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InTERnATIOnAL
IFAC sees continued opportunity to harmonise Corporate Sustainability Reporting
The International Federation of Accountants welcomes the publication of the much anticipated draft text of the European Union’s revised Corporate Sustainability Reporting Directive.
This ambitious proposal demonstrates leadership on the issue of corporate reporting. Thelegislation seeks to put sustainability related reporting on the same footing as traditional financial reporting. This is long overdue. Specific proposals, such as where sustainability information is reported, mandatory assurance, a digital reporting taxonomy and expanded scope for oversight by audit committees, are all important elements ofenhancing the corporate reporting ecosystemto include sustainability related information.
As progress on the IFRS Foundation’s Sustainability Standards Board accelerates, IFAC believes that policy makers have a unique opportunity to build a trulyglobalsystem for sustainability reporting. It hopes that the EU’s important work ultimately contributes to – and amplifies the impact of – the emerging global system.
IFAC CEO Kevin Dancey said: “It is great to see a commitment to the needs of investors, as well as other stakeholders, and to co-operation and alignment with international initiatives, including proposed work of the IFRS Foundation as well as the efforts of various public authorities.
“IFAC urges the IFRS Foundation to move with speed so that the benefits of baseline standards for enterprise value reporting will be available to all jurisdictions, while preserving the flexibility for disclosures that meet local needs addressing wider sustainability development goals.
“These are truly exciting times. We will continue to engage with the various stakeholders in this space as we all work toward the shared goal of a global system for reporting sustainability related information in the public interest.”
InTERnATIOnAL
IFAC continues to advocate for convergence in Global Sustainability Standards
The International Federation of Accountants continues its work to support the establishment of global sustainability standards in the public interest. In this regard, IFAC endorses the most recent actions announced by the IFRS Foundation Trustees and IOSCO. Specifically, IFAC supports the IFRS Foundation’s formation of a working group and efforts to set up a multi-stakeholder expert consultative committee, both of which will accelerate progress towards a successful standards setting board. These steps demonstrate the IFRS Foundation’s focus on delivering with speed by leveraging and bringing together the work of existing initiatives. IFAC further supports IOSCO’s establishment of a new Technical Expert Group under its Sustainable Finance Task Force, which demonstrates growing international demand for the work of the IFRS Foundation.
IFAC CEO Kevin Dancey said: “IFAC reiterates its support for the IFRS Foundation to establish an international standard setting board with a focus on enterprise value creation, a unique connection to the work of the IASB, and backing from IOSCO and other authorities. This approach offers the quickest and most effective route to a baseline of internationally consistent sustainability related disclosures for enterprise value creation developed in the public interest. IFAC calls for international collaboration and cooperation to make this initiative a success.”
IASB proposes changes to the IFRS Taxonomy 2021 for Disclosure of Accounting Policies and Definition of Accounting Estimates
The International Accounting Standards Board has published a proposed update to the IFRS Taxonomy 2021 for the following amendments to IFRS Standards: ● Disclosure of Accounting Policies, which amended IAS 1 and IFRS
Practice Statement 2; and ● Definition of Accounting Estimates, which amended IAS 8.
The proposed IFRS Taxonomy Update includes changes to the IFRS Taxonomy elements to reflect the new and amended disclosure requirements introduced by the amendments, issued by the Board in February 2021. IASB proposes amendments setting out accounting for when no foreign exchange rate exists
The International Accounting Standards Board has published for public consultation proposed amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates. The proposed amendments aim to help companies determine whether a currency can be exchanged into another currency, and what accounting to apply if the currency cannot be exchanged.
IAS 21 sets out the exchange rate a company uses when it reports foreign currency transactions or a foreign operation’s results in a different currency. However, the standard does not set out the exchange rate to use when there is no observable exchange rate the company can use – such as when a currency cannot be converted into a foreign currency. The Board’s proposed amendments to IAS 21 would help companies to identify if this situation applies to them and the accounting to apply when it does.
The proposed amendments would improve the usefulness of the information provided to investors by requiring a consistent approach to determining whether a currency is exchangeable into another currency; and, when it is not, determining the exchange rate to use and the disclosures to provide.
The deadline for comments is 1 September 2021.
UK AnD IRELAnD
FRC proposes extending the application period for accounting requirements covering Covid-19 related rent concessions
The Financial Reporting Council (FRC) has issued an Exposure Draft that proposes to extend the application period of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the Covid-19 pandemic by one year.
FRED 78 proposes that requirements originally introduced into FRS 102 and FRS 105 in October 2020 apply to rent concessions that reduce only lease payments originally due on or before 30 June 2022, provided the other conditions for applying the requirements are met.
As pandemic restrictions continue, extending the existing time condition is considered necessary to ensure these concessions are accounted for consistently and in a way that best reflects their substance.
The amendments are proposed to be effective for accounting periods beginning on or after 1 January 2021, with early application permitted.
FRC announces new approach to publishing corporate reporting reviews
The Financial Reporting Council (FRC) has for the first time published summaries of its corporate reporting reviews. Each year, the FRC conducts over 200 corporate reporting reviews to assess whether company reports and accounts comply with relevant accounting and reporting requirements.
This increased transparency is aligned with a recommendation of Sir John Kingman’s Independent Review of the FRC that reviews should be made publicly available. Due to company law requirements, summaries can only be published with the consent of individual companies. As part of the recently launched consultation “Restoring trust in audit and corporate governance”, the government is consulting on proposals to allow the regulator to publish summaries without the consent of companies, once sufficient safeguards around confidential information are in place.
The FRC previously published the names of companies reviewed, whether a full review was conducted and whether substantiative correspondence had been entered into, without providing further details of review findings.
The FRC’s Executive Director of Supervision, David Rule, said: “Publishing summaries of corporate reporting reviews is an important step towards improving the transparency of the FRC’s monitoring work and an example of the FRC taking forward the government’s programme to restore trust in audit and corporate governance.”
IAASA publishes its AAPA Report for 2020
The Irish Auditing and Accounting Supervisory Authority (IAASA) has published its 2020 Annual Audit Programme and Activity Report.
This report provides a summary of the activities performed by IAASA during 2020 to oversee the audit profession in Ireland. The report outlines the outcome of IAASA’s quality assurance review of auditors of public interest entities, as well as IAASA’s oversight of the recognised accountancy bodies that supervise auditors of other Irish entities.
Key outcomes of IAASA’s work on the public oversight of statutory auditors in 2020 include: ● inspection of seven PIE firms, reviewing 23 audits and four internal control areas; ● conclusion of a statutory investigation into poor quality audit work by one PIE firm on two PIE audits; ● completion of seven joint inspections between IAASA’s Audit
Quality Unit and IAASA’s Financial
Reporting Supervision Unit; ● issuance of thematic reports by
IAASA’s Audit Quality Unit on the International Standard on
Auditing (Ireland) 701 and on the
International Standard on Auditing (Ireland) 540; ● completion of four supervisory visits to three of Ireland’s recognised accountancy bodies; and ● hosting of an Audit Committee breakfast briefing.
This report provides useful insights into IAASA’s work in overseeing the audit profession and will be of value to stakeholders seeking an enhanced understanding of audit and its regulation.
Application for revocation of the recognition of the Institute of Chartered Accountants in England and Wales
Pursuant to its powers under the Companies Act 2014 s 931(4), the Irish Auditing and Accounting Supervisory Authority has decided that it is minded to revoke the recognition of the Institute of Chartered Accountants in England and Wales (ICAEW) granted under s 930 of the Act with effect from 21 July 2021.
This will mean that ICAEW may no longer authorise individuals or firms as statutory auditors in Ireland or undertake any audit related regulatory functions from 21 July 2021. This decision follows the application by the ICAEW to the Authority for revocation of its recognition.
By virtue of the revocation of its recognition, ICAEW will no longer be a prescribed accountancy body under the Act and therefore will no longer come under the remit of the Authority with effect from 21 July 2021.
IAASA has published its Transparency Reporting – Thematic Review (available at www.iaasa.ie).
The objective of this thematic review was to assess the effectiveness of transparency reporting by PIE audit firms in Ireland, to share areas of good practice and other reporting innovations, and to highlight areas where firms need to make improvements. Specifically, the thematic review focused on the following areas: ● compliance: determining the level of compliance with regulatory requirements; ● accessibility: assessing the ease with which transparency reports are accessed; and ● good practice: exploration of areas of good practice.
typically prepared to a good standard, compliant with the Regulation and readily accessible.
Although there were some observations identified around compliance and accessibility, there were several examples of good practice in transparency reporting. IAASA encourages firms to consider these areas of good practice and apply them in the preparation and publication of their annual transparency report.
EUROPE
ESMA supports increasing corporate transparency through the creation of ESAP
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has submitted its response to the European Commission’s (EC) targeted consultation on the European Single Access Point (ESAP). ESMA recommends a phased approach, which should prioritise financial and non-financial information of public companies.
Steven Maijoor, Chair, said: “A single access point for information about companies is one of the key missing components of the Capital Markets Union. ESMA is fully supportive of the ambition to set up the ESAP as it will increase investor trust in companies across the EU and lower the costs of capital.
“ESMA is ready to take up a central role in setting up and running the ESAP as suggested by the CMU High Level Forum and the European Parliament.” ESMA also believes that full benefit of the ESAP can be reaped only if information included in the single database is comparable in terms of content and rendered in a structured, machine readable format. Therefore, ESMA supports an increased use of structured data formats whenever appropriate. However, in light of the complexity of the project, ESMA encourages the EC to carefully weight the scope of the ESAP versus feasibility and operability considerations.
ESMA’s position is aligned with the final recommendations of the High Level Forum on the Capital Markets Union on the ESAP and by the European Parliament Resolution on the CMU. ASIA PACIFIC
MASB publishes amendment to MFRS 16 Leases on Covid-19 Related Rent Concessions beyond 30 June 2021
The Malaysian Accounting Standards Board (MASB) has issued Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to MFRS 16 Leases).
The amendment is word-forword Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16 Leases) issued by the International Accounting Standards Board (IASB).
The original amendment, Covid-19 Related Rent Concessions (Amendment to MFRS 16 Leases) was issued on 5 June 2020 to make it easier for lessees to account for Covid-19 related rent concessions, such as rent holidays and temporary rent reductions, while continuing to provide useful information about their leases to investors. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the Covid-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications.
This amendment extends the availability of the practical expedient provided in 2020 so that it applies to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022, provided the other conditions for applying the practical expedient are met. Amendment to MFRS 16 shall apply for annual reporting periods beginning on or after 1 April 2021. Earlier application is permitted, including in financial statements not authorised for issue at 31 March 2021.
Singapore’s 2-tier penalty framework deferred to allow more time for transition
On 30 December 2020, ACRA announced plans for a two-tier penalty framework for filing of annual returns and annual declarations by Singapore incorporated companies, variable capital companies (VCCs) and limited liability partnerships (LLPs) to take effect on 30 April 2021. Under the two-tier penalty framework, Singaporeincorporated companies, VCCs and LLPs would incur a late submission penalty of $300 if the annual return or annual declaration is filed within three months after the filing due date, or $600 if the submission is filed more than three months after the filing due date.
To allow more time for transition, the implementation of the two-tier penalty framework has been put on hold.
The current penalty framework will continue to apply for filing of annual submissions: ● Late submission penalty for local companies and VCCs: flat rate penalty of $300 ● Late submission penalty for foreign companies and limited liability partnerships: eight-tier penalties ranging from $50 to $350
All entities are urged to comply with the statutory timelines and file the annual return or annual declaration on time, to avoid late filing penalties.
ACRA elected to the Board of Global Forum of Audit Regulators
The Accounting and Corporate Regulatory Authority (ACRA) has been re-elected to serve on the Board of the International Forum of Independent Audit Regulators (IFIAR) for another four-year term at the elections which took place during the 2021 IFIAR Plenary meeting held virtually from 19 to 21 April 2021. Kuldip Gill, ACRA’s Assistant Chief Executive (Accounting Group) has also been appointed to chair the Human Resources and Governance Committee. Established in 2006 with 18 founding members including ACRA, IFIAR promotes global collaboration and sharing of experience among the audit regulators. This is done through initiatives such as inspection and enforcement workshops, surveys and publications on regulatory trends and developments. IFIAR actively engages the global leadership of six largest international networks of audit firms (known as the GPPC firms) on initiatives to improve audit quality globally. It also provides a platform for dialogue with other international organisations that have an interest in audit quality. As of April 2021, IFIAR’s membership comprises 54 audit regulators from jurisdictions in Africa, the Americas, Asia-Pacific, Europe and the Middle East. 31
The IFIAR Board was established in April 2017 and is responsible for developing IFIAR’s strategy and determining annual operating priorities. As a board member, ACRA helps to support IFIAR’s objectives of promoting sustainable improvements in audit quality, building members’ oversight capabilities and enhancing the collective impact of the audit regulatory community.
ACRA’s Chief Executive, Ong Khiaw Hong said: “We are grateful for the support of IFIAR members in re-electing ACRA to the IFIAR Board. We are committed to serving in IFIAR and look forward to contributing as a Board member to advance IFIAR’s mission to serve the public interest by enhancing audit oversight globally.”
Besides serving on the IFIAR Board, ACRA is also a member of the Global Audit Quality Working Group and the Technology Task Force. ACRA’s active participation in IFIAR enables Singapore to provide our insights and raise awareness of audit quality concerns in the Southeast Asia region. It also allows ACRA to learn and benchmark its audit regulation against international practices and engage the international community on cross-border issues that may impact the delivery of high quality audits.
UnITED STATES
FASB issues standard clarifying the issuer’s accounting for certain modifications of freestanding equity-classified written call options
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that clarifies an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
The ASU is based on a consensus of the FASB’s Emerging Issues Task Force (EITF). The ASU provides guidance on how an issuer would measure and recognise the effect of these transactions. Specifically, it provides a principles-based framework to determine whether an issuer should recognise the modification or exchange as an adjustment to equity or an expense.
The ASU is available at: www.fasb.org.
FASB provides alternative to the goodwill triggering event assessment for certain private companies and organisations
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that provides an accounting alternative expected to reduce the complexity for private companies and not-for-profit organisations when performing the goodwill triggering event evaluation.
Under current GAAP, goodwill must be tested for impairment when a triggering event occurs that indicates that it is more likely than not that the fair value of the reporting unit is below its carrying value. Companies and organisations are required to monitor for and evaluate goodwill triggering events when they occur throughout the year.
Some stakeholders raised questions about the value of evaluating a triggering event at an interim date when certain private companies and not-for-profit organisations only issue GAAP-compliant financial statements on an annual basis. They noted the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be relevant at the annual reporting date when financial statements are issued.
To address this, the ASU provides an accounting alternative that allows private companies and not-for-profit organisations to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period is an interim or annual period. It eliminates the requirement for companies and organisations that elect this alternative to perform this assessment during the reporting period, limiting it to the reporting date only.
The scope of the proposed alternative is limited to goodwill that is tested for impairment in accordance with Subtopic 350-20, Intangibles – Goodwill and Other – Goodwill. The amendments in the ASU are effective on a prospective basis for fiscal years beginning after 15 December 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of 30 March 2021. An entity should not retroactively adopt the amendments in this Update for interim financial statements already issued in the year of adoption.
The amendments in the ASU also include an unconditional onetime option for entities to adopt the alternative prospectively after its effective date. No additional disclosures would be required.
The ASU, including effective date information, is available at www.fasb.org.
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