Reporting review
The Ernst & Young bulletin on auditing, accounting and corporate governance. September 2011
Companies told to put audits out to tender
The Financial Reporting Council may ask Britain’s biggest listed companies to put their audits up for tender every ten years. The FRC said it wants greater transparency in the way that auditors are appointed, amid concerns that the audit firms have become too cosy with their largest clients. The agency believes that this would force companies to think more clearly about whether they are getting a good service from their auditor and, moreover, encourage shareholders to ask more probing questions about whether the auditors are keeping management honest. FRC Director Richard Fleck said: “There has been a lot of comment in recent times about the fact that some auditors have been in place for decades. Clearly there’s a concern as to whether or not that has led to companies and auditors having too close a relationship over time.”
Regulator to overhaul all UK company accounts
A major shake-up in the way companies report results will force businesses to identify operational dangers and “key risks”, as part of new rules proposed by the UK Financial Reporting Council. According to the regulator, audits are failing to communicate critical information, leaving shareholders in the dark over the most vital details about a company’s financial health. The rules propose that company accounts include a new report from the audit committee about the key risks a company faces in terms of strategy and operations, both over the past 12 months and going forward. The proposals, which will be brought in over the next six months, also propose that businesses be forced to re-tender for accountants once every 10 years or explain why they have not done so.
Line softened on hard copies of annual reports
Overwhelming opposition from investors large and small has defeated a proposal to allow companies to stop printing hard copies of their annual report and accounts. The FRC said it had abandoned the plan after “concerns were raised that the removal of hard copy reports would disadvantage small shareholders, many of whom are elderly and/or have limited access to the internet”. Other proposals published by the FRC included an obligation for companies to put their audit contract out to tender once every 10 years, or explain why they had not. Earlier this year, Stephen Haddrill, the FRC’s CEO, described printed annual reports as an “enormous waste of paper and an enormous waste of time, and a waste of money”. The climbdown reflected complaints by investors and City professionals, many of whom had argued that, regardless of a reader’s age, it was more difficult to read such long and complex documents on screen.
EU lawmakers give backing to auditing shake-up
The European Parliament has said that audit firms should be banned from simultaneously providing book-checking and non-auditing services to a company. European Union lawmakers approved a report that called for more competition and closer supervision of a sector dominated globally by the Big Four. Policymakers said that it is too easy for the firms to offer cheap auditing in return for more lucrative consultancy work as well. The report said: “There should be a clear demarcation between the audit services and non-audit services ... internal and external audit services should not be provided simultaneously.”
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IFRS Outlook - August 2011
With this issue, we are shifting our focus from a more technical perspective to look at current and emerging IFRS issues with the needs of business leaders very much in mind, sharing our views on the pertinent issues and their potential impact for businesses. This is part of our new communications strategy, as previously advised.
In this issue you will find .....
Lease accounting is entering a second phase of public consultation — the impact on lessees
The IASB and the FASB have announced their intention to re-expose the revised proposals on accounting for leases. Read about the tentative decisions that the Boards have made during their redeliberations and how the lease accounting model for lessees has changed from the proposals in the original Exposure Draft (ED).
Reviews of two key IASB bodies throw light on underlying dynamics of IFRS
The governance and strategy reviews carried out by the oversight bodies of the IASB are more than just process reviews. In this article, we outline the institutional relationships surrounding the IASB and discuss the fundamental issues about the creation and implementation of IFRS.
SEC publishes Staff Paper on incorporating IFRS into the US Financial Reporting System — our views
In May this year, the SEC staff issued a paper for public consultation, outlining a possible approach for incorporating IFRS into the US financial reporting system. Read about the potential impact of this approach on US issuers and our views on the proposed ‘condorsement’ approach.
IFRS update
Find out which projects the IASB and the IFRS Interpretations Committee are currently discussing. IFRS update
IFRS Developments - Issue 10: Boards to re-expose leases, and propose a new approach for lessors
The IASB and the FASB decided to re-expose their joint leases proposal for a second time, because they have made significant changes to the model they proposed last year. They also decided this week that lessors should apply a "receivable and residual" approach to all leases, with a few exceptions. This represents a significant change from current lease accounting and the proposals in last year's exposure draft. IFRS Developments - Issue 10: Boards to re-expose leases, and propose a new approach for lessors
IFRS Developments - Issue 11: New credit impairment approach takes shape
The IASB and FASB continued their discussion about the three-bucket approach for impairment of financial assets. The new three-bucket approach captures different phases of deterioration in credit quality of financial assets. All financial assets subject to impairment would be initially classified in Bucket 1. Any subsequent transfers to Buckets 2 and 3 would be based on changes in credit loss expectations. While the Boards have decided that the impairment allowance for Buckets 2 and 3 would be based on full expected lifetime losses, they have yet to decide whether the allowance for Bucket 1 would be based on 12 months or 24 months of expected credit losses. IFRS Developments - Issue 11: New credit impairment approach takes shape
IFRS Developments - Issue 12: IFRS 9 mandatory effective date to move to 2015
On July 22, 2011, in response to feedback received from constituents and its prior intention to allow entities to adopt IFRS 9 Financial Instruments in one package, the International Accounting Standards Board (IASB) tentatively decided to move the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, with earlier application permitted. IFRS Developments - Issue 12: IFRS 9 mandatory effective date to move to 2015
The IASB plans to publish the proposed change in an exposure draft, which will have a comment period of 60 days.
This issue of IFRS Developments highlights the impact of the proposed change on reporting entities.
IFRS Developments – Issue 13: Mining & Metals: Accounting for waste removal costs
The IFRS Interpretations Committee (the Interpretations Committee) considered the near final Interpretation on accounting for waste removal costs during the production phase of a surface mine at its July 2011 meeting. IFRS Developments – Issue 13: Mining & Metals: Accounting for waste removal costs
This issue summarises the proposals.
IFRS Developments - Issue 14: A step forward in hedge accounting
At its July meetings, the International Accounting Standards Board (IASB, the Board) made a significant step towards releasing a new standard on hedge accounting. The tentative decisions taken by the Board at these meetings are consistent with its intention to link an entity’s risk management strategy with the rationale for hedging and the impact of hedging on the financial statements. This will allow many entities, both financial institutions and corporations, to apply hedge accounting to more of their common hedging strategies. IFRS Developments - Issue 14: A step forward in hedge accounting
This issue of IFRS Developments summarises the key tentative decisions made at the IASB’s July meetings.
IFRS Developments - Issue 15: Proposal for investment entities to measure investments at fair value
On 25 August 2011, the IASB published an Exposure Draft (ED), Investment Entities ,that proposes an exception to the principle in IFRS that an entity consolidates all controlled entities. Instead the ED would require an entity that meets the criteria to be an investment entity to measure all controlled investments at fair value, with changes recognised in profit or loss. Comments on the ED are due by 5 January 2012. IFRS Developments - Issue 15: Proposal for investment entities to measure investments at fair value
Our IFRS Developments publication summarises what you need to know about these developments.
IFRS Practical Matters: Lease accounting proposals - simplified, but not simple
The Financial Accounting Advisory Services (FAAS) group has released a new edition of the thought leadership series, IFRS Practical Matters. This edition, Lease accounting proposals - simplified, but not simple, complements our recent IFRS publications (Applying IFRS: Lessee model comes together as leases project progresses and IFRS Developments: Boards to re-expose leases, and propose a new approach for lessors) on the changes to last year's exposure draft on lease accounting, and further highlights how the revised proposals for leases will still have a significant impact on many organisational functions, including financial, tax, IT systems, and business processes. IFRS Practical Matters: Lease accounting proposals - simplified, but not simple
Insurance Accounting Alert, August 2011
Boards discuss premium allocation approach; tentatively revise effective date of IFRS 9
At a joint meeting on 21 July, the IASB and FASB discussed the premium allocation approach (previously known as the modified approach) to measurement of liability for remaining coverage (previously known as pre-claims liabilities) of certain types of contracts. Insurance Accounting Alert, August 2011
Joint Project Watch - July 2011
The standard-setting activities of the IASB and the FASB continue to move forward. The Boards recently decided to re-expose their revenue and leases models, providing constituents another opportunity to provide feedback. They have issued final standards on some projects and continue to redeliberate others. Our July 2011 edition of Joint Project Watch is designed to give you a snapshot of key developments from an IFRS perspective, together with our observations on the potential implications for companies. Joint Project Watch - July 2011
