Audit and Accounting Update
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Integra International - Audit & Accounting Alert
ISSUE 5 | JUNE 2021

At-A-Glance


The rapidly expanding scope and accessibility of technological advances in all aspects of society continue to spread pervasively. The accounting profession is no exception to the trend. A new report from the International Federation of Accountants (IFAC) and Chartered Professional Accountants of Canada (CPA Canada) explores how the profession is favorably situated to serve in this dynamic arena, provided that essential technical skills keep pace. This issue highlights the report, along with guidance from the AICPA aimed at accounting and auditing of digital assets.  

Our Worldwide Update is again split into two sections. The first covers COVID-19 news from organizations across the globe, while the second covers other news.  

Gerry Herter
Gerald Herter - Editor

The Professional Accountant's Role in Data

New report and guidance address rapidly changing challenges and opportunities

In the July 2017 Audit & Accounting Alert, we quoted the AICPA president, Barry Melancon, stating that “We will not recognize our profession in ten years.” Once that sank in, he revised the statement indicating that from a practical standpoint the time frame was more likely to be five years. He referred to Bill Gates who had noted that we tend to overstate the expected rate of adoption of new technology in the next two years, but tend to understate that rate when estimating the next ten years.”

 

Four years later, technological transformation continues to advance exponentially. A new Discussion Paper, The Professional Accountant’s Role in Data, published jointly in April 2021 by the International Federation of Accountants (IFAC) and Chartered Professional Accountants of Canada (CPA Canada), opens with the mind-boggling statistic that “in 2020, digital data was estimated to total 40 zettabytes (40,000,000,000,000 gigabytes), up from just 1.2 zettabytes in 2010. Incredibly, ninety per cent of this data was created in the last year and total data volume is expected to double every two years.” 

We have in recent years gotten used to a gigabyte which is a billion bytes of data. But the term zettabyte is new to me. 40 trillion gigabytes in numerical form is 40 followed by 21 zeroes. What is just as amazing is that technical equipment has kept pace with the capability of processing these huge quantities of data at a practical speed and cost.

The Discussion Paper maintains that the professional accountant’s long-standing association working with data, uniquely positions this profession to play a key role in the transforming world of mega-data. The accountant’s expertise with managing structured data, like financial business transactions, will need to be expanded to incorporate unstructured data, which is the nature of much of the newly available information.

Accountants have already begun to enter the realm of unstructured data, with the foray into reporting on nonfinancial data called for in the environmental, social and governmental (ESG) world. One of the challenges is to develop standardized approaches to measure and quantify often unstructured elements found in ESG factors.

The Discussion Paper introduces a new value chain, depicted as the data management value chain, which is characterized by the four following functions:

1. Data gathering

2. Data sharing

3. Data insights

4. Communication  

The roles that correspond to each of these functions are described in the paper:

  • Data engineer: ensures data used has integrity, is clean and reliable

  • Data controller: focuses on the stewardship of data resources, similar to the traditional controllership role (stewardship of financial and physical resources) 

  • Data scientist: analyzes and interprets complex data to develop insights to support decision-making 

 

  • Strategic advisor: frames, analyzes and explains complex business issues within a local, national or global context based on an understanding of the strengths and limitations of the data, and the assumptions and models which underpin derived insights.

 

While noting that some of these role names are not typically correlated with accountants, the Paper goes on to lay out specifically how the accountant can be involved beneficially in each. For data gathering, the assurance and audit function can be extended to non-financial data. For data sharing, the controllership objective of protecting and maintaining the integrity of the data while monitoring usage can be employed. For data insights, the credibility of modeling and artificial intelligence assumptions can be assessed. Communication involves interpreting the results of the other three elements convincingly in a manner that gains the trust of users.

Addressing one aspect of the accountant’s role in the data arena, the AICPA on May 25, 2021, published an addition to the practice aid, Accounting for and Auditing of Digital Assets. While previously covering the general aspects of accounting and auditing, the new content elaborates on 1) Risk Assessment and Processes and Controls, 2) Laws and Regulations and Related Parties, and 3) includes a “Blockchain Universal Glossary” appendix. The guidance provides detailed tables of specific questions for consideration, explanations of key elements, and an emphasis on the importance of understanding the entity, its risk assessment approach, processes and controls, and evaluating their effectiveness.

Further details can be found at The Professional Accountant's Role in Data.

(The Professional Accountant's Role in Data - IFAC.org)

Worldwide Update

Periodic roundup of recent and upcoming actions and activities by auditing and accounting organizations throughout the world.

COVID-19 Related

International

IASB – International Accounting Standards Board (www.ifrs.org)

  • Coronavirus Information and resources – link –
    https://www.ifrs.org/news-and-events/2020/03/the-coronavirus-and-the-foundations-work/

 

  • Covid-19-Related Rent Concessions beyond 30 June 2021 (amendment to IFRS 16), issued March 31, 2021, extends the relief to cover rent concessions that reduce only lease payments due on or before 30 June 2022. Effective for annual reporting periods beginning on or after April 1, 2021.


IFAC – International Federation of Accountants (www.ifac.org)

  1. COVID-19 Resources from IFAC's Network – link -
    https://www.ifac.org/knowledge-gateway/series/COVID-19-resources-ifacs-network


ACCA – Association of Chartered Certified Accountants (www.accaglobal.com/)

  1. Coronavirus Information and resources – link -
    https://www.accaglobal.com/us/en/cam/coronavirus.html


CIMA – Chartered Institute of Management Accountants (www.cimaglobal.com)

  1. Update on the Coronavirus and Impact for Association Activities – link -
    https://www.cimaglobal.com/Members/Update-on-Coronavirus/


IIRC - International Integrated Reporting Council (www.theiirc.org)

  1. No new developments


World Economic Forum – (www.weforum.org)

  1. The COVID Action Platform – link - https://www.weforum.org/platforms/covid-action-platform - focuses on three priorities: 1. Galvanize the global business community for collective action. 2. Protect people’s livelihoods and facilitate business continuity. 3. Mobilize cooperation and business support for the COVID-19 response

Africa, Europe, India, and the Middle East (AEIME)

FRC – Financial Reporting Council of the UK (www.frc.org.uk)

  • FRC guidance for companies and auditors during COVID-19 crisis – link - https://www.frc.org.uk/covid-19-guidance-and-advice.

 

  • FRED 78 - Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions beyond 30 June 2021, issued April 20, 2021, “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 comment period ended on 11 May 2020.


ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)

  1. Coronavirus – updates – link - https://www.icaew.com/insights/coronavirus.


EFRAG – European Financial Reporting Advisory Group (www.efrag.org)

  1. No new developments

Americas, Asia, Australia and New Zealand (AAANZ)

AICPA – American Institute of Certified Public Accountants (www.aicpa.org)
  1. AICPA Coronavirus (COVID-19) Resource Center – link - https://www.aicpa.org/news/aicpa-coronavirus-resource-center.html

FASB – Financial Accounting Standards Board (www.fasb.org)

  1. FASB Response to COVID-19 – link - https://www.fasb.org/COVID19

GASB – Governmental Accounting Standards Board (www.gasb.org)
  1. GASB Response to COVID-19 – link -  https://www.gasb.org/COVID19

COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)
  • No new developments

PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)
  1. PCAOB Response to COVID-19 – link -  https://pcaobus.org/Pages/response-to-COVID-19.aspx

SASB – Sustainability Accounting Standards Board (www.sasb.org)
  1. No new developments

SEC – Securities and Exchange Commission (www.sec.gov)
  1. SEC Coronavirus (COVID-19) Response – link - https://www.sec.gov/sec-coronavirus-COVID-19-response CAANZ - Chartered Accountants Australia and New Zealand (https://www.charteredaccountantsanz.com/)

 

CAANZ – Chartered Accountants Australia and New Zealand (www.charteredaccountantsanz.com)

  1. Financial Reporting and Audit Guide: Financial reporting and audit issues stemming from COVID-19 – link - https://www.charteredaccountantsanz.com/tools-and-resources/client-service-essentials/reporting/financial-reporting-and-audit-guide-financial-reporting-and-audit-issues-stemming-from-covid19

 

Other Updates

International

IASB – International Accounting Standards Board (www.ifrs.org)

  • Exposure Draft - Management Commentary, issued May 27, 2021, “revamping the management commentary, typically known in the U.S. as the MD&A section that often accompanies quarterly financial statements and annual reports.” Comment period ends November 23, 2021.

 

  • Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12, issued May 7, 2021, requires “an entity to recognise deferred tax on initial recognition of particular transactions to the extent that the transaction gives rise to equal amounts of deferred tax assets and liabilities. “Amendments …apply to particular transactions for which an entity recognises both an asset and a liability, such as leases and decommissioning obligations.” The amendments are effective for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted.


  • Exposure Draft - IFRS Taxonomy 2021 - Disclosure of Accounting Policies and Definition of Accounting Estimates, issued April 21, 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. Comment period ends June 21, 2021.


  • Exposure Draft - Lack of Exchangeability - Proposed amendments to IAS 21, issued April 20, 2021, “to help companies determine whether a currency can be exchanged into another currency, and what accounting to apply if the currency cannot be exchanged.” Comment period ends September 1, 2021.


IFAC – International Federation of Accountants (www.ifac.org)

  • Enabling Purpose Driven Organizations: PAIBs Leading Sustainability and Digital Transformation, report published May 19, 2021. “IFAC’s Professional Accountants in Business (PAIB) Advisory Group has compiled insights on key global trends impacting the future readiness of the accountancy profession.

 

  • The Professional Accountant’s Role in Data, report published May 13, 2021, jointly by IFAC and CPA Canada, “outlines a new model, the data management value chain, in which accountants can, by building upon key competencies, reimagine their roles to meaningfully contribute to the digital economy.”  

 

  • Enhancing Corporate Reporting: Sustainability Building Blocks, published May 6, 2021, “enhances the previously issued roadmap, The Way Forward…to foster discussion on how this approach can deliver a global system for consistent, comparable, and assurable sustainability-related information that best meets the needs of investors and other stakeholders.”

  • Groundbreakers: Gen Z and the Future of Accountancy, survey report published May 5, 2021, jointly by IFAC and ACCA, “examines how this generation’s priorities and skills will redefine work, provides guidance to Gen Z on navigating their careers as the workplace transforms, and outlines the strategies organizations should adopt to harness Generation Z’s potential and help them thrive.”

  • The International Ethics Standards Board for Accountants (IESBA) - Revisions to the Non-Assurances Services Provisions of the Code, issued April 28, 2021, “clarifying and addressing the circumstances in which firms and network firms may or may not provide a NAS to an audit or assurance client. The revised provisions include new requirements that expressly prohibit firms and network firms from providing certain types of NAS to their audit clients, especially when they are public interest entities (PIEs).” Effective generally in 2023.


  • International Public Sector Accounting Standards Board (IPSASB) - Exposure Drafts - ED 76, Conceptual Framework Update: Chapter 7, Measurement of Assets and Liabilities in Financial Statements; ED 77, Measurement; ED 78, Property, Plant, and Equipment; and ED 79, Non-Current Assets Held for Sale and Discontinued Operations, issued April 22, 2021, “address several key conceptual challenges and practical implementation issues identified by the public sector community by introducing: Straight-forward measurement principles, by way of a measurement hierarchy, that apply throughout IPSAS and align with the Conceptual Framework; Enhanced guidance clarifying the recognition and measurement of infrastructure and heritage assets that are Property, Plant, and Equipment; and A standard that fills a gap for assets held for sale and discontinued operations.” The comment period ends October 25, 2021.

 

  • International Auditing and Assurance Standards Board (IAASB) - Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagement, issued April 6, 2021, “addresses a number of overarching matters, including applying appropriate competence and capabilities, exercising professional skepticism 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.”


ACCA – Association of Chartered Certified Accountants (www.accaglobal.com)

  • Invisible threads: communicating integrated thinking report, published May 26, 2021, “looks at three key ways in which integrated thinking is communicated in the annual integrated report: clear communication of strategy, pertinent discussions about non-financial value drivers that form the basis of the multi-capitals model, and consistency between the narrative report and the financial statements.” 

 

  • Know Your Client: Is it time to digitalise the first line of defence?, report published May 13, 2021, “warns finance professionals against over-confidence in trusting their ‘gut feel’ about clients and strongly recommends they consider if digital technology checks could help…The survey concludes that some accountants could derive real benefits from online anti-fraud tools and that software producers and regulators must work together to ensure the technology is affordable and globally available.”

 

  • Groundbreakers: Gen Z and the Future of Accountancy, survey report published May 5, 2021, jointly by IFAC and ACCA, “examines how this generation’s priorities and skills will redefine work, provides guidance to Gen Z on navigating their careers as the workplace transforms, and outlines the strategies organizations should adopt to harness Generation Z’s potential and help them thrive.”

CIMA – Chartered Institute of Management Accountants (www.cimaglobal.com)


  1. Blockchain risk: considerations for professionals, white paper published April 29, 2021, jointly by CIMA, AICPA and ISACA ( Information Systems Audit and Control Association), “documents, describes and provides context around specific risk related to blockchain implementation and operation. It is organised by five key domains—governance, infrastructure, data, key management, and smart contracts.

 

IIRC - International Integrated Reporting Council (www.theiirc.org)
  1. No new developments.

World Economic Forum – (www.weforum.org)

  1. No new developments

Africa, Europe, India, and the Middle East (AEIME)

FRC – Financial Reporting Council of the UK (www.frc.org.uk)

  • ISA (UK) 240 (Revised May 2021) - The Auditor's responsibilities Relating to Fraud in an Audit of Financial Statements, issued May 27, 2021, “provide increased clarity as to the auditor's obligations, addressing the concern raised by Sir Donald Brydon in his review of the quality and effectiveness of audit. The revisions include enhancements to the requirements for the identification and assessment of risk of material misstatement due to fraud and the procedures to respond to those risks.” Effective for audits of periods beginning on or after 15 December 2021 with early adoption permitted.

 

  • Revised International Standard for Review Engagement (UK) 2410 (ISRE (UK) 2410) Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued May 20, 2021, “provides additional clarity on auditor responsibilities, strengthens the review procedures required on management’s going concern assessment and strengthens reporting requirements in relation to going concern.” Effective generally in 2022. Early adoption is permitted.

ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)
  • No new developments.

 

EC - European Commission (www.ec.europa.eu)

  • Proposal for a Corporate Sustainability Reporting Directive (CSRD) – issued April 21, 2021, “would amend the existing reporting requirements of the Non-Financial Reporting Directive (NFRD). The proposal extends the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises), requires the audit (assurance) of reported information, introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards, [and] requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.

EFRAG – European Financial Reporting Advisory Group (www.efrag.org)

  1. No new developments.

Americas, Asia, Australia and New Zealand (AAANZ)

AICPA – American Institute of Certified Public Accountants (www.aicpa.org)

  1. Blockchain risk: considerations for professionals, white paper published April 29, 2021, jointly by CIMA, AICPA and ISACA ( Information Systems Audit and Control Association), “documents, describes and provides context around specific risk related to blockchain implementation and operation. It is organised by five key domains—governance, infrastructure, data, key management, and smart contracts.


FASB – Financial Accounting Standards Board (www.fasb.org)

  • Exposure Draft – Derivatives and Hedging (Topic 815) – Fair Value Hedging-Portfolio Layer Method, issued May 5, 2021, “would expand the current single-layer model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method. To reflect that expansion, the last-of-layer method would be renamed as the portfolio layer method. Additionally, the proposed ASU would: clarify eligible hedging instruments in a single-layer strategy; provide additional guidance on the accounting for and disclosure of fair value hedge basis adjustments that would be applicable to both the current single-layer model and the proposed multiple-layer model; [and] indicate how fair value hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.” Comment period ends July 5, 2021.

 

  • Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options - An Amendment of the FASB Accounting Standards Codification - ASU 2021-04, issued May 3, 2021, “clarifies an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange…The ASU provides guidance on how an issuer would measure and recognize the effect of these transactions. Specifically, it provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense.” Effective prospectively, generally beginning in 2022. Early adoption is permitted.


GASB – Governmental Accounting Standards Board (www.gasb.org)

  • Exposure Draft - Accounting Changes and Error Corrections - an amendment of GASB Statement No. 62, issued June 1, 2021, proposes to “to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. This proposed Statement would define accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and would describe the transactions or other events that constitute those changes.” Comment period ends August 31, 2021.
  • Exposure Draft - The Annual Comprehensive Financial Report, issued April 13, 2021, “to change the “comprehensive annual financial report” to the “annual comprehensive financial report. The proposed name change was prompted by GASB stakeholders raising concerns that the existing acronym for the report, when spoken, sounds like a profoundly offensive term.” Comment period ends July 9, 2021.

COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)
  1. No new developments

PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)
  1. No new developments

SASB – Sustainability Accounting Standards Board (www.sasb.org)
  1. No new developments

SEC – Securities and Exchange Commission (www.sec.gov)
  1. Exposure Draft - Interim Final Amendments – issued March 24, 2021, pursuant to submission and disclosure requirements of the Holding Foreign Companies Accountable Act (HFCA Act), for an “audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the Public Company Accounting Oversight Board (PCAOB) has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction,” will require the “registrant to submit documentation to the Commission establishing that the registrant is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in a foreign issuer’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.” The interim final amendments become effective 30 days after publication in the Federal Register and comments on the amendments are due by the same date.

Additional A&A News

  • AAT and ICAEW tussle over calls for compulsory membership
    (AAT and ICAEW tussle over calls for compulsory membership (accountancyage.com)

  • Cloud-first approach key to modernizing F&A processes
    (Cloud-first approach key to modernizing F&A processes| TechRadar (www.techradar.com/news/cloud-first-approach-key-to-modernizing-fanda-processes)

  • Taking Advantage of Automation in Accounting
    (Taking Advantage of Automation in Accounting (accountingweb.com)

  • Top issues for not-for-profits this year
    (Top issues for not-for-profits this year | Resources | AICPA) (https://future.aicpa.org/resources/article/top-issues-for-not-for-profits-this-year)

  • Hoogervorst reflects on IFRS growth as term nears end at IASB
    (Hoogervorst reflects on IFRS growth as term nears end at IASB | Accounting Today)

  • 'Tick-box fears over FRC's revised auditing standard on fraud
    ('Tick-box fears over FRC's revised auditing standard on fraud (accountancyage.com)

  • Accounting Today's complete coverage of the coronavirus impact
    (https://www.accountingtoday.com/coronavirus?utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_IRS+Watch_reset20200101%2B%27-%27%2B04012020&bt_ee=UFThhPnxqwgF6drHIeCA4zKTxxilQnMChK%2Bu7UcHs1OB9lm8aLso1E6Ek1HHMcwk&bt_ts=1585756935482)

  • Accountancy Age's Resource on UK regulations on accountancy during coronavirus
    (https://www.calcpa.org/sitecore/content/Sites/Public/home/news-and-resources/coronavirus2?utm_source=ESP&utm_medium=email&utm_campaign=calcpa%2Deducation%2Dfoundation&_zs=PoR2g1&_zl=ttUe6)

  • California CPA Society Coronavirus Resources and Information
    (https://www.calcpa.org/sitecore/content/Sites/Public/home/news-and-resources/coronavirus2?utm_source=ESP&utm_medium=email&utm_campaign=calcpa%2Deducation%2Dfoundation&_zs=PoR2g1&_zl=ttUe6)

  • Accountingweb's Coronavirus Content Series
    (https://www.accountingweb.com/content/coronavirus-content-series)

  • Accountancy Daily Corona Virus Resources
    (https://www.accountancydaily.co/coronavirus-0)

  • China Briefing's Coronavirus Insights for Your Business in China
    (https://www.china-briefing.com/landing/coronavirus-updates)
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. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors for specific advice.

Editor Gerald E. Herter

 

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