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Financial reporting and audit reform: delayed not forgotten

21 April 2020: several key projects have taken a back seat while the accounting world tackles the coronavirus crisis, but ICAEW continues its work to influence issues such as audit reform, climate change and ESEF.

While ICAEW’s short-term focus is on supporting members through the COVID-19 pandemic, the Financial Reporting Faculty (FRF) and Audit and Assurance Faculty (AAF) continue to progress with and influence a range of future-facing projects in the background. 

A - Audit reform

A number of activities are on hold. We expect that BEIS will defer further consultation on the Brydon, Kingman and CMA recommendations. The deadline for the call for evidence for the inquiry launched by the BEIS Committee on Delivering Audit Reform has been extended from 4 May to 31 July. On 26 March, the FRC commented that its requests to firms on supervisory initiatives, such as operational separation of audit practices, would be paused for at least a month.

AAF is prioritising its response to the COVID-19 pandemic but is continuing to engage with BEIS and the FRC on audit reform issues. AAF is also continuing to release essays in its Future of Audit series; our next publication will include interviews with auditors and audit committee chairs on internal controls over financial reporting.

B – Brexit

We continue to monitor developments concerning the implications of exiting the European Union on 31 December 2020 for preparers and auditors. Both faculties will monitor negotiations between the UK and EU on equivalence and consider the implications for financial reporting and auditing when completed.

C - Climate change

FRF is leading the response to the EC’s consultation on the EU Non-financial reporting directive, with contributions from AAF. The consultation considers how improvements might be made to non-financial reporting, including climate change issues. High-quality, non-financial information and user-driven assurance on that information are key to improving investor confidence and highly relevant to the future role of auditors. The consultation deadline has been pushed back by approximately one month to 11 June. 
Both faculties are continuing to engage with investors on climate change matters.

D - Deadlines for consultations 

Auditing standard-setters may extend consultation periods and/or delay implementation dates. The IAASB is considering revisions to its Work Plan.

FRF will also be responding to the following IASB consultations: General Presentation and Disclosure exposure draft, Interest Rate Benchmark Reform - Phase 2, and Business Combinations - Disclosures, Goodwill and Impairment. The deadlines for General Presentation and Disclosure and Business Combinations have been extended by three months each, to 30 September and 31 December respectively.

E - European Single Electronic Format (ESEF)

FRF and AAF are considering the need for guidance on the implementation of ESEF in 2020, and AAF is seeking clarity over the level of auditor involvement.

We will continue to provide support for both faculties’ members during this challenging time while ensuring that we continue to monitor the important developments in financial reporting and auditing.