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FCA CAREER EVENING . Technical Update. Aidan Lambe, Director Mark Kenny, Manager Representation & Technical Policy, Chartered Accountants Ireland Wednesday, 7 th May 2014. title goes here. Technical Update. AGENDA ACCOUNTING IN IRELAND NEW GAAP NEW LAW COMPANY LAW UPDATE

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  1. FCA CAREER EVENING Technical Update Aidan Lambe, Director Mark Kenny, Manager Representation & Technical Policy, Chartered Accountants Ireland Wednesday, 7th May 2014 title goes here

  2. Technical Update • AGENDA • ACCOUNTING IN IRELAND • NEW GAAP • NEW LAW • COMPANY LAW UPDATE • RECENT REFORMS AT THE FINANCIAL REPORTING COUNCIL (FRC) • CORPORATE GOVERNANCE UPDATE • EU AUDIT REFORMS • NEW APPROACH TO AUDITOR REPORTING – ISA (UK & IRELAND 700) • RECENT CENTRAL BANK ACTIVITY

  3. Accounting in Ireland – Primary Frameworks Co Law Entity Accounts Group Accounts S.150 1963 Act S.148 1963 Act ‘Co Act A/Cs’ ‘IFRS A/Cs’ ‘Co Act A/Cs’ ‘IFRS A/Cs’ 1986 Act 1986 Act + + + + Disclosures Disclosures

  4. Current Irish (& UK) GAAP – ‘Companies Act Accounts’ 2015 SSAPs UITF Abstracts FRSs 1 - 30 COMPANY LAW 2015 … FRS 100 – 103 (+ FRSSE?)

  5. New Irish & UK GAAP EU IFRS Group a/cs - EU listed entities Option for others FRS 101 Reduced Disclosure Requirements FRS 100 Application of Financial Reporting Requirements Irish & UK GAAP FRS 102 The FRS applicable in the UK and ROI FRS 103 Insurance Contracts FRSSE (option)?? SMALL COMPANIES

  6. New Irish & UK GAAP Implementation of FRS 102 Implementation timetable • Less guidance (3000+ pages down to 300+)… more judgement? • How will the FRC support this? • Stable(ish) platform • Staff guidance notes • Dealing with issues when they arise – clarifications • Significant retraining challenge • Need to start now! Long since! March 2013 – FRS 102 issued 2nd half 2013 – Exposure drafts January 2014 – Transition date 2014 – Final amendments & SORPs December 2015 – Mandatory application

  7. FRS 102: New GAAP v Old GAAP – Some differences to watch for Business combinations Foreign currency Goodwill/ Intangibles CFS/ Small co exemption Financial instruments/ derivatives Employee benefits Deferred tax Leases Investment property

  8. Company Law – Accounting 2015 4th Directive (1978) 7th Directive (1983) Accounting Directive (2013) TO BE TRANSPOSED BY JULY 2015 1986 Act Group A/Cs Regs 1992

  9. Accounting Directive 2013 PRINCIPLE: ‘THINK SMALL FIRST’ Micro Entities Member State Options - Recent DJEI Consultation Small Co ‘Max Harmonisation’ Larger Companies & Public Interest Entities

  10. Company Law Update • Companies (Amendment) Act, 2013 – December 2013 – citation 1963 – 2013 • SI 304 and SI 308 – August 2012 – new financial thresholds for definition of ‘small’ company & for audit exemption thresholds • Turnover – does not exceed €8.8 million (from €7.3 million) • Balance sheet total – does not exceed €4.4 million (€3.6 million) • Average no of employees – 50 • Thresholds for small and audit exemption – now aligned; and now at current EU maxima

  11. Company Law Update • Companies Bill 2012 • Largest single piece of legislation in history of State • Blueprint contained in 1st Report of CLRG (2001!) • Consolidation, Simplification, & Reform • ‘The private company limited by shares should be the primary focus of simplification’ • ‘the law should be clear and accessible…the legislation should be structured in such a way that the provisions that apply to small companies are easily identifiable’ • ‘the private company limited by shares should be established as the model company’

  12. Company Law Update – Consolidated Companies Bill • Published December 2012 • Volume 1 –15 Parts – 952 sections - CLS • Volume 2 – PLCs, DACs, Guarantee Cos, Unlimited Cos, Investment Cos etc • Currently being considered by Oireachtas • Companies Act 2014??

  13. Company Law Update – Consolidated Cos Bill – Volume 1

  14. Company Law Update – CLS – key features (1) • Same contractual capacity as natural persons – no ‘objects’ clause and so not subject to doctrine of ‘ultra vires’ • Need only have a single director – no longer need a ‘nominee’ to make up the numbers! • Single document constitution, replacing ‘Memo & Arts’ • Need for specific internal regs on administration and governance (in Articles) removed – now in Act and will apply to all, unless constitution states otherwise • May have ‘written’ AGMs – where members consent, can dispense with annual physical meeting • Directors common law & equitable duties to be codified (8)

  15. Company Law Update – CLS – key features (2) • Summary approval procedure (for regulated activities – financial assistance, capital reductions, mergers, solvent windings up) • Offences created by Bill now categorised ‘1 to 4’ (where ‘1’ is most serious) • Compliance Statements required from directors of certain companies

  16. Company Law Update – Directors’ Fiduciary Duties • 8 main duties • Act in good faith and in what consider to be co. best interests • Act honestly and responsibly • Act in accordance with constitution and exercise powers only for lawful purposes • Not to use co. property for own or others’ use unless approved by members or under constitution • Not to fetter discretion unless permitted by the constitution or entered into in the company’s interest • Avoid conflicts of interest unless released by members • Exercise care, skill, and diligence • Have regard to interests of members

  17. Company Law Update – some issues of relevance to accountants • Revision of defective accounts • Clarification of reportable offences (by auditors) • Extension of audit exemption – to small groups (& to small guarantee cos) • Directors to confirm auditors have relevant audit information • Liquidators – regulation

  18. Recent Reforms at the Financial Reporting Council (FRC) • Accounting Standards Board • Auditing Practices Board • Roles now subsumed into Financial Reporting Council • Financial Reporting/Auditing Standards now issued by the FRC itself. • ASB/APB now abolished and replaced by a single ‘Codes & Standards Committee’. • www.frc.org.uk

  19. Corporate Governance Update - FRC • Revised Code – published September 2012 & effective for periods beginning 1 October 2012 • 4 key changes • Annual Reports to be ‘fair, balanced and understandable’ • Greater disclosure around Audit Committee activity • External audit tenders (FTSE 350*) • Boardroom diversity (*ISE has confirmed revisions also apply to Irish listed cos (Main Market, and not eligible for Small Cap Index)

  20. Corporate Governance Update – ‘Fair, balanced and understandable’ • New ‘Principle’ added – applies to Annual and other ‘reports’ • Fair, balanced and understandable assessment of co. position and prospects • Directors to state that they consider report and accounts to be ‘fair..’ etc and provide the info necessary for shareholders to assess performance, business, model and strategy

  21. Corporate Governance Update – ‘Fair, balanced and understandable’ Boards may want to consider Integrity of processes • for bringing relevant information to Board attention • For understanding and applying materiality thresholds • For ensuring accuracy of the information in Annual Reports New focus on ‘non-financial’ elements of Annual Reports

  22. Corporate Governance Update – ‘Fair, balanced and understandable’ • Boards may want to ‘sense check’ Annual Report • Has appropriate weight been given to ‘bad news’ as well as ‘good news’? • Does description of business model, strategy, and risk accord with own understanding? • Are the disclosed risks genuinely those principal risks that the Board is concerned about? Reflect corporate risk register? • Clear articulation between business model, strategy, risk,? • Important messages highlighted and not obscured by immaterial detail?

  23. Corporate Governance Update – Audit Committees/Audit Tendering Separate section of AR describing work of audit committee – moving away from boiler plate • Significant issues considered and how discharged • How has assessed effectiveness of external audit, and approach taken to appointment and reappointment, including length of tenure of incumbent, and details of last tender • How auditor objectivity and independence is safeguarded (if NAS provided) • FTSE companies to put audit out to tender at least every 10 years (or explain why not!)

  24. EU Audit Reforms – Key issues • Primarily aimed at PIEs (credit institutions, listeds, insurers, MS discretion) • Into force from mid June 2014 (2 year implementation) • Mandatory audit firm rotation (s.t. transitional arrangements) • Audit tendering • Joint audits – optional and extends audit tenure • Further restrictions on NAS – list; cap for permissible services) • More detailed and company specific audit report

  25. EU Audit Reforms – Prohibited NAS includes;- • Taxation services including preparation of tax forms, calculation of direct and indirect tax, tax advice • Services involving playing any part in the management or decision making of the audited entity; • Bookkeeping, payroll • Design or implementation of internal controls • Valuation services • Services linked to financing, capital structure etc • Some MS Options (must be immaterial, documented, reported to AC)

  26. New approach to auditor reporting – ISA (UK & I) 700 (Cos applying UK Governance Code) • Describing those assessed risks of material misstatement that the auditor identified and which, in the auditor’s judgment, were significant to the audit and that, therefore, required special audit attention; • Providing an explanation of how the auditor applied the concept of materiality in planning and performing the audit; and • Providing a summary of the scope of the audit including an explanation of how such scope was responsive to the assessed risks disclosed in the auditor’s report and the auditor’s application of materiality. Vodafone Annual Report 2013

  27. And Finally……

  28. Recent Central Bank Activity • Corporate Governance • CG Code for Credit Institutions & Insurance Undertakings • Fitness & Probity Requirements • Accounting Guidance – impairment provisioning • Auditor ‘protocol’ – interaction between supervisors & auditors • Client Assets – new regime – currently consulting • AML – industry guidance notes – DoF website • Credit Unions – new governance requirements; CU Act 2012 • Supervision & Enforcement Act 2013 – ‘skilled persons’ • Auditor Assurance on internal governance

  29. Contact ‘Technical’ • Contacting the technical department/technical enquiry service:- • Email: technical@charteredaccountants.ie • Phone: 01-5233920 • Web submission of queries (must be logged in as member): http://www.charteredaccountants.ie/en/Members/Technical/Technical-Enquiry-Service/ • Thank You

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