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Technical news in brief April 2021

ICAEW's Audit and Assurance Faculty brings you the latest technical updates on developments in auditing and assurance, financial reporting and ethics. Please note Only Audit and Assurance Faculty members and Faculties Online subscribers have access to these technical updates.

IAASB video on quality management considerations for firms

Audit and assurance | 30 April 2021

The International Auditing and Assurance Standards board (IAASB) has created a video on its new suite of quality management standards. It addresses considerations for firms when preparing to implement the standards, such as what may be retained from current systems, the time and resources needed, the impact on the firm as a whole, and ways to approach implementation. The video emphasises the need for firms to start early and prepare for implementation.

The IAASB’s suite of new and revised quality management standards was released in December 2020; they will become effective on 15 December 2022.

Major step towards strengthening independence

Ethics | 28 April 2021

The International Ethics Standards Board for Accountants (IESBA) has revised the Non-Assurance Services (NAS) and fee-related provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code).

The package of new measures includes:

  • A far-reaching prohibition on audit firms from providing an NAS that might create a self-review threat to an audit client that is a public interest entity (PIE).
  • New provisions to enable and promote more robust engagement between auditors and those charged with governance of PIEs about independence matters relating to NAS and fees.
  • Strengthened provisions to address undue fee dependency on audit clients.
  • Provisions to stimulate greater public transparency about fees paid by audit clients that are PIEs, to assist stakeholder judgments about auditor independence.
  • Comprehensive guidance to steer auditors’ threat assessments and actions in relation to NAS and fees.

The revised NAS and fee-related provisions become effective for audits of financial statements for periods beginning on or after 15 December 2022. Early adoption is permitted and encouraged.

In support of global adoption and implementation of the new standards, IESBA has developed Bases for Conclusions and other resources which are available on its website. Additional support materials and resources are on the way.

FRC convenes international conference on audit firm culture

Audit and assurance | 22 April 2021

The Financial Reporting Council (FRC) will be holding an international conference in June entitled Audit Firm Culture: Challenge. Trust. Transformation, exploring the link between audit firm culture and audit quality with the objective of accelerating the pace of change for cultural transformation in the audit profession.

Between 21 June and 25 June 2021, the FRC will host a week of virtual lunchtime webinars, covering topics including the link between audit quality and audit firm culture, developing an auditor’s mindset of professional scepticism and challenge, the role of the audit committee, how to assess and measure culture and the role of the regulator in supervising culture.

Learn more about the event and register to attend any of the webinars here.

IAASB reports on its recent work supporting the public interest

The International Auditing and Assurance Standards Board (IAASB) has published a Public Report detailing its progress to support the public interest between July 2019 and December 2020. During this period, the IAASB completed five major standards aimed at enhancing audit and assurance quality, adopted a four-year strategy focused on the public interest, and established a new work plan focused on emerging issues.

It also responded to the global pandemic by issuing guidance and engaging with a broad range of stakeholders, to sustain trust in audit and assurance.

IASB proposes changes to IFRS Taxonomy 2021

Financial reporting | 21 April 2021

The International Accounting Standards Board (IASB) 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 update includes changes to the IFRS taxonomy elements to reflect the new and amended disclosure requirements introduced by the amendments, issued by the IASB in February 2021.

The deadline for submitting comments is 21 June 2021.

FRC proposes extended application period for accounting requirements covering COVID-19 rent concessions

Financial reporting | 20 April 2021

The Financial Reporting Council (FRC) has issued an Exposure Draft that proposes to extend by one year the application period of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic.

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.

The amendments are proposed to be effective for accounting periods beginning on or after 1 January 2021, with early application permitted.

Comments are invited by 11 May 2021.

IASB proposes amendments setting out accounting for when no foreign exchange rate exists

Financial reporting | 20 April 2021

The International Accounting Standards Board (IASB) 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 IASB’s proposed amendments to IAS 21 would help companies identify if this situation applies to them and the accounting to apply when it does.

The deadline for comments is 1 September 2021.

The Exposure draft is accompanied by a webcast providing an overview and answering some commonly asked questions. 

IESBA releases technology initiative update

Ethics | 19 April 2021

In March 2021 the International Ethics Standards Board for Accountants (IESBA) reflected on progress on its technology Initiative, and considered next steps and timing, recognising the increased burdens stakeholders have shouldered as a result of the pandemic. It has now published an updated pathway.

Post-implementation review of long association international independence standard

Ethics | 14 April 2021

IESBA’s Long Association Post-Implementation Review (LAPIR) Working Group has released a questionnaire seeking stakeholder feedback on key matters relating to Phase 1 of the LAPIR.

The questionnaire forms part of the Working Group’s information gathering and will help inform the IESBA’s review of the implementation of the five-year cooling-off requirement for engagement partners on audits of public interest entities. This review is being undertaken before the ‘jurisdictional provision’ in the standard expires for audits of financial statements for periods beginning on or after 15 December 2023. The jurisdictional provision permits jurisdictions to apply a cooling-off period less than five years subject to specified conditions.

FRC strategy for 2021/22

Financial reporting and audit | 08 April 2021

The FRC has published its Strategy for 2021/22. The Government proposals for restoring trust in audit and corporate governance include the establishment of a new statutory regulator to replace the FRC. The FRC’s plan takes into account the Government’s stated intentions for the statutory objectives and governance of ARGA and its proposals to fund the new regulator through a statutory levy. It also takes further steps towards the growth that will be required to deliver new or enhanced regulatory activities. 

New IAASB guidance: assurance for non-financial reporting

Audit | 6 April 2021

The International Auditing and Assurance Standards Board (IAASB) has published Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements.

The Guidance responds to ten key stakeholder-identified challenges commonly encountered in applying International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. The Guidance addresses a number of overarching matters, including applying appropriate competence and capabilities, exercising professional scepticism and professional judgement, and the preconditions for an assurance engagement, as well as more specific technical matters. The Guidance also provides further explanation and examples to better understand the distinction between limited assurance and reasonable assurance engagements.

IFRS Foundation publishes 2020 annual report

Financial reporting | 1 April 2021

The IFRS Foundation has published its annual report and audited financial statements for the year ended 31 December 2020