What Makes a Good Audit?
The FRC has, for the first time, published a blueprint for what is required by UK audit firms to deliver high-quality audit off the back of investors, employees, pensioners and savers increasing reliance on better quality information about the performance and prospects of UK companies. In 2021, almost 30% of audits reviewed by the FRC did not meet acceptable standards, so significant improvements are required. Our web article on this publication highlights the key attributes that contribute to the running of high-quality audit practices such as the culture, governance and leadership of the firms, alongside their investment in well qualified people, training and processes. It also includes the key elements that contribute to high quality individual audits from the planning phase, through to the delivery and completion of audits. These are areas that Mercia frequently highlight within their audit file review service.
Latest Edition of Developments in Audit
The FRC has published its latest edition of Developments in Audit, which sets out their annual assessment of UK audit and ongoing expectations for how audit firms should deliver audit quality improvements to deliver a more effective audit market in the public interest. In our web article we highlight both the areas of improvement and also the examples of good practice. It also highlights that the FRC has over the past year increased the number of inspections of smaller firms which audit public interest entities, and has found 10 of 16 audits reviewed required improvements. This level of quality is unacceptable, and the FRC has increased resources dedicated to supervision of the smaller firms to drive the required improvements.
Creation of the International Sustainability Standards Board
Timed to coincide with the recent COP26 meeting held in Glasgow the IFRS Foundation has announced the creation of the International Sustainability Standards Board (ISSB), formed to develop in the public interest a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. The formation of the ISSB brings together several existing bodies seeking to improve reporting on climate related issues, and already a set of prototype climate and general disclosure requirements have been developed.
Guidance on Reporting Climate-Related Matters
The FRC has published a new staff factsheet: Climate related matters, as part of a series that accompanies FRS 102. Demand from stakeholders continues to increase the focus on how Environmental, Social and Governance (ESG) matters can affect companies’ financial position and performance, and the associated risks that they face which has led to legislation and guidance on the content of the narrative sections of the annual report (such as requiring disclosure of greenhouse gas emissions). However, less attention has been paid to the financial statements themselves. This factsheet is not specific to any particular size of entity but instead sets out information useful any FRS 102 preparing entity needing to enhance its consideration of climate-related matters.
Separately the Financial Reporting Lab has published a report to help entities prepare for mandatory reporting of the Taskforce on Climate-related Financial Disclosures (TFCD) recommendations. Premium-listed companies, banks and the largest pension schemes are required to report on TFCD on a ‘comply or explain’ basis for periods commencing on or after 1 January 2021, with the scope of these requirements expected to increase over the coming years.
Review of Corporate Governance Reporting
The FRC has published its annual review of corporate governance reporting and whilst highlighting the pressure on effective corporate governance caused by the pandemic, a number of areas where improvements are required were noted. This included reporting on areas of non-compliance with the UK Corporate Governance Code, diversity and inclusion policies, succession planning, risk management and remuneration policies. Improvements though were noted with the reporting of environmental and social issues.
Joint Letter to CEOs on Structured Reporting
The FCA and FRC have published a joint letter to CEOs on structured reporting to remind them of their obligations under the Disclosure Guidance and Transparency Rules. Certain companies are required to start producing their 2021 annual financial reports in a structured electronic format and as a result, electronic data for thousands of companies will become available for automatic extraction, analysis and comparison. This data will only be useful if it is of high quality. The letter sets out expectations on quality and identifies actions the FRC and FCA may take in the event of their expectations not being met.
UK Endorsement Board Outreach – IFRS 9 Post Implementation Review
The UK Endorsement Board (UKEB) has invited stakeholders to attend a series of upcoming roundtables as it develops its response to the following IASB consultations:
- Post Implementation Review – IFRS 9 Financial Instruments, Classification & Measurement
- ED/20212/7 Subsidiaries Without Public Accountability: Disclosures.
Economic Crime Manifesto Calling for More Measures to ‘Maintain The UK's Resilience’
The CCAB has published its manifesto outlining what more must be done to build and maintain the UK's resilience against economic crime. The Manifesto calls for four clear areas for change including SARs (Suspicious Activity Reporting) reform and intelligence sharing, ongoing funding of the UK’s Economic Crime Plan, more action to eliminate modern day slavery from supply chains and the need for public education on fraud risk and personal finance.
Harnessing Intelligence: AML Supervision Report 2020/2021
The ICAEW has published its annual anti-money laundering (AML) supervision report for FY20/21. During the review period, the ICAEW Quality Assurance Department (QAD) conducted over 1,300 reviews and 14.9% of these were to those firms categorised as medium-high or high risk of being used to enable money laundering. The headline statistic is that ICAEW’s Regulatory Board (IRB) and the AML Project Board have confirmed there has been a reduction in the number of firms assessed as non-compliant, reducing from 16.1% in 2019 to 6.0% in the current year.
Sanctions Against Grant Thornton UK LLP and an Audit Engagement Partner
The FRC has issued a Final Decision Notice and imposed sanctions against Grant Thornton UK LLP and the audit engagement partner, in relation to the statutory audit of the financial statements of Interserve plc for the years 2015, 2016 and 2017. The adverse findings concerned the audit work performed on a substantial loss provision (identified as a significant risk) in the financial statements for FY 2015 and FY 2016 where there were serious evidence and scepticism failings by the auditors in respect of key judgements and accounting estimates. In respect of the 2017 year aspects of the auditors’ assessments of going concern and goodwill impairment (also both identified as significant risks) were highlighted as areas where audit work was either inadequately performed or documented. These areas are often common finding from our own experience of reviewing audit files.
HMRC SEISS ‘Non-Filers’ Letter
According to the CIOT, HMRC are sending out Self-Employment Income Support Scheme (SEISS) letters to non-filers of 2019/20 returns who have received grants under SEISS.
Apply for an Exemption from Making Tax Digital for Income Tax
HMRC have released the terms of applying for exemption from Making Tax Digital for Income Tax.
Overview of Joint and Several Liability Notices for the Taxation of Coronavirus (COVID-19) Support Payments
HMRC have issued guidance on how they will deal with customers who receive a joint and several liability notices for a company that has received COVID-19 support payments, including conditions for giving a notice and safeguards.