IFAC advises G20 members to take action
In its proposal to the G20 leaders summit, the International Federation of Accountants (IFAC) noted that the pandemic has reinforced the idea that we cannot simply hope for a better future, we must take practical action to build one a better future, and action must be taken now to develop more sustainable, inclusive and prosperous economies and societies.
To achieve this goal, IFAC calls on G20 member countries to focus on four tasks:
The first is to accelerate the promotion of sustainable development and inclusiveness. The time to implement the UN Sustainable Development Goals is pressing, and governments, enterprises and stakeholders must shoulder their responsibilities.
The second is to continue to promote global cooperation. Given that the lines between global and domestic issues are blurring, the challenges faced by countries and regions are closely linked and can only be addressed through a global working mechanism.
The third is to reject regulatory fragmentation. Regulatory fragmentation will have huge costs, especially when it comes to global issues such as climate change and sustainable development.
The fourth is to focus on the transparency and integrity of the public sector. The epidemic has led to soaring public sector expenditures, and the trust relationship between the public and the government has been troubled. Improving the level of transparency and integrity is an indispensable means to enhance public trust.
IFAC noted that G20 members should act in two areas.
The first is to support the International Financial Reporting Standards (IFRS) Foundation in formulating global sustainability information disclosure standards. Governments need to work with the private sector to develop a more sustainable and inclusive economy.
The G20 Finance Ministers and Central Bank Governors meeting has also recognized the critical role that high-quality, comparable information and its disclosures play in developing sustainable financing.
IFAC encourages all countries and regions to participate in the work of the IFRS Foundation to jointly advance the establishment of a global sustainability information disclosure system and to improve the consistency and reliability of the information disclosed.
The second is to promote public financial management. Public financial management is a central element in improving transparency and integrity in the public sector and achieving shared prosperity. A strong public financial management system will allocate resources correctly according to public policy objectives and based on the public interest.
IFAC calls on G20 member countries to set an example for countries and regions to continuously improve high-quality public financial management in the following areas:
The first is that leaders and senior management of public sector entities should be effectively engaged;
Second, a comprehensive, interrelated, principle-oriented, and result-oriented framework must be established;
The third is to focus on the International Public Sector Accounting Standards (IPSASs) and any future public sector sustainability standards, such as the accrual standards that have been endorsed by the G20 Business Activities (B20) Working Group on Integrity and Compliance ;
Fourth, people should be trained to have the required skills and ethics.
(Original link: https://www.ifac.org/knowledge-gateway/contributing-global-economy/publications/g20-call-action-2021)
The Chairman of the International Auditing and Assurance Standards Board was interviewed by the media
Recently, Tom Seidenstein, Chairman of the International Auditing and Assurance Standards Board (IAASB), was interviewed by Compliance Week on issues such as improving audit quality.
Mr. Sedanstein said that auditing is a truly noble undertaking that integrates trust into market activity and drives investors to allocate capital in the most efficient and appropriate way.
The IAASB is committed to establishing globally recognized standards of high quality audit and assurance to assist users of audit and assurance reports in making appropriate judgments about company performance.
Mr. Sedanstein said that in order to improve audit quality, IAASB will focus on three aspects of work in 2022:
The first is to address the most relevant and important issues related to auditing and assurance;
The second is to strengthen innovation in standard-setting methods;
The third is to promote relevant parties, including standard-setting bodies and regulators, to participate in the work of the IAASB more vigorously.
The IAASB has just completed the development and revision of a series of standards, including new audit reporting standards, new auditing standards for accounting estimates, new risk assessment standards, new quality management standards and new group auditing standards to improve audit quality.
When it comes to meeting public expectations about combating fraud, Mr. Sedanstein said the IAASB had approved a project proposal to revise the Fraud Standard (International Standard on Auditing 240), which reaffirmed the role of auditors in traditional auditing. The role the business plays in identifying risks, and points to areas in the Code that need to be strengthened.
In response to the "expectation gap" in auditing, on the one hand, IAASB will clearly define the role that auditors should play in dealing with fraud in auditing; on the other hand, IAASB is also exploring what external communication auditors should conduct on fraud, and what needs to be done ，what level of transparency and how to appropriately reinforce professional suspicion against fraud.
When it comes to the impact of new technologies, Mr. Sedanstein said that new technologies will play an important role in the auditing field, and as such, the IAASB has been investing more in understanding disruptive technologies, including holding multiple roundtables, while focusing on What disruptive trends are likely to fundamentally change the way auditing is practiced over the next 5-6 years, and whether standard setting is ready for this.
When talking about the impact of the new crown pneumonia epidemic on audit quality, Mr. Sedanstein said that the epidemic has proved that auditors must adapt to the changing environment, and accounting firms need to re-evaluate the way they deal with risks because of the risks faced by the audited units much has probably changed.
The IAASB's new risk assessment criteria should prompt accounting firms to think more carefully. Fraud and going concern remain highly relevant considerations during the pandemic, so it is important that the IAASB is committed to revising these guidelines. At the same time, Mr. Sedanstein is also concerned about the impact of the epidemic on the professional development of the next generation of auditors, because they need to receive face-to-face guidance in their professional development.
(Original link: https://www.iaasb.org/news-events/2022-01/qa-iaasb-head-audits-role-combating-fraud-esg-new-technologies-more)
Public Interest Oversight Committee Establishes Standard Setting Council Nominating Committee
According to the reform document entitled "Strengthening the International Auditing Standards and Code-setting System" issued by the International Auditing Standards Oversight Group (MG), the Public Interest Oversight Board (PIOB) formally established the Standard Setting Board Nomination Committee (SSB NomCo) and Approved the appointment of the first members to select directors for the International Auditing and Assurance Standards Board (IAASB) and the International Accountants Ethics Board (IESBA). In 2021, the PIOB and the International Federation of Accountants (IFAC) have called for nominations for the committee members.
The Normative Council Nominating Committee consists of 9 members from different regions, with different skills and experience, including a chairman. They represent stakeholders such as financial report users, regulators, standard-setting bodies, academia, business accountants, large accounting firms, and small and medium accounting firms.
According to the requirements of MG, the directors selected by the Nominating Committee of the Standard Setting Council for the IAASB and IESBA should meet the following criteria: possess relevant knowledge and skills, come from many different regions, represent the interests of various stakeholders, achieve diversity and gender balance.
(Original link: https://ipiob.org/wp-content/uploads/2021/11/SSB-NomCo-establishment-Press-Release-17.11.21-1.pdf)
UK Financial Reporting Council publishes annual review report
The Financial Reporting Council (FRC) has released its 2021 Review of Corporate Reports.
In 2021, FRC will mainly focus on the impact of COVID-19 on financial reporting, the implementation of IFRS 15, the impact of the first implementation of IFRS 16, cash flow and liquidity, climate-related reporting quality, interim reports and other topics for review.
At the same time, the FRC continues to focus on the financial reports of large companies that can have a significant impact on market confidence. Of all the financial reports it reviewed, 72% were those of companies covered by the FTSE 350 (67% in 2020 and 65% in 2019).
In 2021, the FRC reviewed a total of 246 financial reports and accounts (30 more than in 2020) and sent letters to 97 companies (1 more than in 2020) on material reporting issues.
Overall, despite the impact of the epidemic, the quality of financial reports remained stable, but 15 companies had major irregularities that required financial restatements.
In addition, according to the FRC's review focus, companies with most fiscal years ending at the end of December reported the impact of the epidemic on their operating performance and development prospects and information on significant forward-looking professional judgments that may be of interest to investors, such as going concern.
It is worth mentioning that for the accounting period commencing 1 January 2021, companies listed on the Select Tier of the London Stock Exchange must declare in their annual financial reports the extent to which they have followed the Task Force on Climate-Related Financial Disclosures. (TCFD) requirements, disclose climate-related information; if not, explain why.
Currently, the FRC is seeking public comments to extend the TCFD requirements to all public interest entities.
Meanwhile, the FRC’s 2021 thematic review on the quality of climate-related reporting found that many large companies have already begun to disclose climate-related information as required by the TCFD.
(Original link: https://www.frc.org.uk/news/october-2021/frc-to-focus-on-climate-related-reporting-as-new-d)
Institute of Chartered Accountants in England and Wales signs anti-fraud agreement for the accounting profession
In response to the growing financial fraud situation, the Institute of Chartered Accountants in England and Wales (ICAEW) has signed a new anti-fraud agreement for the accounting profession.
The agreement is voluntarily implemented by the accounting industry-related organizations that participated in the signing, and the anti-fraud joint task force committee is responsible for supervising the implementation.
The agreement states that financial fraud accounts for more than a third of all criminal activity in the UK.
While the percentage of fraud involving accountants or the accounting profession is not high, the role that accountants play in fraud is important:
The first is that fraudsters often need to control the organization's finances, which makes accountants potential "accomplices" of fraudsters;
Second, fraudsters may impersonate accountants or accounting firms to increase the compliance of fraudulent activities;
The third is that accountants who do not comply with the requirements of professional ethics have the opportunity to carry out fraudulent activities that cannot be carried out by other personnel in the process of accessing client funds, bank accounts and financial records;
Fourth, in practice, accountants are ideally positioned to identify fraud in the process of providing services and to train their clients on how to identify fraud risks.
The agreement calls for the accountancy profession, government and regulators to jointly take the following four steps:
The first is to increase transparency about the fraud threats facing the accounting industry. The accounting industry and law enforcement agencies continue to share threat information. The UK National Assessment Center is responsible for compiling an anti-fraud briefing for the accounting industry for government reference;
The second is to strengthen anti-fraud tools and establish an information base to help accountants combat fraud.
Given the wide disparity in anti-fraud resources in the accounting industry and the small size of some accounting firms, accounting professional organizations should be responsible for developing a toolkit for use by all accountants, including anti-fraud training and guidelines for the use of anti-fraud information, to help accountants identify potential clients the existence of fraudulent conduct;
Third, the government should make more investment.
The Ministry of Business, Energy and Industrial Strategy (BEIS), Companies Registry and the accounting profession should have open communication on Companies Registry reforms to reduce fraud in the Companies Registry registration process;
The fourth is to carry out training activities. The accounting profession works with law enforcement and the government to develop and implement cross-sectoral training strategies, participate in public or private sector strategic communication and guidance working groups, conduct anti-fraud training led by the National Economic Crime Center and supported by the accounting profession, and continue to raise public anti-fraud awareness .
In addition to ICAEW, the Association of Chartered Certified Accountants (ACCA) and 13 accounting industry-related organizations and institutions including BDO Accounting Firm also signed the agreement.
(Original link: https://www.icaew.com/insights/viewpoints-on-the-news/2021/oct-2021/icaew-backs-new-accountancy-sector-fraud-charter)
AICPA Survey Finds Audit Quality Remains Steady During Pandemic
The COVID-19 pandemic has forced auditors to resort to remote auditing, raising public concerns about their ability to work effectively during the pandemic. However, according to a survey conducted jointly by the Center for Audit Quality (CAQ) under the American Institute of Certified Public Accountants (AICPA) and Deloitte, 32% of the 246 surveyed audit committee members of large public companies believe that audit quality has improved in 2021. 66% believe that the audit quality has remained stable in 2021, 85% believe that the competence of the project team and the close communication between the project partners and the audit committee are the most important factors affecting the audit quality. Many respondents believe that accounting firms Factors such as audit-related technological innovation have promoted the improvement of audit quality.
Regarding the key areas of focus in the work of the audit committee, 96% of the respondents believe that financial reporting and internal control should be the focus, and 86% that the risk of fraud should be the focus. In addition, 48%, 47% and 42% of respondents believe that the focus should be on ethics and compliance, risk from third parties and enterprise risk management.
Deloitte noted that most audit committee members have recognized the need to focus on oversight of financial reporting, internal controls and independent auditors, but they are challenged to address emerging risks and address new regulatory areas while fulfilling their core responsibilities .
As the epidemic accelerates the process of digital operations, audit committees are investing a lot of energy in addressing the threats posed by cybersecurity risks. 53% of respondents believe that cybersecurity should be the focus, and 48% believe that data privacy protection should be the focus. At the same time, as environmental, social and governance (ESG) issues receive increasing attention, 66% of the respondents said that their companies have released sustainability reports or ESG-related reports, and 69% said they have or are discussing issues related to ESG issues. At least one aspect or sustainability data obtained third-party assurance reports, but only 10% believed that the audit committee had oversight responsibility for ESG-related reports.
(Original link: https://www.journalofaccountancy.com/news/2022/jan/audit-committee-practices-report-quality-stable-amid-pandemic.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=26Jan2022)
The Financial Reporting Council of the Hong Kong Special Administrative Region publishes its annual investigation report and interim inspection report
The Financial Reporting Council of the Hong Kong Special Administrative Region (hereinafter referred to as the Hong Kong FRC) publishes its annual survey report. During the 18-month reporting period from October 1, 2019 to March 31, 2021, the Hong Kong FRC received a total of 77 reports, of which 67 can be followed up and 10 are beyond the scope of the Hong Kong FRC's functions. At the same time, among the investigations carried out after 2019, the Hong Kong FRC handled a total of 43 investigations and initiated 25 new investigations, of which 7 investigations have been completed.
The Hong Kong FRC found that the vast majority of financial reporting issues relate to areas that require management to make significant judgments and accounting estimates in financial reporting, especially in the areas of fair value measurement and asset impairment assessment, as these two areas involve Accounting for a number of transactional activities, including business combinations, changes in financial instruments or their terms, exchanges of non-monetary assets, and agreements for the provision of goods or services to customers.
The Hong Kong FRC pointed out that the above-mentioned activities are often also the areas that lead to audit failures. Common audit failures in investigations include,
First, the project quality review process was not fully implemented (85%);
Second, failing to conduct appropriate audits to obtain sufficient and appropriate audit evidence and to issue appropriate audit opinions (82%);
The third is failure to properly maintain professional skepticism and exercise professional judgment (72%);
Fourth, auditing requires the preparer of financial statements to make significant judgments and accounting estimates (46%).
At the same time, the Hong Kong FRC issued an interim inspection report, pointing out that the accounting firm has responded positively to some of the major problems found in the 2020 inspection and made improvements. For example, of the 22 inspection items completed, 55%, or 12 items, lacked professional suspicion, an improvement from a high of 81% in 2020. But there has been a marked rise in accountants' audit failures and their significance in the area of revenue recognition. Of the 17 projects focusing on revenue recognition, the Hong Kong FRC found that 11 projects had audit failures, a rate of 65%, up from 46% in 2020.
(Original link: https://www.frc.org.hk/zh-cn/news-events/news/news-article?folder=FRC-issues-Annual-Investigation-and-Compliance-Report-and-Interim- Inspection-Report)
Japan's Financial Services Agency Discusses Strengthening Auditor Management of Listed Companies
Recently, the Financial Services Agency of Japan organized the third meeting of the Japan Accounting and Auditing System Advisory Committee.
Facing the frequent occurrence of accounting irregularities in listing activities, in order to strengthen the public's confidence in accounting and auditing and improve the accounting and auditing system, the Financial Services Agency of Japan established a consultation meeting system in 2015 to solicit entrepreneurs, scholars, accountants, financial reporters, etc. Opinions and suggestions of relevant experts on the accounting and auditing system.
The meeting focused on two issues:
First, actively support small and medium accounting firms.
The meeting believed that the government should establish a dialogue mechanism such as exchange meetings with large and quasi-large accounting firms, so as to establish a knowledge sharing mechanism on topics such as how to audit large listed companies; at the same time, the Japan Certified Public Accountants Association (JICPA) should Build a platform for large accounting firms with relevant experience, small and medium accounting firms, companies aiming to go public, securities companies, venture capital companies, etc. to share knowledge and issues and conduct dialogues.
The second is to strengthen the management of auditors of listed companies.
At present, JICPA has established a registration system for auditors of listed companies to manage accounting firms engaged in auditing of listed companies, but it is limited to industry self-discipline management.
The meeting held that, compared with general auditors, it is necessary to implement stricter management of listed company auditors, and it is necessary to establish a legal-based regulatory framework.
The meeting also discussed issues such as optimizing the practice environment of female accountants and strengthening the competence of accountants.
(Original link: https://www.fsa.go.jp/singi/kaikeikansanoarikata/siryou/20211104.html; https://www.fsa.go.jp/singi/kaikeikansanoarikata/siryou/20211104/01.pdf)
UK Financial Reporting Council Announces Penalties for Grant Thornton and Associates
The Financial Reporting Council (FRC) has issued a final decision notice to Grant Thornton (GT), imposing penalties on the accounting firm for non-compliance with Interserve's financial reporting audit engagements in 2015-2017, including :
The first is a fine of £718,250 for GT;
The second is to require GT to report to the FRC on its onerous contract audit business quality monitoring project;
The third is to issue a serious warning to GT and declare that the relevant statutory audit report does not meet the relevant requirements;
The fourth is to impose a fine of £38,675 on the relevant engagement partner;
Fifth, a serious warning was given to the partner, and a statement was made that the relevant statutory audit report did not meet the relevant requirements.
The FRC investigation found the following irregularities in GT's financial reporting audit engagement at Interserve,
The first is that in the 2015 and 2016 financial reports, Interserve made a provision for significant losses for the construction of waste treatment facilities in response to the "energy from waste" contract signed with Viridor.
However, GT lacks important evidence when making key judgments and accounting estimates, and seriously lacks professional suspicion, which constitutes a major audit risk;
The second is the financial data model constructed by the management of Interserve in the 2017 financial report on the going concern and impairment of goodwill, and GT's assessment for this purpose failed to fully implement the audit procedures or record it in the audit papers. . However, the FRC did not determine whether the above-mentioned breaches raised a risk of material misstatement or whether they were limited to certain areas of audit work.
It should be pointed out that some of the evidence obtained from the audit documents is material that GT disclosed confidentially to the FRC and is still subject to the legal profession privilege, but the Interserve bankruptcy administrator and related parties agree that the FRC will be protected by the legal profession privilege. For the limited purposes of this investigation and any subsequent enforcement procedures. Therefore, full details of the relevant findings are confidential and will not be released.
Previously, Interserve signed a contract with Viridor in 2012 to build a 200,000-ton-per-year “waste-to-energy” facility in Glasgow.
However, the contract was not implemented for a long time due to disputes over the sub-contract for the odor control system and the advanced conversion facility.
In 2016, Viridor terminated the contract on the grounds that the contract had been delayed several times, and Interserve withdrew from the "energy-from-waste" market, and declared bankruptcy in 2019.
(Original link: https://www.frc.org.uk/news/november-2021/sanctions-against-grant-thornton-and-a-partner)