Representing Chartered Accountants
Author:
Aidan Lambe
In the first of a new regular series highlighting the ongoing work in the areas of Representation & Technical Policy, ICAI Director, Aidan Lambe, reviews the key issues and developments in financial reporting, audit and assurance, company law and regulation, and looks forward to what is likely to dominate the agenda for 2008.
Coming up to the end of any year, the media is usually packed with reviews of the year gone by and some forward gazing as to what the year ahead might have in store. In keeping with this theme, it is useful to highlight some of the many issues and areas in which the committees of ICAI’s Representation and Technical Policy (RTP) Department were involved over the last twelve months and perhaps highlight new areas and those likely to be of continuing relevance during 2008.
Financial Reporting
While 2007 was a relatively ‘quiet’ period for the International Accounting Standards Board (IASB) and the Accounting Standards Board (ASB) (reflecting the IASB’s self imposed ‘moratorium’ on new standards), 2007 saw the publication by the IASB of proposals for International Financial Reporting Standards (IFRS) for SMEs.
The Consultative Committee of Accountancy Bodies-Ireland (CCAB-I) and the ASB hosted a discussion on these new proposals with participants including speakers from the IASB, ASB and the Irish Auditing and Accounting Supervisory Authority. 2008 is expected to see a continuation of the IASB’s ‘convergence project’ between IFRS and US GAAP, in particular, with Discussion Papers expected on consolidation, financial statement presentation, revenue recognition, and post-retirement benefits. In addition, the first proposals regarding a new ‘conceptual framework’ are due to be published, while new IFRS may include the IFRS for SMEs.
Hopefully, also in 2008, the views of the ASB and, indeed, the European Union, regarding the IFRS for SMEs will be made clear.
Finally, in a welcome development concerning IFRS, in November 2007, the US Securities & Exchange Commission (SEC) announced that it was removing the requirement for foreign private issuers preparing financial statements under IFRS to provide a reconciliation between these and US GAAP.
The work programme of the IASB can be downloaded from the IASB website at www.iasb.org.uk. Both IASB and ASB pronouncements are available to ICAI members on CHARIOT.
Audit and Assurance
The ‘clarity project’ of the International Audit and Assurance Standards Board (IAASB) has continued unabated. It is an 18-month project being undertaken by the IAASB to redraft existing International Standards on Auditing (ISAs) and to develop new and revised standards based on specified clarity drafting conventions. The clarified standards
-are objective driven;
-distinguish ‘requirements’ from guidance on implementation;
-avoid ambiguity;
-contain other structural and drafting improvements.
The clarified standards will apply to audits for periods beginning on or after 15 December 2009.
During 2007, 4 clarified standards were finalised. A further 25 are expected to be finalised during 2008, most of which have been published for comment during 2007. Full details of this project can be downloaded from www.iaasb.org International Standards on Auditing (ISAs), Ethical Standards for Auditors, Audit Practice Notes ISAs are issued for application in Ireland and the UK by the Auditing Practices Board (ISAs (UK and Ireland)). The APB and its parent body, the Financial Reporting Council, have also been busy with their own agendas, issuing consultations in recent months on revisions to the Ethical Standards for Auditors, changes to the standard format for audit reporting, and, proposed Practice Notes on the Audits of Credit Unions in the Republic of Ireland, and the Audit of Banks in the Republic of Ireland. ICAI Members can access the text of these in CHARIOT in the Members’ Area on www.icai.ie.
Proposals from standard-setters for financial reporting and audit and assurance are considered and commented on by ICAI’s accounting committee and financial reporting committee respectively. Responses to
exposure drafts and discussion papers are in the form of ‘Representations’ (‘Reps’) and can be accessed on the ICAI website at http://www.icai.ie/ submissions/sub_Index.cfm. During 2007, in excess of 40 Reps were issued by these committees.
Company/Business Law
Both at local and European levels, the RTP Department has been active in monitoring various initiatives and developments, commenting on these where relevant.
The revised 8th Company Law Directive (now known as the Statutory Audit Directive) is required to be transposed into Irish and UK law by mid-2008. During 2007, an ICAI working party conducted an analysis of the Directive which formed the basis of ICAI’s engagement with the Department of Enterprise, Trade and Employment (DETE) on the issue.
Later in 2007, representatives from ICAI took part in further roundtable discussions hosted by the DETE which included representatives from CCAB-I and other recognised accountancy bodies. The transposition of the Directive will be a key priority for ICAI during the first half of 2008.
2007 also saw the publication of the ‘Heads of Bill’ by the Company Law Review Group (CLRG) of the forthcoming Consolidated Companies Act. Relevant ICAI and CCAB-I committees will be continuing to consider these proposals during 2007. In addition, the work of the CLRG continues with CCAB-I participation in relevant subcommittees looking at auditing and accounting issues.
Further representations were made to the CLRG on the extension of audit exemption to ‘small’ groups and the application of audit exemption to ‘dormant companies’. The CLRG’s deliberations on these issues are currently awaited. New legislation governing charities is also anticipated during 2008.
At European level, much of the focus during 2007 was on ‘simplification’ and easing the regulatory burden for European business. During 2007, the European Commission published a number of proposals aimed at reforming certain company law Directives. These proposals included exemptions for small companies from having to file any financial information on the public record but still with the requirement to prepare accounts giving a true and fair view, and the creation of a new classification of company – the ‘micro entity’ with a maximum turnover of €1 million and 10 employees – which could be exempted from the accounting requirements contained in company law.
The ICAI response to the European Commission’s proposals are online at www.icai.ie/submissions/sub_ Index.cfm. Regulation
Recent years have seen the establishment of external oversight of the profession – in Ireland through the Irish Auditing and Accounting Supervisory Authority (IAASA), and in the UK through the Professional Oversight Board (POB) under the auspices of the Financial Reporting Council. RTP, along with the Chartered Accountants Regulatory Board (CARB) continues to engage with these bodies at a number of different levels and to react to relevant matters as appropriate.
At European level, Commissioner Charlie McCreevy has outlined his ‘audit package’ consisting of a series of measures emanating from the Statutory Audit Directive, including:
-the publication by the European Commission of a formal ‘Recommendation’ on auditor liability during the first quarter of 2008;
-a public consultation on the ownership of audit firms, and, also during the first quarter of 2008;
-the publication of a Recommendation of quality assurance for audits of listed companies.
We will continue to monitor developments in these areas.
Other policy priorities Reform of auditor liability regime During 2007, the ICAI has continued its efforts aimed at achieving reform of the current law in the Republic of Ireland relating to auditor liability. In February 2007, ICAI published a Discussion Paper on the subject which was distributed to all interested parties. This was supplemented by follow-up meetings and presentations.
ICAI representatives met with Commissioner Charlie McCreevy who has been an advocate of the need for reform in this area on a Europe-wide basis. With the matter now being considered formally by the CLRG, ICAI looks forward to further progress during 2008.
Recognition of the term ‘accountant’ Progress was also made during 2007 on the recognition of the term ‘accountant’. This issue is being actively considered by the CLRG and we are hopeful that further positive developments will take place in 2008.
Anti-money laundering
New anti-money laundering requirements take effect from late 2007 and early 2008, impacting both the UK and Ireland. ICAI has been active through CCAB and CCAB-I in developing revised guidance for members and will be continuing this effort in 2008, including updating the ICAI anti-money laundering webpages and producing other appropriate information tools for members.
Other areas
RTP interacts with various external agencies and third parties on behalf of ICAI; these include the ODCE, the Financial Regulator, standard setters, as well as other representative bodies – CCAB-I and FEE (the representative body of the European accounting profession). Such interaction is only possible because of the committed involvement of ICAI committee volunteers (long may their involvement continue) and a dedicated team within the RTP Department itself.
Accountancy Ireland will, in future, carry regular updates on relevant developments and issues being dealt with by RTP. It looks like there may be plenty to report.
Aidan Lambe, FCA, is Director of Representation & Technical Policy at the Institute of Chartered Accountants in Ireland.