Global Update

IFAC, IASB, FEE Updates

Opening a discussion: The Future of Audit and Assurance

As part of FEE’s commitment to promoting a public debate on the areas of audit and assurance, FEE has published a discussion paper on the Future of Audit and Assurance. The paper lays out initial observations which could result in potential longer-term developments in audit, assurance and other services.

FEE firmly believes that the audit profession should have the courage to question itself, especially at times such as this one where there are new developments in audit policy.

Ultimately, accounting and auditing are directed towards achieving more efficient, transparent and trustworthy corporate reporting. The common objective is therefore to improve quality in both corporate reporting and assurance and make audit, assurance and other services the most relevant possible. In order to ensure that we move in the right direction to fulfil this objective, keeping in mind the public interest, we should work towards enhancing quality and promoting the reliability of our services, improving the different forms of auditor communication, and ensuring that practitioners’ services respond to stakeholders’ needs.

As the start of a journey, this paper examines the above areas of development and poses questions. FEE is committed to initiating and encouraging reflection for developing a vision for the future.
The paper poses a series of questions to which FEE is seeking answers from stakeholders and interested parties by 30 June 2014.

FEE issues paper on European Public Sector Accounting Standards (EPSAS)

The European Commission has evaluated the suitability of the existing International Public Sector Accounting Standards (IPSAS) for Member States and concluded that developing specific European Public Sector Accounting Standards (EPSAS) would be the way forward in the EU. The European Commission’s initiative has triggered policy debates where a number of issues should be considered, which are highlighted in the FEE issues paper.

FEE issues Factsheet on Recognition of Professional Qualifications in another EU Member State

Recognition of professional qualifications obtained in another EU Member State is essential to establish an internal market for professional services. The FEE fact sheet highlights the main features of the revised Professional Qualifications Directive which will need to be transposed by all EU Member States by 18 January 2016.

Europe’s endorsement of IFRS reform continues

EU Commissioner for Internal Market and Services Michel Barnier has agreed with Philippe Maystadt, former President of the European Investment Bank, that his mission as Special Adviser should be continued in order to supervise appropriate follow-up of the implementation of reforms of the European Financial Reporting Advisory Group (EFRAG). These follow the recommendations provided by Mr Maystadt in this respect in November last year.
Commissioner Barnier said: “The EU needs a sound framework for the development of high quality accounting standards. I am happy that Mr Maystadt agreed to continue his special mission to ensure that the system for the adoption of the International Financial Reporting Standards (IFRS) put in place by the European Union is effective and enables the EU to play its full role in the debate. I am confident that the expertise of Mr Maystadt will significantly benefit the swift implementation of the necessary reforms so that our undertakings and the users of their financial statements can as soon as possible benefit from high-quality international accounting standards.”

In March 2013, Commissioner Barnier mandated Philippe Maystadt to examine ways of reinforcing the EU’s contribution to International Financial Reporting Standards (IFRS) and improving the governance of the European bodies involved in developing these standards. Mr Maystadt presented his final recommendations at the ECOFIN Council meeting on 15 November 2013.

In his report, Mr Maystadt recommended reorganising the current EFRAG to increase its legitimacy and representativeness with a view to strengthening the European Union’s influence in international accounting standard-setting. The report presents the main premises for the reorganisation of EFRAG, however, the detailed implementation of the necessary reforms will require significant co-ordinated efforts from a number of public and private organisations involved in the process. In this respect, the current mission of Mr Maystadt should ensure the reforms will be carried out properly and without delay.

Agreement in trilogue on a European framework on non-financial reporting

The European Parliament and the Council have reached agreement on an amendment to existing accounting legislation to improve the transparency of certain large companies on social, environmental and diversity matters. Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors.

Large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees will be required to disclose relevant and useful environmental and social information in their management reports. This includes listed companies as well as some unlisted companies, such as banks, insurance companies, and other companies that are so designated by Member States because of their activities, size or number of employees. Companies will be required to disclose concise, useful information necessary for an understanding of their development, performance, position and impact of their activity, rather than a fully-fledged and detailed report. Furthermore, disclosures may be provided at group level, rather than by each individual affiliate within a group.

The draft Directive provides for further work by the Commission to develop guidelines in order to facilitate the disclosure of non-financial information by companies, taking into account current best practice, international developments and related EU initiatives.

As regards diversity on company boards, large listed companies will be required to provide information on their diversity policy, such as, for instance: age, gender, educational and professional background. Disclosures will set out the objectives of the policy, how it has been implemented, and the results. Companies which do not have a diversity policy will have to explain why not. This approach is in line with the general EU corporate governance framework.

This draft Directive represents a first step towards the implementation of the European Council conclusions of 22 May 2013 on the need for further transparency on tax matters and for ensuring country-by-country reporting by large companies and groups. The Commission supports this objective and will endeavour to deliver effectively on the review clause included in this legislation.

Revision of Parent-Subsidiary Directive on the way

The proposed revised Parent-Subsidiary Directive (PSD) continues its way in the legislative process. Further to the publication of the draft report of the European Parliament’s leading committee, Economic and Monetary Affairs (ECON), the Committee on Legal Affairs (JURI) has now presented its opinion. The indicative plenary sitting date in the European Parliament is 16 April 2014.

FEE welcomes the review of the PSD and its objective of preventing unintended tax benefits arising from the use of hybrid financial instruments by cross-border groups. However, some of the amendments proposed by members of ECON contradict the principle of the PSD to prevent double taxation.

Fourth EU Anti-money Laundering Directive on the way

The European Parliament voted in favour of the joint committee report of ECON and the Committee on Civil Liberties, Justice and Home Affairs (LIBE), adopting the text with a significant number of amendments. The Parliament voted its first reading of this draft legislation, in order to consolidate the work done so far and hand it over to the new elected Parliament. This ensures that the MEPs newly elected in May 2014 can decide not to start from scratch, but instead build on work done during the current term.

The draft law would also require banks, auditors, lawyers, real estate agents and casinos, among others, to be more vigilant about suspicious transactions made by their clients. The aim is to make dodgy deals harder to hide and fight tax evasion. The amended AMLD provides for a risk-based approach, enabling member states to better identify, understand and mitigate money laundering and terrorist financing risks. Parliament also voted on the Transfer of Funds Regulation, which aims to improve the traceability of payers and payees and their assets.

The European Parliament voted its first reading of the draft legislation, in order to consolidate the work done so far and hand it over to the next Parliament. This ensures that the MEPs newly elected in May can decide not to start from scratch, but instead build on work done during the current term.

IAASB takes a holistic approach in its new Framework for Audit Quality

The International Auditing and Assurance Standards Board (IAASB) has released its new publication, ‘A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality’. Through this Framework, the IAASB aims to raise awareness of the key elements of audit quality, encourage key stakeholders to challenge themselves to do more to increase audit quality in their particular environments, and facilitate greater dialogue between key stakeholders on the topic.

IFAC SMP Quick Poll: 2013 Year-End Round-Up

The report summarises the results from the latest IFAC SMP Quick Poll, conducted between 15 November and 31 December 2013. Intended to take a snapshot of key issues facing this sector, the poll provides practitioners operating in small- and medium-sized practices (SMPs) around the world the opportunity to share their insights on key trends and developments facing them and their small business clients.
SMPs still placed economic concerns at the top of the list of challenges faced by their SME clients, but only by a narrow margin. Similarly, the foremost challenges for SMPs at year-end 2013 were attracting and retaining clients, closely followed by pressure to lower fees. Keeping up with new regulations and standards came in at a distant third.

With regard to the IAASB’s proposed changes to auditor reporting, respondents were generally supportive. While only a small minority thought unlisted entities would voluntarily opt to disclose key audit matters, most agreed with the proposal to require a statement on going concern in all audit reports.

Roughly half the respondents acknowledged the value of integrated reporting to SMEs, even though a majority had not yet received interest in this type of reporting from their clients. And, about half predict that five years from now they will be asked by their SME clients to assist with integrated reporting.

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