IFRS, IAS, ISA Update
IASB publishes Exposure Draft proposing amendments to IFRS 2 Share-based Payment
The International Accounting Standards Board (IASB) recently published an Exposure Draft detailing proposed amendments to IFRS 2 Share-based Payment.
The Exposure Draft Classification and Measurement of Share-based Payment Transactions brings together a collection of three proposed amendments to IFRS 2. These proposed amendments were initially discussed by the IFRS Interpretations Committee. The proposals provide guidance on:
the accounting for the effects of vesting conditions on the measurement of a cash-settled share-based payment;
the classification of share-based payment transactions with net settlement features; and
the accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.
The Exposure Draft will be open for public comment until 25 March 2015.
IASB publishes narrow-scope amendments to investment entity requirements
The IASB recently issued Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28).
The narrow-scope amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures introduce clarifications to the requirements when accounting for investment entities. The amendments also provide relief in particular circumstances, which will reduce the costs of applying the Standards.
The amendments can be applied immediately and become mandatory for annual periods beginning on or after 1 January 2016.
IASB makes progress on improving the effectiveness of disclosure in financial reporting
The IASB recently issued amendments to IAS 1 Presentation of Financial Statements as part of its major initiative to improve presentation and disclosure in financial reports.
Improving the effectiveness of disclosure is widely considered to be one of the most important and challenging tasks in financial reporting. Many respondents to the IASB’s Agenda Consultation completed in 2012 asked the IASB to review its Standards to explore ways to improve the disclosure requirements. The IASB is responding to this challenge through its Disclosure Initiative – a portfolio of projects that includes targeted actions as well as a broad and ambitious review of disclosure requirements.
The amendments to IAS 1 issued today are designed to further encourage companies to apply professional judgement in determining what information to disclose in their financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgement in determining where and in what order information is presented in the financial disclosures.
As part of the Disclosure Initiative, the IASB also published for public comment an Exposure Draft of proposed amendments to IAS 7 Statement of Cash Flows. That proposal responds to requests from investors for improved disclosures about an entity’s financing activities and its cash and cash equivalents balances.
The amendments to IAS 1 can be applied immediately, and become mandatory for annual periods beginning on or after 1 January 2016.
Update to the Conceptual Framework project
At its November meeting the IASB substantially completed its re-deliberations on the Discussion Paper, “A Review of the Conceptual Framework for Financial Reporting”. An updated summary of the IASB’s tentative decisions made in the course of re-deliberations is now available on the Conceptual Framework project page. The IASB plans to publish the Exposure Draft in the first quarter of 2015.
Auditor Reporting – Key Audit Matters and Going Concern
The International Federation of Accountants (IFAC) has published Auditor Reporting – Key Audit Matters. It is intended to assist in understanding key aspects of Key Audit Matters as set out in ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and forms part of the Auditor Reporting Toolkit.
IFAC has also recently published, Auditor Reporting on Going Concern. It provides an overview of how the new auditor’s report will address going concern as set out in ISA 570 (Revised), Going Concern, and forms part of the Auditor Reporting Toolkit.
These publications have been prepared by the Auditor Reporting Implementation Working Group and do not constitute authoritative pronouncements of the International Auditing and Assurance Standards Board (IAASB), nor does it amend or override the International Standards on Auditing (ISAs). Further, this publication is not meant to be exhaustive and reading this publication is not a substitute for reading the ISAs.
IAASB Issues Final Standards to Improve Auditor’s Report
The International Auditing and Assurance Standards Board® (IAASB®) recently released its new and revised Auditor Reporting standards, designed to significantly enhance auditor’s reports for investors and other users of financial statements.
“These changes will reinvigorate the audit, as auditors substantively change their behavior and how they communicate about their work,” explained Prof. Arnold Schilder, IAASB Chairman. “Informed by extensive research and global outreach to investors, regulators, audit oversight bodies, national standard setters, auditors, preparers of financial statements, audit committee members, and others, the final International Standards on Auditing (ISAs) represent a momentous-and unprecedented-first step. Now, we must study, promote, and plan for the effective implementation of the new and revised standards.”
“The IAASB has responded to calls from investors and others that it is in the public interest for an auditor to provide greater transparency about the audit that was performed,” added Dan Montgomery, former IAASB Deputy Chair and Chair of the Auditor Reporting project. “Increasing the communicative value of the auditor’s report is critical to the perceived value of the financial statement audit.”
The most notable enhancement is the new requirement for auditors of listed entities’ financial statements to communicate “Key Audit Matters”-those matters that the auditor views as most significant, with an explanation of how they were addressed in the audit. The IAASB has also taken steps to increase the auditor’s focus on going concern matters, including disclosures in the financial statements, and add more transparency in the auditor’s report about the auditor’s work. Information about the enhancements to auditor reporting and the ISAs that are affected can be found in the Auditor Reporting Fact Sheet.
“The introduction of Key Audit Matters for listed entities is a significant enhancement that will change not only the auditor’s report, but more broadly the quality of financial reporting-and therefore the informative value to investors and other key stakeholders,” said Linda de Beer, IAASB Consultative Advisory Group (CAG) Chair. “The IAASB CAG, with its diverse membership base, has unanimously supported and encouraged the IAASB’s formidable leadership in effecting these changes.”
The new and revised Auditor Reporting standards will be effective for audits of financial statements for periods ending on or after December 15, 2016. “While culminating an intense effort over the past six years, the release of the final standards is by no means the end of the IAASB’s work on the topic of auditor reporting,” noted Kathleen Healy, IAASB Technical Director. “It is essential that the board and staff continue to promote awareness of these standards and facilitate their effective implementation.”
To this end, the auditor reporting section of the IAASB’s website has been redesigned and updated, debuting the first components of an “Auditor Reporting Toolkit.” Additional resources will be subsequently released, so users should visit the website frequently to stay abreast of the latest guidance and resource materials. The IAASB also plans to undertake a post-implementation review, which will be critical in assessing whether the standards are achieving their intended effects and whether further changes to auditor reporting are needed in the public interest.
IAASB Proposes Changes for Reporting on Special Purpose Financial Statements
The International Auditing and Assurance Standards Board® (IAASB®) released proposals to enhance auditor reporting on special purpose financial statements. The Exposure Draft includes changes proposed to ISA 800, Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and ISA 805, Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement.
Reporting on special purpose financial statements is linked to the recently issued new and revised Auditor Reporting standards, in particular ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements and new ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. As such, the IAASB has amended ISA 800 and ISA 805 to provide guidance on how the enhancements to the auditor’s report would apply in audits of special purpose financial statements. These amendments are limited to auditor reporting and are not intended to substantively change the underlying premise of these engagements in accordance with the extant ISAs. Comments on the Exposure Draft are requested by April 22, 2015.