• PAIB eNews: September 2013

    New York, New York English
    Reminder: Comment Deadline Approaching for Good Governance in the Public Sector

    Good Governance in the Public Sector, issued as a Consultation Draft by IFAC and the Chartered Institute of Public Finance and Accountancy (CIPFA), looks to establish a relevant benchmark at both the government and individual public sector entity levels. The Consultation Draft is designed as a reference document for those who develop and set national governance codes for the public sector when updating and reviewing their own codes. Where codes and guidance do not exist, the framework provides a shared understanding of what constitutes good governance in the public sector as well as a powerful stimulus for positive action.

    Public sector representatives and other public sector stakeholders are especially encouraged to respond to the proposed framework to help improve its applicability to public sector entities at all levels internationally. The deadline for comments is Monday, September 16, 2013.

    New Guidance from IFAC Helps Manage Complexities in Project, Investment Appraisal

    To further support the accountancy profession’s facilitation of sustainable organizations, financial markets, and economies, IFAC has released the International Good Practice Guidance, Project and Investment Appraisal for Sustainable Value Creation. The guidance helps professional accountants provide greater rigor in their appraisal and decision processes by serving as a benchmark against which to assess an organization’s current practice. 

    Accountants in business play a crucial role in helping organizations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices in the supply chain), economic (e.g., in communities), and environmental (e.g., pollution). By introducing greater rigor, organizations can assess all important aspects of a project or investment.

    Project and Investment Appraisal for Sustainable Value Creation, and its accompanying executive summary, are available for local customization and/or translation. If your organization is interested, please visit IFAC’s Translations and Permissions page for the permission request form. Additionally, if your organization is interested in publishing an IFAC-authored article on the guidance and its implementation, please contact Stathis Gould (stathisgould@ifac.org).

    Guidance on Business Reporting Processes Executive Summary Available for Customization

    IFAC has published an executive summary of the International Good Practice Guidance, Principles for Business Reporting Processes, which summarizes the key issues professional accountants in business need to address when implementing effective reporting processes in their organizations. The guidance was written for all organizations, regardless of their size, structure, or private/ public status, to address the need for effective reporting processes to produce high-quality reports.

    The executive summary is available for local customization and/or translation. If your organization is interested, please visit the Translations and Permissions page for the permission request form.

    IIRC Receives More than 350 Comments for Consultation Draft

    The International Integrated Reporting Committee (IIRC) received 359 submissions in response to its Consultation Draft of the International Integrated Reporting Framework. The IIRC reports that the submissions were from every region of the world , as well as a wide variety of sectors, including report preparers, investors, analysts, assurance providers, non-governmental organizations, consultants, and regulators. All submissions are available on the IIRC website, as is the IFAC comment letter on the Consultation draft.

    ACT to Host Free Derivatives Webinar

    The Association of Corporate Treasurers (ACT) is hosting a free webinar, Reporting of Derivatives Trades: Are You Up to Speed?, on September 12, 2013, at 12:30 PM GMT. The webinar will help prepare participants for the upcoming changes to the European Markets Infrastructure Regulation, which will require all European companies to report derivatives trades to a recognized trade repository. Register online to participate; email events@treasurers.org with questions. When registering, please state that you heard about the webinar from IFAC.

  • SMP eNews: September 2013

    New York, New York English
    FEATURED
    IAASB Proposes Enhancements to Auditor Reporting: Potential Impact on Audits of Unlisted Entities

    The International Auditing and Assurance Standards Board (IAASB) has released proposals that could fundamentally transform the auditor's report, greatly enhancing its communicative value. The Exposure Draft (ED) proposes a new standard, International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and a number of revisions to existing standards, including ISA 700, Forming an Opinion and Reporting on Financial Statements. While the proposals stand to significantly change the shape of auditor reporting for listed entities, the impact on unlisted entities is likely to be much smaller. Nevertheless, there are proposed requirements that apply to all audits. These are intended to help demonstrate the value of the audit and, furthermore, may improve service and promote engagement efficiency.

    This article summarizes this impact and suggests how SMPs and small- and medium-sized entities (SMEs) can get involved to help ensure the best possible outcome. Read Full Article  

    The IAASB believes that the proposed ISAs can be implemented in a manner proportionate to the size and complexity of an entity and welcomes the views of both preparers and auditors of financial statements of unlisted entities, including SMEs, in this regard. The IFAC SMP Committee has been providing regular and robust input to the IAASB throughout the ED's development, starting with a response letter to the Invitation to Comment, and encourages SMPs to comment: Submit a comment. Comments are due by November 22, 2013. Please also join the discussion in the IFAC SMP Community on LinkedIn.

    SMP Quick Poll—Mid-Year Results and Upcoming Poll

    The mid-year IFAC SMP Quick Poll showed that the vast majority (73%) of the nearly 4,000 SMPs surveyed are either currently providing or have plans to provide sustainability services to their clients, suggesting that there’s a sizeable market for these services among the small businesses that SMPs typically serve. Of those who offer sustainability services, many offer more than one service; the most common service provided, indicated by over 75% of respondents, is advisory services. Reporting and assurance are the next most commonly provided services. Read more in the IFAC SMP Quick Poll: Mid-Year 2013. Due to different response rates in different geographic areas, results may not be statistically representative of global or regional populations of SMPs. IFAC wishes to thank the many member and regional organizations that helped with translation and distribution of the poll.

    In November, IFAC will open the year-end SMP Quick Poll to find out if business performance met expectations and to check in on the current challenges facing SMPs and their clients, among other topics. To see the complete results of the last poll and participate in the next one, see the SMP Committee home page.

    STANDARDS AND REGULATION
    IAASB Reports Findings from Post-Implementation Review of Clarified ISAs

    The International Auditing and Assurance Standards Board (IAASB) recently released The Clarified ISAs—Findings from the Post-Implementation Review. This report summarizes feedback and the main themes that have emerged, and will be an important input to the IAASB’s future planning process, including its 2015–2019 strategy deliberations, which are included on the agenda for their meeting later this month in New York. (See their Meeting Page for agenda papers and to register to attend as an observer.)

    The report included a summary of responses from a survey of SMPs on the application of the clarified ISAs. Seventy SMPs from ten jurisdictions responded to the survey, which covered two audit cycles. The survey found that the introduction of the clarified ISAs had a positive impact on their work, in particular in relation to audit planning, quality control, and an improved focus on risk. Views on the proportionality of the ISAs varied, and roughly half of the survey respondents did not believe that further changes to the ISAs were necessary. 

    Ethics Board Progresses Projects on Illegal Acts; Structure of the Code

    The SMP Committee continues to monitor and provide input to the International Ethics Standards Board for Accountants (IESBA, the Ethics Board). At the last Ethics Board meeting in June, the board considered, among other things, a proposed alternative to the approach set out in the Exposure Draft, Responding to a Suspected Illegal Act, regarding a professional accountant’s responsibilities when encountering a suspected illegal act.

    In addition, the IESBA approved the terms of reference for the working group formed to advise the board on ways to improve the usability of the Code, which could include changing the structure and/or presentation of the Code. The project responds to concerns from SMPs and others regarding the Code’s readability, understandability, and accessibility.

    The IESBA will continue its deliberation on responding to a suspected illegal act and receive an update on the working group’s research at its September 2013 meeting. For additional meeting highlights, listen to the podcast summary or read the summary on the IESBA Meeting Page. See also the IESBA’s recently released 2012 Annual Report, Connecting and Engaging with Our Global Stakeholders.

    IFRS for SMEs Update

    The International Accounting Standards Board (IASB) has finalized its deliberations around its comprehensive review of the International Financial Reporting Standard for Small- and Medium-Sized Entities (IFRS for SMEs). At its July meeting, the IASB agreed that due process had been followed in developing the proposed amendments and an Exposure Draft (ED) is planned for publication in September. See a summary of decisions in the July IASB Update. The SMP Committee is likely to lead the drafting of IFAC’s response to the ED.

    In the United States, the American Institute of CPAs (AICPA) introduced a new accounting framework for SMEs in June. The Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) provides a new accounting option for preparing streamlined, relevant financial statements for privately held, owner-managed businesses that are not required to use US Generally Accepted Accounting Principles (GAAP).

    SMP Committee Contributes to IIRC Framework Consultation

    The SMP Committee contributed to IFAC’s response to the Consultation Draft on the International Integrated Reporting Framework. IFAC strongly supports the principles-based approach presented in the draft Framework and notes that taking this approach is more likely to result in a Framework that will be capable of application in a manner proportionate with the size of an entity. See the Consultation Draft on the International Integrated Reporting Council (IIRC)’s website. 

    RESOURCES AND EVENTS
    Supporting the Globalization of Small Business

    Globalization is not a new phenomenon, but what is new is both its velocity and how it affects small- and medium-sized entities (SMEs). The impact on SMEs has significant implications for the accounting practices, in particular SMPs, that typically serve SMEs. According to the Edinburgh Group (EG)’s recently published report, Growing the Global Economy through SMEs, SMPs may need to carefully critique the services they provide to SMEs seeking to internationalize. As a starting point, the report suggests specific actions for SMPs that include developing more understanding and expertise internally, strengthening relationships with funding institutions, and building international networks of trusted professional and business contacts. SMPs have the potential to become a key agent for the internationalization of small business if they are able to provide SMEs with the advice they need.

    Read More

    The above article, 7 Tips for Accountants on Supporting the Globalization of Small Business, is available for publication by IFAC member organizations. It can also be tailored to suit the needs of your organization and membership. This article, and previously released articles, are available on the IFAC Extranet (under Resources, see Member Bodies—Articles for Member Body Publication). If you plan to reproduce or adapt an article, email communications@ifac.org with publication details, including the title, when and where you plan to publish, and any changes tracked for our review. Email permissions@ifac.org for permission to translate.

    SMP Committee Chair Speaks at CReCER 2013

    In “Global Insights from IFAC SMP Committee,” at CReCER in Cartagena, Colombia (August 2013), SMP Committee Chair Giancarlo Attolini spoke about the importance of SMEs and SMPs and the challenges they face, citing the results of the latest IFAC SMP Quick Poll, and the role of IFAC SMP Committee, including the committee’s implementation guides.

    Leaders Convene in Uganda for 2013 IFAC SMP Forum

    Over 175 delegates from 33 professional accountancy organizations in 30 countries met in Kampala, Uganda, for the seventh annual IFAC SMP Forum in June. Co-hosted with the Institute of Certified Public Accountants of Uganda (ICPAU) and the Pan African Federation of Accountants (PAFA), delegates convened to learn, debate, and collaborate on a global stage regarding the unique opportunities and challenges facing SMPs and their small- and medium-sized entity (SME) clients. The agenda, presentations, and photos are available on online.

    IFAC co-hosted a complementary event with ICPAU and PAFA. See Tips for Trainers on ISAs—International Perspectives, Local Insights  to learn more and view presentations.  

    Coming Soon—Reviews Guide

    The SMP Committee has commissioned the Canadian Institute of Chartered Accountants (CICA) to develop a new publication that will help IFAC member organizations support their SMP constituents with the implementation of the revised International Standard on Review Engagements (ISRE) 2400, Engagements to Review Historical Financial Statements. The publication, which will supplement the committee’s existing implementation guides by assisting SMPs in efficient and effective implementation of ISRE 2400, is expected to be released in late 2013. The guide will include comprehensive and concise guidance, illustrations including practical examples and/or specimen documentation, and appendices with key checklists and forms.

    World Congress of Accountants 2014 to be Held in Rome; Sponsorship Opportunities Available

    The next World Congress of Accountants (WCOA) will be hosted by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC) in Rome, Italy, in 2014. Themed 2020 Vision: Learning from the Past, Building the Future, the 2014 WCOA will be held November 10-13 at the Auditorium Parco della Musica. More than 4,000 professionals from all over the world will convene at this can’t-miss IFAC event, held every four years. WCOA 2014 will look back to explore the evolution of the accountancy profession and forward to showcase the innovations that will set the tone for the future.

    The WCOA also affords an unparalleled opportunity for organizations and firms to share their projects and visions with the world by taking advantage of one of our carefully crafted sponsorship packages. There are numerous options so you’ll be able to select the one that best suits your organization’s unique strategy and goals.

  • IAASB Proposals for Enhancing the Auditor’s Report: Potential Impact on Audits of Unlisted Entities

    Brian Bluhm, Deputy Chair, and Phil Cowperthwaite, Member, IFAC SMP Committee
    Article for Member Bodies English

    Introduction

    The International Auditing and Assurance Standards Board (IAASB) has released proposals that could fundamentally transform the auditor's report, greatly enhancing its communicative value. The Exposure Draft (ED) proposes a new standard, International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and a number of revisions to existing standards, including ISA 700, Forming an Opinion and Reporting on Financial Statements (see IAASB press release). While the proposals stand to significantly change the shape of auditor reporting for listed entities, the impact on unlisted entities is likely to be much smaller. Nevertheless, there are proposed requirements that apply to all audits. These are intended to help demonstrate the value of the audit and, furthermore, may improve service and promote engagement efficiency.

    This article summarizes this impact and suggests how small- and medium-sized practices (SMPs) and small- and medium-sized entities (SMEs) can get involved to help ensure the best possible outcome.

    Proposals

    The proposed new and revised standards deal mainly with reporting considerations, which typically involve decisions by the auditor toward the end of the audit process. There are, however, aspects that may have implications for what the auditor does at or near the beginning of the audit, such as agreeing the terms of and planning the engagement, as well as communicating with those charged with governance. The most significant implications for the audits of unlisted entities are described below.

    Content of the Auditor’s Report

    The centerpiece of the proposals is proposed ISA 701. This completely new standard establishes requirements and guidance for the auditor’s determination and communication of key audit matters in the auditor’s report. Key audit matters, which are selected from matters communicated with those charged with governance, are required to be communicated in the auditor’s report for listed entities. Auditors of financial statements of unlisted entities may also be required, or may decide, to communicate key audit matters in the auditor’s report.

    For example, law, regulation, or national auditing standards may require auditors of unlisted entities in a particular jurisdiction to communicate key audit matters. Moreover, the auditors of other unlisted entities may wish to use the new mechanism of key audit matters on a voluntary basis. Where key audit matters are communicated for audits of financial statements of unlisted entities (either voluntarily or when required by law or regulation) then such matters should be determined and communicated in the same manner as for listed entities (see paragraph 4 of proposed ISA 701 and paragraphs 30 and A30–A31 of proposed ISA 700 [Revised]).

    ISA 700 has been revised to establish new required reporting elements, including a requirement for the auditor to include an explicit statement of auditor independence and disclose the source(s) of relevant ethics requirements, for all audits including those of unlisted entities. Similarly, ISA 570, Going Concern, has been amended to establish auditor reporting requirements applicable to all audits. The IAASB believes it is in the public interest for this to have universal application.

    Agreeing the Terms of the Engagement

    In light of the possibility of auditors of unlisted entities communicating key audit matters in the auditor’s report, or being requested by management or those charged with governance to do so, the IAASB has proposed limited amendments to other ISAs, including ISA 210, Agreeing the Terms of Audit Engagements. Specifically, if the auditor is not required to communicate key audit matters but intends to do so, a new requirement has been established for the auditor to include a statement in the audit engagement letter regarding such intent. This will provide an additional opportunity for the auditor to communicate with management and those charged with governance to ensure there’s a clear understanding as to the nature of the key audit matters to be disclosed.

    Communicating with Those Charged with Governance

    In light of proposed ISA 701, amendments are proposed to the required auditor communications with those charged with governance for all audits. The most significant proposed change to ISA 260 relates to the existing requirement for the auditor to communicate an overview of the planned scope and timing of the audit with those charged with governance. Proposed ISA 260 (Revised), Communication with Those Charged with Governance, expands this requirement to include communicating about the significant risks identified by the auditor (see paragraph 15 of proposed ISA 260 [Revised]).

    Communication with those charged with governance about significant risks is likely already occurring in many audits, including those of SMEs, as ISAs demand a risk-based approach to the audit. But the IAASB believes audit quality could benefit from explicitly requiring such communication in every audit. The proposed requirement would provide those charged with governance with insight into those areas for which the auditor determined special audit consideration was necessary and, in so doing, help those charged with governance to fulfill their responsibility to oversee the financial reporting process. This will also provide the auditor with an opportunity to garner additional insights into significant risks from those charged with governance and, thereby, help ensure the audit program is appropriately focused.

    The IAASB believes it is in the public interest to establish this requirement for audits of financial statements of all entities, not only for listed entities. Communicating with those charged with governance about significant risks is not expected to result in a significant burden on auditors who are not required to communicate key audit matters in the auditor’s report (e.g., auditors of unlisted entities), as proposed ISA 260 (Revised) remains flexible for such communication to be made orally. In addition, the IAASB proposes requiring the auditor to communicate, as part of communicating the significant findings from the audit, circumstances that require significant modification of the auditor’s planned approach to the audit, to align with the factors the auditor considers in determining key audit matters (see paragraph 16(c) of proposed ISA 260 [Revised]). This will provide further opportunity for dialogue with those charged with governance to help ensure all responsible parties have a full understanding of areas of significant auditor attention.

    Feedback

    The IAASB believes that the proposed ISAs can be implemented in a manner proportionate to the size and complexity of an entity and welcomes the views of both preparers and auditors of financial statements of unlisted entities, including SMEs, in this regard. The IAASB also invites respondents to comment on areas where additional guidance may be helpful to illustrate how the proposed ISAs can be implemented in a proportionate manner. The IFAC SMP Committee has been providing regular and robust input to the IAASB throughout the ED's development, starting with a response letter to the Invitation to Comment. Please tell us and the IAASB (click on Submit Comment) what you think about the ED and consider field testing ISA 701 on unlisted entities.

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    Caption
    Brian Bluhm, Deputy Chair, IFAC SMP Committee
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    Phil Cowperthwaite, Member, IFAC SMP Committee

  • Project and Investment Appraisal Requires Greater Rigor

    New York, New York English

    The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC), the global organization for the accountancy profession, today released International Good Practice Guidance, Project and Investment Appraisal for Sustainable Value Creation.

    The guidance supports the accountancy profession’s facilitation of sustainable organizations, financial markets, and economies by providing guiding principles to manage the complexities of performing a robust project and investment appraisal. Greater rigor in the appraisal and decision process can be achieved by using the principles as a benchmark against which to assess an organization’s current practice.

    “In today’s world, it is no longer sufficient for investment decisions to be appraised on financial criteria alone. While this guidance reinforces the importance of rigorous and robust project and investment appraisal, it does so  with a specific emphasis on facilitating long-term decision making and incorporating economic, environmental, and social considerations,” said Roger Tabor, chair of the PAIB Committee. “The revised guidance also sets out the critical role professional accountants in business play in advising on the application of financial principles and theory that are being tested during this current period of market instability.”

    Accountants in business play a crucial role in helping organizations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices), economic (e.g., in communities), and environmental (e.g., pollution). By introducing greater rigor, organizations can assess all important aspects of a project or investment.

    “Traditionally, project and investment appraisal is taught and discussed in purely financial terms, which helps an organization focus on decisions that create the most economic value,” said Athalanallur Natarajan Raman, chair of the PAIB Committee Sustainability Advisory Group. “To create sustainable value, it is essential to also take into account every aspect of the project or investment and consider all facets of sustainability.”

    About International Good Practice Guidance
    International Good Practice Guidance (IGPG) issued by the PAIB Committee cover areas of international and strategic importance in which professional accountants in business are likely to engage. In issuing principles-based guidance, IFAC seeks to foster a common and consistent approach to those aspects of the work of professional accountants in business not covered by international standards. IFAC seeks to clearly identify principles that are generally accepted internationally and applicable to organizations of all sizes in commerce, industry, education, and the public and not-for-profit sectors. Previously issued IGPGs are available on the IFAC website, including Preface to IFAC’s International Good Practice Guidance.

    About the PAIB Committee
    The PAIB Committee serves IFAC member bodies and professional accountants worldwide who work in commerce, industry, financial services, education, and the public and the not-for-profit sectors. Its aim is to promote and contribute to the value of professional accountants in business by increasing awareness of the important roles professional accountants play, supporting member bodies in enhancing the competence of their members, and facilitating the communication and sharing of good practices and ideas.

    About IFAC
    IFAC is the global organization for the accountancy profession, dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

     

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    New Guidance from IFAC Helps Manage Complexities

  • Project and Investment Appraisal for Sustainable Value Creation: Executive Summary

    International Good Practice Guidance

    Accountants in business play a crucial role in helping organizations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices), economic (e.g., in communities), and environmental (e.g., pollution).

    IFAC
    English
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