Issue 3 |May 2018 Audit & Accounting Alert

The International Forum of Independent Audit Regulators (IFIAR) in March 2018 released the sixth annual Survey of Inspection Findings – 2017. With 52 members from around the world, the IFIAR’s mission is to “serve the public interest and to enhance investor protection by improving audit quality globally.”

Through the sharing of knowledge, promoting collaboration and consistency, and providing a platform for dialogue, the organization seeks to encourage the implementation of uniformly high standards of audit performance quality worldwide.

As the survey report states, the findings point to overall trends in audit quality as opposed to results in specific areas. As such, the survey has reported improvement in each of the last four years. The improvement has been measured by the percentage of audits inspected where there was at least one deficiency finding. In the 2017 survey, 40% of inspected public interest entities (PIE) had at least one finding. A PIE is an entity required to have an audit by regulatory or legislative directive. That result is an improvement from the 47% result reported in 2014, the first year measured, as shown by the following chart...

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The underlying concepts for the standards that guide financial reporting were originally developed in 1989, and partially revised in 2010. While that Framework has proven to be useful, the International Accounting Standards Board (IASB) determined that a revision was needed to fill in missing gaps, while also updating and clarifying certain areas.

Though the original Framework was primarily intended for use by standard setters, the new revision was designed to form “a balance between providing high-level concepts and providing enough detail for the Conceptual Framework to be useful to the Board and others.

The purpose of the newly revised Conceptual Framework for Financial Reporting, issued on March 29, 2018, is stated as follows:

1. To assist the Board to develop Standards that are based on consistent concepts;
2. To assist preparers to develop consistent accounting policies when no Standard specifically applies to a transaction or other event or when a Standard allows a choice of accounting policy; and
3. To assist all parties to understand and interpret Standards.

This broader application will prove especially helpful to practitioners in the jurisdictions that have, or will, move from the rules based approach, such as found in Financial Accounting Standards Board (FASB) standards, to the principles based approach of International Financial Reporting Standards. Those practitioners, while no longer having as many specific rules to direct how transactions are recorded, can now turn to the revised Framework as an additional source where direct guidance is lacking.

The Framework makes clear that, though helpful guidance is provided, the Framework itself is not a standard, nor does it override any standard. The Framework is effective immediately for the IASB and generally in 2020 for preparers.

The Framework presents some new areas of focus, updates others, and clarifies still others. The new areas center on measurement, presentation and disclosure, and derecognition. Updated are the definitions for assets and liabilities, and their recognition criteria in financial statements. The existing concepts of prudence, stewardship, measurement uncertainty, and substance over form are clarified.

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International

IASB– International Accounting Standards Board (www.ifrs.org)

1. Conceptual Framework for Financial Reporting andAmendments to References to the Conceptual Framework in IFRS Standards, issued March 27, 2018, revises the Conceptual Framework updates references in the standards. See second article in this issue for further details.
2. Exposure Draft-Accounting policy changes (Proposed amendments to IAS 8), issued March 27, 2018, proposes “that in deciding how far back to go in applying a change in accounting policy that results from an agenda decision, a company will consider not only whether it is practicable but also the benefits to users and costs to the company of making the change.” The comment period ends July 27, 2018.

IFAC– International Federation of Accountants (www.ifac.org)

1. International Ethics Standards Board (IESBA) - International Code of Ethics for Professional Accountants (including International Independence Standards),released April 9, 2018, is a complete rewriting and substantive revision of the code to address “key ethics advances over the past four years.”
2. Regulatory Divergence: Costs, Risks, Impacts: An International Financial Sector Study,released April 11, 2018 by IFAC and BIAC (Business at the OECD). The survey found that inconsistent regulation between different jurisdictions caused substantial “tangible economic costs, financial risks and barriers to economic growth. It also offers recommendations for the future in what the report calls ‘actionable steps to curb the impacts of financial regulatory divergence’ – from ‘aligning regulatory definitions to enhancing transparency in rule making, monitoring, and enforcement processes.”

   ACCA– Association of Chartered Certified Accountants(www.accaglobal.com/)

1. Key Audit Matters: unlocking the secrets of the audit, report published March 13, 2018. See first article in this issue for details.
2. Tenets of a Quality Audit,published February 15, 2018, to build upon the IAASB’s A Framework for Audit Quality,issued in 2014, “and articulate the features that a quality audit should possess, recognising that these factors can sometimes exist in mutual tension.”

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