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New proposals for Auditor Independence issued by IESBA Late in December the International Ethics Standards Board for Accountants (IESBA), has issued an exposure draft updating and strengthening the independence requirements contained in the IFAC Code of Ethics for Professional Accountants. The last substantive revisions to the Code were made in November 2001. The changing environment in the past few years has led the IESBA to consider what revisions to auditor independence requirements might be needed. Over the two-year development period of the exposure draft, the IESBA consulted with interested stakeholders, including regulators, standard setters, leaders of accountancy organisations, and members of the profession. Significant proposed modifications to the Code include expanding the applicability of partner rotation requirements, updating requirements related to the provision of non-assurance services (including setting out additional guidance on the provision of tax services to audit clients), and extending the independence requirements to the audits of a wider range of entities of significant public interest. Comments on the exposure draft, which can be viewed on the IFAC website, are requested by 30 April 2007. New IFAC Paper explores the suitability of SME Accounting Standard to micro-entities IFAC has released a new information paper that explores the needs of users and preparers of the financial reports of micro-entities entitled Micro-Entity Financial Reporting: Perspectives of Preparers and Users. The paper comprises a review of the existing research on the topic, a survey of the legal status of micro-entities in different countries, and the various definitions that exist in different jurisdictions. It can be freely downloaded from the IFAC website. The research was prompted by a concern that the IASB’s proposed IFRS for SMEs may not be suited to micro-entities, which for the purpose of this study are defined as those with less than ten employees. Key challenges and findings with respect to micro-entities include the following:
The research contained in the paper was undertaken by Dr. Suki Sian of the Cardiff Business School, Wales and Professor Clare Roberts of the University of Aberdeen, Scotland. IFAC is considering undertaking further research in this area, in particular, to investigate whether the proposed IFRS for SMEs is likely to meet the needs of users of financial reports of micro-entities. Fermin del Valle assumes Presidency of IFAC Leaders of accountancy institutes worldwide met in Istanbul, Turkey on November 9-13 to participate in the IFAC Board and Council meetings. The reins of the organisation were turned over to new IFAC President Juan José Fermín del Valle of Argentina, and the Council approved the nomination of Robert L. Bunting of the United States as Deputy President. Each of these individuals will serve in their respective capacity through November 2008. In addition, the Council approved the appointment of five new members to the IFAC Board and the reappointment of three Board members to a second term. Newly elected IFAC President Fermín del Valle emphasised his commitment to enhancing societies around the world by contributing to their economic growth and development. He encouraged Board and Council members to “lead by example” by following the highest ethical standards, urged IFAC’s member bodies to collaborate with IFAC in serving the public interest, and called on member and regional accountancy bodies to join IFAC in its initiatives to develop the profession worldwide. Supporting these goals, the IFAC Council approved an updated Strategic Plan that emphasises the need for ongoing collaboration between IFAC and its member bodies and external stakeholders, calls for increased efforts for the development of the global profession, and outlines standard-setting priorities for the next two years. The IFAC Council also approved a new constitution designed to modernise IFAC’s approach to constitutional issues and to enhance specific aspects of governance. IFAC requests proposals to develop Quality Control Guide for SMPs The purpose of this guide is to help SMPs around the world understand, comply with, and apply ISQC 1. The purpose of ISQC 1, which became effective on June 15, 2005, is to establish standards and provide guidance regarding a firm’s responsibilities for its system of quality control for audits and reviews of historical financial information, and other assurance and related services engagements. International accountancy organisations launch new global resource for Professional Accountants in Business IFAC has collaborated with its member organisations to develop IFACnet – A KnowledgeNet for Accountants in Business (www.ifacnet.com). This new global resource, developed under the leadership of the Professional Accountants in Business (PAIB) Committee, will provide one-stop access to leading-edge articles, good practice guidance, and tools and techniques for accountants employed in commerce, industry, the public sector, education, and the not-for-profit sector. IFACnet uses advanced technology specifically tailored to the accountancy profession. It carefully indexes, filters and sifts all the best and most relevant items of information available for accountants in business worldwide so they can be delivered on demand to IFACnet.com users. Thirteen accountancy organisations together with IFAC currently participate in the KnowledgeNet by sharing their electronic resources through IFACnet; others will be coming on board in the coming months. The Malta Institute of Accountants’ website is also linked to IFACnet and will also be integrated in the search engine’s parameters shortly. During the first quarter of 2007, the KnowledgeNet will be also expanded to serve the needs of small and medium practices and, by the end of 2007, will offer customised information for broader audiences of accountants. There is no fee to use IFACnet, although certain search results may identify documents or publications available for purchase. World Federation of Exchanges endorses the IAASB’s International Standard-Setting process The World Federation of Exchanges (WFE), representing 57 securities and derivative markets that account for more than 97 percent of world stock market capitalisation, formally endorsed the processes for establishing ISAs at its General Assembly meeting, viewing ISAs as key to the development of a globally uniform financial reporting system. “WFE’s endorsement of IFAC’s structure of public oversight and the processes its public bodies have established for creating high quality global standards for audit work and assurance reviews is a critical advance for establishing the world’s capital markets with constantly improving financial information,” WFE Secretary General Thomas Krantz emphasised. The WFE endorsement provides important impetus for convergence to international standards, which is among IFAC’s and the IAASB’s most critical goals. IFAC proposes guidance to help companies develop Code of Conduct Recognising the critical role that professional accountants in business play in these areas, IFAC’s PAIB Committee has issued draft new guidance to assist companies and their professional accountants in developing and implementing a code of conduct. The proposed new good practice guidance, Defining and Developing an Effective Code of Conduct, highlights the varied roles of professional accountants in business in driving and supporting organisational ethics and conducting ethics programs. It also provides practical guidance on the design and development of such codes. The PAIB Committee previously issued an exposure draft on developing codes of conduct in January 2006. Following significant comments and suggestions received, the committee made extensive changes to the content of the guidance. In the new exposure draft, the committee is recommending an approach based on developing a values-based organisation and a values-driven code. The aim is to promote a culture that encourages employees to “do the right thing” and allows them to make appropriate decisions. Comments on this exposure draft, which can be downloaded from the IFAC website, are requested by 16 February 2007.
IASB and FASB announce membership of International Working Group on Lease Accounting The IASB and the United States Financial Accounting Standards Board (FASB) announced the membership of a new international working group they have established to help them in their joint project which involves reconsideration of all aspects of lease accounting. The project is expected to lead to a fundamental revision of the way that lease contracts are treated in the financial statements both of lessees and of lessors. The first due process document to be published will be a joint discussion paper that expresses the boards’ preliminary views. That discussion paper is expected to be published in 2008. Leasing is a major international industry and an important source of finance for a wide range of entities. The current international accounting requirements, set out in IAS 17 Leases, and the US standard FASB Statement No. 13, Accounting for Leases, were developed some 25‑30 years ago and have been criticised for allowing similar transactions to be accounted for in very different ways. At the same time, while the world leasing volume amounted to US$579 billion in 2004, many leasing transactions are not reported on balance sheets. The boards have been told that investors and other users of financial statements routinely make adjustments to the financial statements for analytical purposes using incomplete footnote disclosures, raising questions about the usefulness of the current lease accounting model. IASB publishes Discussion Paper on fair value measurements The IASB published for public comment a discussion paper setting out its preliminary views on providing consistency in the measurement of fair value, when already prescribed under existing IFRSs. This project is included in the Memorandum of Understanding with the FASB and its objective is to develop a single set of guidance that will apply to all fair value measurements required by IFRSs, not to expand the use of fair value in financial reporting. The proposal is aimed at addressing requests from a number of interested parties seeking additional guidance on the measurement of fair value. The proposals would not introduce new measurements at fair value. IFRSs already require some assets, liabilities and equity instruments to be measured at fair value in some circumstances. However, guidance on measuring fair value is dispersed throughout IFRSs and is not always consistent. The IASB believes that establishing a concise definition of fair value and a single source of guidance for all fair value measurements required by IFRSs will both simplify IFRSs, and improve the quality of fair value information included in financial reports. In the US the FASB had recently issued an accounting standard, SFAS 157 Fair Value Measurements. SFAS 157 establishes a single definition of fair value together with a framework for measuring fair value for financial reports prepared in accordance with US GAAP. Consistently with its commitment to the convergence of IFRSs and US GAAP, the IASB decided to use the SFAS 157 as the starting point for its own deliberations. The discussion paper is the first stage of the IASB’s project. The IASB invites comments on the discussion paper by 2 April 2007. IASB hosts round-table discussions in Melbourne The IASB hosted in December one of five public meetings to discuss the proposed amendments to IAS 37, in Melbourne, Australia. Organisations from Australia and New Zealand exchanged views on the IASB’s proposal to amend IAS 37 Provisions, Contingent Liabilities, and Contingent Assets. Representatives from a cross-section of industries and professional bodies contributed to the discussion. The IASB will use the insights gained in planning the next stage of its work on liabilities and in the context of related projects such as revenue recognition, government grants and leasing. Under the existing version of IAS 37, an entity does not recognise all liabilities on its balance sheet. For example, an entity that has a 45 per cent chance of losing a lawsuit at a cost of $1 million and a 55 per cent chance of winning at a cost of $nil does not recognise a liability. But, reversing those percentages, the same entity now recognises a liability of $1 million. The IASB proposes to eliminate this cliff-hanger. Instead, all liabilities within the scope of IAS 37 would be recognised on an entity’s balance sheet, with any uncertainty reflected in the measurement of the liability and explained in the notes to the financial statements. The IASB also hosted discussions in London, and Connecticut, United States, in November and December 2006. In total more than 75 organisations from 12 different countries took part. The Accounting Standards Board of Japan (ASBJ) and the IASB held their fourth joint meeting towards the final goal of achieving convergence between Japanese GAAP and IFRSs, at which the boards’ representatives discussed the following items:
Trustees Appoint Zhang-Wei Guo and Reappoint John Smith to IASB Zhang Wei-Guo, Chief Accountant and Director General of the Department of International Affairs of the China Securities Regulatory Commission (CSRC), will join the IASB as a full-time member on 1 July 2007 for a five-year renewable term. Dr Zhang has been actively involved in accounting standard‑setting and implementation issues, auditor oversight, and cross-border regulatory cooperation issues at the CSRC and with his work with the International Organization of Securities Commissions (IOSCO). Dr Zhang becomes the second IASB member from an emerging economy and the second IASB member from Asia. The Trustees have reappointed John Smith, currently a part-time member, to a full-time position for a second five-year term, also beginning on 1 July 2007. John T Smith was originally appointed to the IASB in September 2002. In June 2007, he will retire from Deloitte & Touche (D&T) where he is a partner in the national office in the US. He provides accounting consultation to D&T national office and client service personnel. Until joining the IASB, Mr Smith represented D&T on the Emerging Issues Task Force of the US FASB. The Trustees also announced the reappointment of Bertrand Collomb, Chairman of Lafarge, for a three-year term. The Trustees will shortly complete their consultations with the Trustee Appointments Advisory Group about the remaining four positions to be vacated by the end of the year.
FEE elects new President and Deputy
Jacques began his involvement in FEE in February 1997, becoming Vice-President in December 2000 and then Deputy President in December 2004. Since 2005 he is the Liberalisation/Qualification Working Party Chairman. In parallel, he invested considerable energy in providing financial and technical assistance to Central and Eastern European countries preparing for EU membership, most significantly managing the PHARE project in Romania for the EU. He also assisted countries such as Cambodia and Laos to build capacity in accountancy and audit. This extensive experience has best placed him to stand on the committees carrying out evaluations of future FEE members. Hans’ involvement with FEE began in 1993 when he became the Dutch representative and member of the FEE ‘Banks Working Party’ of which he became Chairman in June 2001. Furthermore he is co-Chairman of the Financial Instruments Subgroup of FEE dealing with improvements in IAS 32/39. Starting in 2003 Hans became the Dutch delegate in the FEE Council and member of the Executive Board of which he is one of the 6 Vice-Presidents. His primary areas of responsibility are financial reporting, the endorsement thereof and Capital Markets’ activities. FEE comments on the final ECJ Judgment on Cadbury Schweppes case On 18 November 2006 the European Court of Justice (ECJ) published its judgment on the "Cadbury Schweppes case" (case C-196 04). FEE had released observations on this case in December 2005 when the case was still pending. After analysing the final judgement of the ECJ, FEE was pleased to see that the Court shared its views. The Court stated that the fact that Cadbury Schweppes decided to establish two of its subsidiaries in Dublin for the sole purpose of benefiting from a favourable tax regime does not in itself constitute abuse of the freedom of establishment and does not prevent Cadbury Schweppes from relying on Community law. In its previous observations, FEE also pointed out that the establishment of the Cadbury Schweppes subsidiaries was not to be considered as tax abuse. In the Court’s view Controlled Foreign Companies (CFC) legislation restricts EU freedom of establishment insofar as it involves differences in the treatment of resident companies on the basis of the level of taxation imposed on the company in which they have a controlling holding. That difference in treatment creates a tax disadvantage for the resident company to which the CFC legislation is applicable. FEE made similar comments both in the 2002 FEE position paper on CFC legislation in the EU and in the 2005 FEE observations on Cadbury Schweppes, stressing that CFC legislation could be considered as a restriction on the exercise of the fundamental freedoms foreseen by the EU Treaty. Concerning the implications of this judgement, FEE believes that it can be reasonably expected that the ECJ decision will restrict the application of the current CFC legislation to subsidiaries established in non-EU Member States. Within the EU, CFC legislation will be applicable only in cases of subsidiaries that do not carry out any genuine economic activity in the territory of the host Member State. If a subsidiary based in any Member State is owned or created only to take advantage of a favourable tax regime and is not a wholly artificial arrangement, then Member States cannot impose any CFC legislation. For more information one can refer to the FEE Position Paper on CFC legislation in the EU, April 2002 and FEE Observations on the ECJ pending case C– 196/04 Cadbury Schweppes plc and Cadbury Schweppes overseas ltd v. The Commissioners of UK Inland Revenue, December 2005. FEE publishes paper on New Public Management FEE published in December a paper entitled The New Public Management: A Perspective for Finance Practitioners, providing an insight for public sector finance practitioners and auditors into the implications of New Public Management (NPM). NPM is a powerful set of reforms which have at their heart budgeting, accounting and reporting structures as well as auditing systems. It advocates changes in a number of areas and incorporates different dimensions such as in the culture of organisations, their goals and performance. The paper, which can be freely downloaded from the FEE website, looks at a number of NPM-inspired reforms and considers how they affect the way public administrations are managed, with particular focus on the financial aspects of NPM. FEE commissioned Professor Eugenio Caperchione from the Comparative International Governmental Accounting Research (CIGAR) Network to prepare this paper which he based on theoretical research and on his analysis of the results of a survey conducted by FEE of its European constituents. FEE called for the continued development of public interest oversight At the FEE Conference on Audit Regulation held in Brussels on 12 October 2006 FEE called for the continued development of public interest oversight in the EU as mandated by the Directive on Statutory Audit. “Oversight will protect the public interest and will foster consistent high standards of audit quality”, stated FEE President David Devlin, speaking at the opening of the Conference. The aim of the Conference was to discuss the views of all relevant stakeholders in the European and transatlantic debate on audit regulation, including the implementation of the EU Statutory Audit Directive. In a 2003 discussion paper on Co-ordination of Oversight of the Audit Profession, FEE strongly proposed the development of the public interest oversight and stated its view that public oversight structures are best organised at member state level, as the Directive on Statutory Audit now provides. While the European Group of Auditors’ Oversight Bodies (EGAOB) currently provides an EU mechanism to coordinate the national systems and to address cross border and other issues, FEE still recommends the creation of a dedicated body, that would function as an EU coordination of national audit mechanisms, in the near future by the European Commission. This future development of the coordination of audit oversight mechanisms in the EU could:
In FEE’s view, such a European coordination body should be preferably established as a legal entity to be effective and to build confidence, and should be visibly structured in the public interest and involve all the relevant stakeholders. FEE announced senior appointment FEE announced the appointment of Olivier Boutellis-Taft as Chief Executive. The new CEO will join Henri Olivier, Secretary General, Saskia Slomp, Technical Director and Hilde Blomme, Director of Practice Regulation, in the Management Team of FEE. He will progressively take office following a structured transition plan. The revised Statutes of FEE will make him a member of the Association's Executive. |
