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Issue 10 | December 2016
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At-A-Glance
The 18th
annual world
conference
of Integra
International,
held
recently in
Cape Town,
South
Africa,
proved once
again the
value that
this
association
brings to
members from
all over the
globe. In an
increasingly
interconnected
world,
issues that
impact one
region often
display a
far reaching
ripple
effect. Two
examples are
covered in
this issue
of the Audit
& Accounting
Alert.
The
implications
of the
Brexit vote
in the
United
Kingdom will
be widely
felt for a
long time.
Specific
aspects of
Brexit were
aptly
covered in
the Cape
Town
meeting. Our
first
article
recaps the
discussion,
while also
relating
potential
repercussions
for
financial
reporting
and the
accounting
profession
in the
European
region and
beyond.
The Cape
Town
conference
also
emphasized
the
concerted
effort
Integra is
making to
build upon
the presence
the
association
has
established
on the
African
continent.
Now with ten
offices
there, the
Integra
footprint
continues to
grow. This
endeavor
coincides
with the
work of the
International
Federation
of
Accountants
(IFAC),
whose
initiatives
are devoted
to expanding
the capacity
of the
accounting
profession.
Our second
article
reports on a
new
sustainability
study
published by
IFAC that
showcases
the role and
contribution
of the
accounting
profession
in all parts
of the
world,
including
Africa.
Finally, our
quarterly
Worldwide
Update
covers news
from
organizations
across the
globe.
Editor Gerald E. Herter, CPA
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In This Issue
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Brexit and
Financial
Reporting
Short and long term
implications
An unexpected benefit of
the drive my wife and I
took across the heart of
the United Kingdom this
past June was the
first-hand opportunity
to hear reactions of
British citizens before
and after the Brexit
referendum, the UK’s
vote on whether to
remain a part of the
European Union (EU).
At breakfast in a
Glastonbury B & B, a
guest complained that
neither side had
explained the rationale
for their positions
clearly. In Wales, an
older man, a Leave
supporter, yearned for
the old days before
Britain entered the EU,
while his children saw
their future with the
Remain camp. In
Cornwall’s Port Isaac, a
fisherman’s brother
lamented of lost
business from the
diminished fishing water
rights that the EU had
imposed on the UK.
In a similar way,
membership in a
worldwide association
like Integra
International provides
opportunities to gain
first-hand insights from
events that take place
in parts of the world
other than your own. At
Integra’s October annual
meeting in Cape Town,
South Africa, Integra
London member, Robert
Coe, summarized Brexit,
the current effect, and
what to expect next. Coe
noted that the vote to
leave the EU came as a
surprise. I can attest
to that. Just before
retiring on the night of
the vote, we watched on
the BBC news where the
Leave leader, Nigel
Farage predicted a loss
for his side. How
astonishing to awake the
next morning to learn
that just the opposite
had happened.
The implication of this
outcome was echoed by
Integra member, Richard
Cant, speaking on Brexit
at the Hot Topics
Conference sponsored by
Integra firm, Swenson
Advisors, in San Diego,
this past September. As
Cant remarked, “Neither
side had a plan for the
future. Both thought
Remain would win.” This
circumstance contributed
to the uncertainty as to
what lay ahead. Though
the initial market
collapse recovered to
new heights, the British
pound exchange rate has
been unfavorable to the
UK since the vote, as
Coe noted. Two aspects
of Brexit that
accountants will want to
follow are the impact on
financial reporting
standards and how to
take into account the
potential impact of
Brexit on financial
statements, regardless
of which standards are
in place.
The Financial Reporting
Council (FRC), the UK’s
independent regulator,
addressed Brexit in the
Annual Review of
Corporate Reporting
2015/2016,
issued on October 21,
2016. While continuing
to “support the
application of a single
set of high quality
global financial
reporting standards,”
and deferring judgment
until negotiations with
the EU are completed,
the FRC stated that
“support for IFRS is
contingent on the
standards being of the
requisite quality and
capable of
implementation at an
appropriate cost. The UK
should continue to be
influential in their
development post exit
from the EU to ensure
they can be adopted in
the UK.” With the UK’s
new financial Reporting
Standards having just
gone into effect in
2015, and the
monumental,
international revenue
accounting and lease
standards on the near
horizon, uncertainty
will prevail over the
next few years for those
responsible for
financial reports in
this region.
Uncertainty also
presents challenges with
attempts to discern
potential adjustments
and disclosures that may
be required to factor in
the effects of Brexit.
Some areas that
preparers and auditors
of financial statements
will want to consider
from a Brexit standpoint
are asset valuations,
going concern, foreign
exchange rates, related
disclosures from the
newly emerging risks,
and resulting impacts on
debt covenants.
An additional concern
faces accounting firms
in the UK, depending on
the kind of deal the UK
works out with the EU.
Three models were
described by Cant and
Coe. The model that Coe
described as “Soft
Brexit” and Cant called
the “Norwegian” model,
maintains a right to be
part of the European
Economic Area (EEA).
However, this model
requires free movement
and adherence to other
EU rules, which is
unlikely to be accepted.
The other two models Coe
described as “Hard
Brexit.” Of these, the
one Cant called the
“Canadian” model was
considered more likely,
as it works through the
World Trade Organization
(WTO), but will take
time to negotiate.
A July, 2016, study by
marketing research firm,
IRN Research,
The Accountancy and
Allied Services Market,
predicts a drop in
revenue for accounting
firms over the next five
years as a result of
Brexit. According to the
study, “By 2021, Brexit
could cost firms between
3% (EEA style trade deal
) and 5% (WTO style
trade deal ) of their
turnover. The biggest
consumers of accountancy
services in the UK are
financial and
professionals services
firms who will be hit by
leaving the EU.”
With all the variables
in play, the next few
years will require
accountants and auditors
to pay even closer
attention to political
and economic
developments in order
for financial reporting
to effectively reflect
the realities of the
times.
For further information, see
Brexit may lead to
divergence between EU
and UK accounting
frameworks
and
Reminders for
half-yearly and annual
financial reports
following the EU
referendum
|
Sustainability in the
Global Community
New study lays out
accountancy professions
role
Extending the relevance
of financial reporting
into the future has been
an ongoing topic of
concern. Providing
useful information of
continuing pertinence to
investors and other
stakeholders is
critical. One aspect the
Audit & Accounting Alert
has followed in recent
years is the
incorporation of
non-traditional
information that will,
nevertheless,
significantly impact an
organization’s longer
term success. Integrated
reporting and measurable
standards of
sustainability have been
evolving and gaining
heightened specificity.
In response to a United
Nations (UN) initiative
approved in 2015, the
International Federation
of Accountants (IFAC) in
November, 2016, issued a
timely new report,
The 2030 Agenda
for Sustainable
Development, A Snapshot
of the Accountancy
Profession’s
Contribution.
Recognizing the broad
spectrum of challenges
facing the world’s
population as it soars
past eight billion
people in the next
decade, the UN
identified 17
Sustainable Development
Goals (SDG) that need to
be addressed.
The goals encompass
areas that are
people-oriented,
such as poverty, hunger,
health and education,
environment-oriented,
such as sanitation,
energy, land, sea and
climate,
economic-oriented,
such as infrastructure,
employment, production
and consumption, and
justice-oriented,
such as institutions,
peace and inequalities,
gender and otherwise.
The overriding goal is a
call for partnerships to
tackle these challenges.
The IFAC report looks to
the business community,
particularly the
accountancy profession,
as “an essential driver
of strong and
sustainable
organizations, financial
markets, and economies.
As a result, it
inherently has a crucial
role in achieving the
SDGs and meeting the
targets.” Drilling down,
the report notes that
“The specific
professional skills of
accountants including in
governance, risk
management and control,
business analysis, and
decision support, which
involves measuring,
reporting, and providing
assurance on financial
and non-financial
data—will become
increasingly in demand
as the SDGs gain
traction.”
From the 17 SDGs, the
report set out eight for
analysis, where IFAC
felt the accountancy
profession could make a
contribution. These are:
- Goal 4: Quality
Education
- Goal 5: Gender
Equality
- Goal 8: Decent
Work and Economic Growth
- Goal 9:
Industry, Innovation,
Infrastructure
- Goal 12:
Responsible Consumption
and Production
- Goal 13:
Climate Action
- Goal 16: Peace
and Justice and Strong
Institutions
- Goal 17:
Partnerships for the
Goals
Quality
Education – The
key considerations are
consistent with those
mentioned in last
month’s Audit &
Accounting Alert as a
part of the AICPA audit
quality enhancement
program. These include
initiatives to “boost
the profession’s talent
pool,” improve financial
literacy in society, and
“address inequality in
the rates of men and
women entering the
procession.”
On a specific level,
this goal affirms
Integra’s decision to
hold an annual meeting
in Cape Town, where the
participants welcomed
new member firms from
Kenya and Tanzania, to
join with several others
across the African
continent. IFAC’s
Professional Accountancy
Organization (PAO)
Capacity Development
Program has a
feasibility study
underway focusing on
Africa, as well as
significant projects
taking place in Ghana,
Rwanda, Uganda and
Nigeria.
Gender Equality-The
key considerations are
to “champion diversity,”
and “create partnerships
and support initiatives
to increase the number
of women in accountancy
and finance, as well as
in broader finance and
business leadership
roles.” The report
references initiatives
in the USA, Canada,
England, India and
Nigeria, as well as with
the Association of
Chartered Accountants
(ACCA), that support the
cause of women in
accountancy and
business.
Decent Work and
Economic Growth-The
key considerations are
to enhance accountants’
awareness of the
sustainability goals, to
continue to build the
capacity of the
accountancy profession
all over the world, and
to promote global
standards for financial
reporting, auditing and
ethics.
Industry,
Innovation,
Infrastructure-The
key considerations are
to “facilitate the
profession’s
contribution to
integrated reporting,”
explore promising new
technology and
infrastructure
sustainability
opportunities, and
strengthen the role of
promoting sound
governance and financial
management.
Responsible
Consumption and
Production-The
key considerations are
to provide leadership,
assistance, and support
services to encourage
longer-term perspectives
and integration of
sustainable practices.
Climate Action-The
key considerations
support market-based
policies to encourage
efficiency gains and
cleaner energy, useful
climate-related
reporting, and keeping
accountants informed of
means to promote
climate-friendly
efforts.
Peace and
Justice and Strong
Institutions-The
key considerations are
to “advocate for good
governance,” help
accountants get more
involved in governmental
efforts to reduce fraud,
corruption and
money-laundering, and
“promote the public
sector auditing in
monitoring and reporting
on national efforts to
implement” the
sustainability goals.
Partnerships for
the Goals-The
key consideration is to
“collectively consider
where the profession can
contribute” best and
through what structures.
To help further these
goals, Integra held
sessions with regional
authorities in Cape
Town, to gain a better
understanding of
conditions throughout
the African continent.
Integra member Tunde
Adaramaja, from TAC
Professional Services in
Lagos, Nigeria, gave a
comprehensive
presentation, “Investing
in Africa (Identifying
Business Opportunities
in Africa),” expanding
on the abundance of
potential in a variety
of industries there.
IFAC maintains a
website, MOSAIC,
http://www.ifac.org/mosaic,
where a wealth of
resources can be found
spelling out initiatives
and opportunities for
pursuing these goals in
all parts of the world.
The acronym MOSAIC
stands for Memorandum of
Understanding to
Strengthen Accountancy
and Improve
Collaboration. Integra
members may find useful
information there for
developing services to
assist clients in
achieving their goals.
For further information, see
The
2030 Agenda for
Sustainable Development
|
Worldwide Update
Quarterly roundup of recent and upcoming actions and activities by audit and accounting organizations throughout the world
International
IASB –
International
Accounting Standards
Board (www.ifrs.org)
- Amendments to IFRS
4 — Insurance Contracts –
issued on September 12,
2016, to address temporary
volatility from implementing
IFRS 9-Financial
Instruments.
IFAC – International
Federation of
Accountants
(www.ifac.org)
- International
Auditing and Assurance
Standards Board (IAASB) -
ISA 250 (Revised),
Consideration of Laws and
Regulations in an Audit of
Financial Statements –
published October 5, 2016,
amends ISA 250 to be
consistent with the new
IESBA requirements requiring
the auditor to consider the
impact of noncompliance with
laws and regulations on the
audit. Effective for audit
periods ending on or after
December 15, 2017.
- The 2030 Agenda
for Sustainable Development:
A Snapshot of the
Accountancy Profession’s
Contribution, IFAC report
published November 9, 2016,
addresses the role of
accountants in achieving the
United Nation’s global
sustainable development
goals See the second article
in this issue of the Audit &
Accounting Alert for a
discussion of this report.
ACCA –
Association of
Chartered Certified
Accountants
(www.accaglobal.com/)
- Market change is
faster than ever – is your
finance function in the
race? – Joint ACCA and PwC
report issued September 22,
2016, is the first in a
series where the “objective
is to have a practical
discussion about what’s
changing in finance as a
result of digital
disruption, and how we
respond to these changes.”
Africa, Europe, India,
and the Middle East
(AEIME)
FRC –
Financial
Reporting Council of the
UK (www.frc.org.uk)
- Corporate
Reporting Thematic Review:
Tax Disclosures – issued
October 31, 2016, provides
“detailed findings from the
targeted review of certain
aspects of companies’ tax
reporting, against which
companies can assess and
enhance their own
disclosures to ensure they
provide high quality
information to investors in
their annual reports and
accounts.”
- Lab Project
Report: Business Model
Reporting – report issued on
October 27, 2016, “provides
valuable insight for
companies on the importance
of business model
information to investors,
and the type of information
they are seeking” in the
annual report.
- Audit Quality
Thematic Review: Root Cause
Analysis – issued September
16, 2016, summarizes the
findings and recommendations
from reviewing the processes
for assessing the root
causes of audit failures in
the six largest UK audit
firms. The purpose is for
firms to find ways to
prevent such failures in the
future by better
understanding the causes.
ICAEW –
The Institute of
Chartered Accountants in
England and Wales
(http://www.icaew.com)
- Audit insights:
Cyber Security Taking
control of the agenda –
report published in October
13, 2016, based on input
from auditors from the top
six audit firms. The “report
focuses on why change here
seems so difficult and
highlights how organisations
can get on top of their
cyber risks. It builds on
three themes: Seeing cyber
risks as real and
dynamic…taking behavioural
change seriously…and
recognising cyber security
as a precondition for
operating.”
Americas, Asia,
Australia and New
Zealand (AAANZ)
FASB
– Financial
Accounting Standards
Board (www.fasb.org)
- Exposure Draft -
Compensation—Stock
Compensation: Scope of
Modification Accounting –
issued November 17, 2016,
“to provide clarity and
reduce diversity in
practice, as well as to
reduce cost and complexity,
when applying the guidance
in Topic 718,
Compensation—Stock
Compensation, about a change
to the terms or conditions
of a share-based payment
award.” The comment period
ends January 6, 2016.
- Exposure Draft -
Derivatives and Hedging:
Targeted Improvements to
Accounting for Hedging
Activities – issued
September 8, 2016, “with the
objective of improving the
financial reporting of
hedging relationships to
better portray the economic
results of an entity’s risk
management activities in its
financial statements. In
addition to that main
objective, the amendments in
this proposed Update would
make certain targeted
improvements to simplify the
application of the hedge
accounting guidance in
current GAAP.” The comment
period ends November 22,
2016.
- Exposure Draft -
Financial
Services—Insurance: Targeted
Improvements to the
Accounting for Long-Duration
Contracts – issued September
29,2016, proposes to make
“targeted improvements to
the existing recognition,
measurement, presentation,
and disclosure requirements
for long-duration contracts
issued by an insurance
entity.” The comment period
ends December 15, 2016.
- Statement of Cash
Flows: Restricted Cash – ASU
2016-18 – issued November
17, 2016, “require that a
statement of cash flows
explain the change during
the period in the total of
cash, cash equivalents, and
amounts generally described
as restricted cash or
restricted cash equivalents.
Therefore, amounts generally
described as restricted cash
and restricted cash
equivalents should be
included with cash and cash
equivalents when reconciling
the beginning-of-period and
end-of-period total amounts
shown on the statement of
cash flows.” Effective
generally in 2018 for public
companies and 2019 for
private companies and
organizations, with early
application permitted.
- Consolidation:
Interests Held through
Related Parties That Are
under Common Control – ASU
2016-17 - issued October 26,
2016, “to amend the
consolidation guidance on
how a reporting entity that
is the single decision maker
of a VIE should treat
indirect interests in the
entity held through related
parties that are under
common control with the
reporting entity when
determining whether it is
the primary beneficiary of
that VIE.” Effective
generally in 2017, with
early application permitted.
- Income Taxes:
Intra-Entity Transfers of
Assets Other Than Inventory
– ASU 2016-16 – issued
October 24, 2016, “to
improve the accounting for
the income tax consequences
of intra-entity transfers of
assets,” by requiring “that
an entity should recognize
the income tax consequences
of an intra-entity transfer
of an asset other than
inventory when the transfer
occurs.” Effective generally
in 2018 for public companies
and 2019 for private
companies and organizations,
with early application
permitted.
- Statement of Cash
Flows: Classification of
Certain Cash Receipts and
Cash Payments – ASU 2016-15
– issued August 26, 2016, to
reduce diversity in practice
of classifying the following
eight types of transactions:
1) debt prepayment or debt
extinguishment costs; 2)
settlement of zero-coupon
debt instruments; 3)
contingent consideration
payments made after a
business combination; 4)
proceeds from the settlement
of insurance claims; 5)
proceeds from the settlement
of corporate owned life
insurance policies,
including bank owned life
insurance policies; 6)
distributions received from
equity method investments;
7) beneficial interests in
securitization transactions;
and 8) separately
identifiable cash flows and
application of the
predominance principle.
Effective generally in 2018
for public companies and
2019 for private companies
and organizations, with
early application permitted.
GASB –
Governmental
Accounting Standards
Board (www.gasb.org)
- Exposure Draft -
Implementation Guide No.
201X-X, Financial Reporting
for Postemployment Benefit
Plans Other Than Pension
Plans – issued October 5,
2016, “to provide guidance
that clarifies, explains, or
elaborates on the
requirements of Statement
No. 74, Financial Reporting
for Postemployment Benefit
Plans Other Than Pension
Plans.” The comment period
ended November 23, 2016.
- Exposure Draft -
Omnibus 201X – issued
September 13, 2016,
“addresses a variety of
topics including issues
related to component unit
presentation, goodwill, fair
value measurement and
application, and
postemployment benefits
(pensions and other
postemployment benefits” The
comment period ended
December 19, 2016.
AICPA –
American
Institute of Certified
Public Accountants
(www.aicpa.org)
- Accounting and
Review Services Committee
(ARSC)
- SSARS No. 23, Omnibus
Statement on Standards for
Accounting and Review
Services—2016, issued
October 25, 2016, extends
the applicability of SSARS
to prospective financial
information, pro forma
financial information, and
other historical financial
information. Effective for
prospective financial
information prepared on or
after May 1, 2017, and for
compilation reports dated on
or after May 1, 2017,
respectively.
-
SSARS No. 22, Compilation
of Pro Forma Financial
Information, issued
September 23, 2016, revises
SSARS No. 14 “by putting the
requirements and guidance in
clarity format. The
clarified standards are
designed to make the
standards easier to read,
understand, and apply.”
Effective for compilation
reports on pro forma
financial information dated
on or after May 1, 2017
- Assurance Services
Executive Committee (ASEC)
- Exposure Draft - Proposed Description Criteria for
Management’s Description of
an Entity’s Cybersecurity
Risk Management Program
- issued September 19, 2016.
“This document presents only
the description criteria for
use when preparing the
description of the entity’s
cybersecurity risk
management program. In
addition to the description
criteria, this document also
presents points of focus
that represent important
characteristics of the
description
criteria…Although the
description criteria
proposed in this document
are for use when preparing,
or evaluating the
presentation of, the
description of an entity’s
cybersecurity risk
management program, such
criteria also may be used
when the practitioner is
engaged to provide other
nonattest or advisory
services to a client in
connection with the entity’s
cybersecurity risk
management program.” The
comment period ends December
5,
2016.
- Exposure Draft – Proposed
Revision of Trust Services
Criteria for Security,
Availability, Processing
Integrity, Confidentiality,
and Privacy – issued
September 19, 2016,
“presents criteria…for use
by practitioners when
providing attestation or
consulting services to
evaluate controls relevant
to the security,
availability, or processing
integrity of one or more
systems, or the
confidentiality or privacy
of information processed by
one or more systems, used by
an entity. Management of an
entity also may use the
trust services criteria to
evaluate the suitability of
design and operating
effectiveness of such
controls.” The comment
period ends December 5, 201.
- Financial
Reporting Executive
Committee (FinRec)
- Exposure Drafts
addressing implementation
issues of various
industries, arising from
ASU
2014-09, Revenue From
Contracts With Customers,
- Depository and Lending
Revenue Recognition
Implementation Issue - Sale
of Non-Operating Assets,
published on October 25,
2016;
-
Brokers and Dealers
Revenue Recognition
Implementation Issue -
Commission Income Trade Date
vs. Settlement Date,
published on October 25,
2016;
- Brokers and Dealers
Revenue Recognition
Implementation Issue -
Commission Income, published
on October 25, 2016;
- Software Revenue
Recognition Implementation
Issue - Estimating the
Standalone Selling Price of
Options That are Determined
to be Performance
Obligations, published on
October 03, 2016;
- Software Revenue
Recognition Implementation
Issue - Estimating the
Standalone Selling Price,
published on October 03,
2016;
- Software Revenue
Recognition Implementation
Issue - Defining and
Identifying Potential Price
Concessions, published on
September 30, 2016;
- Software Revenue
Recognition Implementation
Issue - Determining Whether
Software Intellectual
Property is Distinct in
Cloud Computing Arrangements
(i.e., Hosting, Software
as-a-Service and Hybrid
Software/SAAS), published on
September 30, 2016;
- Telecommunications
Revenue Recognition
Implementation Issue -
Disclosure and Transition,
published on September 29,
2016;
- Gaming Revenue
Recognition Implementation
Issue - Gaming Operators
Accounting for Base
Progressive and Incremental
progressive jackpot amounts,
published on September 29,
2016;
- Asset Management Revenue
Recognition Implementation
Issue - Recognition of
Contingent Deferred Sales
Charges, published on
September 29, 2016
SASB –
Sustainability
Accounting Standards
Board
(http://www.sasb.org)
- Technical Bulletin
– Climate Risk, issued
October 19, 2016, “designed
to help investors better
understand, measure and
manage their exposure to
climate-related risk...Due
to the ubiquity of climate
risk, investors can’t simply
diversify away from it;
instead they must focus on
managing it—and on
encouraging portfolio
companies to manage it—in
all its forms…The foreword
to the guide, authored by
former Secretaries of the
Treasury Robert Rubin and
Hank Paulson, emphasizes the
need for better disclosure.”
COSO -
The Committee of
Sponsoring Organizations
of the Treadway
Commission
(www.coso.org)
- Fraud Risk
Management Guide, released
September 28, 2016, is “a
new research report that
offers a blueprint for
helping organizations to
establish an overall fraud
risk-management program.”
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Audit & Accounting Alert
is a publication of Integra International intended
to highlight emerging issues in the profession.
The goal is to give Integra members an awareness
of developments impacting the practice of Audit &
Accounting, enabling them to stay on the forefront
of industry trends.
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Editor Gerald E. Herter •
HMWC CPAs & Business Advisors, 17501 E. 17th
Street, Suite 100, Tustin, CA 92780-7924
• Tel: 1 714 505-9000 • Fax: 1 714 505-9200 •
Email:
[email protected]
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