Audit & Accounting Alert November 2018 (Issue 6)
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At-A-Glance
Auditors have traditionally been looked upon with a high degree of respect from the public. Also, progress toward gender diversity has proceeded faster than in other professions. Nevertheless, as our first article points out, there is still room for improvement, and while female representation at entry levels has reached parity with males, the proportion of females at top levels drops off significantly.
As with most sectors of society, accountants are racing to keep up with the relentless pace of technological change. However, in the arena of international audit standards, the rate of change is much more protracted. With over 130 countries and jurisdictions impacted, nothing occurs without extended deliberations and debate. Consequently, responding to the prevalence of corporate failures in recent years, the financial regulatory commissions of the world are taking a more involved role in the process of standard setting and oversight. Our second article reports on the developments.
Finally, our Worldwide Update covers news from organizations across the globe.
Investors Show Confidence in Auditors, But Women Audit Partners Are Still A Minority
Two news reports tell the story
It seems that in religion and politics, to a large extent, you get the answers you want by the way you interpret the information placed before you. That maxim can be applied to the accounting profession as well. A recent Journal of Accountancy (JofA) article was titled Investors trust auditors, but confidence in U.S. markets drop (9/18/18). Good news for auditors, right? However, Accounting Today (AT) titled an article on the same topic Investor confidence slips in auditors and markets (9/18/18).Oh, not so good after all?
The JofA article starts out with “Public company auditors remain the group investors trust most to protect their interests…” AT opens with “The vast majority of investors remain confident in public company auditors… but there are signs they are losing some confidence in the past year…” To be fair, AT goes on to say that the 3% drop in auditor confidence from the prior year is within the margin of error.
The articles are referencing the 2018 Main Street Investor Survey, sponsored by the Center for Audit Quality (CAF), an affiliate of the American Institute of Public Accountants that bills itself as “an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets.” CAF has conducted the survey annually since 2007 to measure the trends. With 81% of those surveyed indicating that they have some, quite a bit, or a great deal of trust in public company auditors, the profession can rightly feel good about the public’s perception. In contrast, public confidence in U.S. capital markets dropped 11% to 74%, while for markets outside the U.S. the confidence level was only 56%.
In other good news, the survey rated auditors highest, at 81%, among the groups looking out for investors. Financial analysts and advisors, stock exchanges, and credit rating agencies had ratings in the 70-79% range. Journalists, management and regulators had ratings in the 60-69% range, while Congress brought up the rear at 44%.
More "Confidence in Auditors..."
International Audit Standards Evolve At A Glacial Pace
Regulators want more influence in the self-governing profession.
As rapid technological advances portend to transform day-to-day audit processes in the near future, the more theoretical world of international audit standards evolves at a much more gradual rate. Globally, the responsibility for international audit standards resides in the domain of the International Federation of Accountants (IFAC). Founded in 1977, IFAC’s membership includes 175 accounting institutes and associations from over 130 countries and jurisdictions around the world. IFAC established separate independent standard setting boards for audit, ethics and education.
According to IFAC, standards issued by the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA), have been adopted by more than 120 jurisdictions. Although the Public Company Accounting Oversight board (PCAOB) and the American Institute of Public Accountants (AICPA) are the official audit standard setters for the United States, their pronouncements are influenced by the international boards. The recent audit scandal involving KPMG in South Africa is an example of the importance of having global standards. In that case, KPMG failed to disclose conflicts of interest that two of its partners had with a bank audit client, nor irregularities that led to the bank’s collapse.
Even so, as a result of significant corporate financial reporting failures in the past two decades, the major securities and banking commissions around the world, with the cooperation of IFAC, formed the Monitoring Group (MG) in 2005, to oversee the IAASB, IESBA, as well as the International Accounting Education Standards Board (IAESB). The Monitoring Group’s objective was to provide “overall governance of the standard-setting process and the review of its implementation, effectiveness and responsiveness to the public interest,” while ensuring public accountability.
In pursuit of its objective, in November 2017 the MG issued a Consultation Paper, Strengthening the Governance and Oversight of the International Audit-related Standard-setting Boards in the Public Interest.The paper questioned the lack of independence of the standard setting boards from the accounting profession, and their responsiveness to the public interest. Consequently, the paper presented “options which consider changes to the number of standard setting boards, their composition, their strategic focus, geographical balance and remit; the process to nominate their members; and their current oversight arrangements, among other elements.”
More "Audit Standards...."
Worldwide Update
 Periodic roundup of recent and upcoming actions and activities by Audit and Accounting Organizations throughout the world....
IASB– International Accounting Standards Board (www.ifrs.org)
- Definition of a Business (Amendments to IFRS 3),issued October 22, 2018, “will help companies determine whether an acquisition made is of a business or a group of assets. The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others.” Effective January 1, 2020, with early application permitted.
IFAC– International Federation of Accountants (www.ifac.org)
- The International Auditing and Assurance Standards Board (IAASB) - ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures, issued October 3, 2018, “deals with the auditor’s responsibilities relating to accounting estimates and related disclosures in an audit of financial statements. Specifically, it includes requirements and guidance that refer to, or expand on, how ISA 315 (Revised),1 ISA 330,2 ISA 450,3 ISA 5004 and other relevant ISAs are to be applied in relation to accounting estimates and related disclosures. It also includes requirements and guidance on the evaluation of misstatements of accounting estimates and related disclosures, and indicators of possible management bias.” Effective generally in 2020.
ACCA –Association of Chartered Certified Accountants(www.accaglobal.com/)
CIMA– Chartered Institute of Management Accountants(www.cimaglobal.com)
IIRC-International Integrated Reporting Council (www.theiirc.org)
- IIRC Integrated Report 2017– published September 13, 2018, describes “a series of ‘breakthrough’ moments…signaling the breadth of support for integrated reporting as it becomes embedded by businesses around the world.” Among the breakthroughs are recommendations for alignment with integrated reporting by 16 regulators around the world, a statement of compatibility by the IASB with the IASB’s conceptual framework, and voluntary adoption of integrated reporting in 64 countries globally.
Africa, Europe, India, and the Middle East (AEIME)
FRC– Financial Reporting Council of the UK(www.frc.org.uk)
- Business model reporting; Risk and viability reporting – Where are we now?Report released October 18, 2018, by the FRC’s Financial Reporting Lab (Lab), “highlights the importance of business model and risk and viability disclosures. It provides practical examples from companies that have adopted the recommendations of previous Lab reports and reiterates investor views on how these improvements help to meet their needs.”
- Board Diversity Reporting, report published September 17, 2018. “This report assesses the current extent and manner of reporting by FTSE 350 companies on diversity at board and senior management levels in their annual reports.” Results indicate that FTSE 100 boards in 2017 were 27.7% women compared to 12.5% in 2011, showing initial progress, but slowing down recently. Executive teams at FTSE 100 companies included 19% women compared to 12% in 2011. The report also stated that ethnic representation remains at a low level.
More "Worldwide Update, including IFRS, ACCA, IIRC, FRC, FASB, GASB, AICPA..."
Additional A&A News
Money-laundering watchdog to set first cryptocurrency rules by June
(https://www.reuters.com/article/us-crypto-currencies/money-laundering-watchdog-to-set-first-cryptocurrency-rules-by-june-idUSKCN1MT1P2)
GAAP Accounting Rules Spur Shorter Real Estate Leases
(https://www.globest.com/2018/10/22/gaap-accounting-rules-are-spurring-shorter-real-estate-leases/?slreturn=20180922130421)
Accountancy and technology: the journey to cognitive intelligence
(https://www.accountancyage.com/2018/10/18/accountancy-and-technology-the-journey-to-cognitive-intelligence/?utm_source=accountancy-age&utm
_medium=email&utm_campaign=aa-daily-dose&utm_content=2018-10-22-today-autumn-budget-predictions-patisserie-valerie-fraud-deloitte-on-accountancy-and-technology&mkt_tok=eyJpIjoiT1RFNE9UbGtaamMyWkdJNSIsInQiOiJrT1ZmY1BVTzZndmlrKzFPc2syR1wvNktQT0tkcmJrbHZibW1Da3ljQXNlTUg0a1VibWtMNTJ
CemJcLzlCYkdGMzJwVzVoOTJFMUw2dzFXWGRvWXY4N09UeXZYb3dWSDNSdUl6SUE5K1JvSFdyMnQ0d3djVGp1d09scjBxUFRKM3RSIn0%3D)
Companies still find it difficult to comply with revenue recognition changes
(https://www.accountingtoday.com/news/companies-still-find-it-difficult-to-comply-with-revenue-recognition-accounting-changes?utm_campaign=best%20of%20the%20week-oct%2020%202018&utm_medium=email&utm_source=newsletter&eid=88f2c6c88ddb1fb5f4efdb549d6622a1)
Critical audit matters coming into focus
(https://www.journalofaccountancy.com/issues/2018/oct/critical-audit-matters-reporting.html)
New Report: Execs Say Blockchain Adoption Has Been 'Harder Than Expected'
(https://www.forbes.com/sites/sarahhansen/2018/10/11/new-report-execs-say-blockchain-adoption-has-been-harder-than-expected/#605b05d72fab)
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