agree on an ambitious and effective review package.”

Revised Parent-Subsidiary Directive: EU Council reached political agreement

Trying to prevent the double non-taxation of corporate groups deriving from hybrid loan arrangements, in June the Council of the EU reached a political agreement on the revised EU Parent-Subsidiary Directive. The revised Directive aims at boosting member states’ tax revenues and help creating a level playing field between groups with parent companies and subsidiaries located in different countries and those that have all entities based in a single member state.

The original parent-subsidiary directive, currently in force, was intended to ensure that profits made by cross-border groups are not taxed twice, and that such groups are thereby not put at a disadvantage compared to domestic groups. It requires member states to exempt from taxation profits received by parent companies from their subsidiaries in other member states. However, this currently applies even if profit distribution is treated as a tax-deductible payment in the country where the paying subsidiary is based. Some member states classify payments from hybrid loan arrangements as tax deductible “debt”.

The amendment approved in June will prevent cross-border companies from planning their intra-group payments in such a manner as to benefit from this provision in order to enjoy double non-taxation. The member state of the parent company will henceforth refrain from taxing profits from the subsidiary only to the extent that such profits are not tax deductible for the subsidiary.

Formal adoption in the EU Council is expected to take place in one of the next meetings, member states will then have until 31 December 2015 to transpose the revised Directive into national law.

FEE had commented on some of the amendments proposed by the European Parliament. Commissioner Šemeta welcomed the Council agreement and sees the revised Parent-Subsidiary Directive as an important tool in creating a business-friendly environment in the EU, without giving unintended opportunities to tax evaders.

IASB and FASB announce the formation of Joint Transition Resource Group for Revenue Recognition

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently announced the formation of the Joint Transition Resource Group for Revenue Recognition (TRG). The TRG will inform the IASB and the FASB about potential implementation issues that could arise when companies and organisations implement the new Standard. The TRG will also provide stakeholders with an opportunity to learn about the new Standard from others involved with implementation. The TRG will not issue guidance.

Members of the TRG include financial statement preparers, auditors and users representing a wide spectrum of industries, geographical locations and public and private companies and organisations.

The boards expect that the TRG will meet twice in 2014 and four times in 2015. The first meeting is scheduled for 18 July 2014. All meetings will be public and co-chaired by the Vice-Chairmen of the IASB and the FASB. Any stakeholder can submit a potential implementation issue for discussion at TRG meetings.

IASB to establish transition resource group for impairment of financial instruments

The IASB recently announced its intention to create a transition resource group that will focus on the upcoming new requirements for impairment of financial instruments. The IASB is seeking suitable candidates for membership of the IFRS Transition Resource Group for Impairment of Financial Instruments (ITG), deadline for applications is 14 July 2014.

The new expected credit loss model for the impairment of financial instruments under IFRS 9 will represent a fundamental change to current practice. The changes will have significant implications from an implementation as well as a systems perspective, particularly in the financial services sector. The ITG will provide a discussion forum to support stakeholders on implementation issues that may arise as a result of the new impairment requirements under IFRS 9 Financial Instruments (2014), which will be issued in 2014.

The ITG will solicit, analyse and discuss common stakeholder issues arising from implementation of the new requirements that could possibly create diversity in practice. The ITG will also provide information that will help the IASB determine what, if any, action will be needed to resolve such diversity. The ITG itself will not issue guidance.

0.00 avg. rating (0% score) - 0 votes