ICAEW & CIPFA respond to PSAA

ICAEW and CIPFA have issued a joint response to the Public Sector Audit Appointments Ltd (PSAA) announcement of the outcome of its procurement of local audit services.

This reflects CIPFA and ICAEW’s shared view of the vital importance of local public audit in ensuring transparency and accountability for taxpayers.

CIPFA chief executive Rob Whiteman said: “We are pleased that PSAA has been able to secure sufficient capacity to ensure all local government bodies that have opted into their scheme have an assigned auditor for the next appointment period. However, this procurement round underlines concerns about market stability. Urgent action is needed to ensure the market is robust and attractive. As a minimum, the government should implement the Redmond Review recommendations and bring forward the necessary legislation to formally establish ARGA as the system leader as soon as possible.”

ICAEW chief executive Michael Izza further added: “It is also vital that the system leader is clear on the handover processes for auditors leaving the market and how new suppliers will start new contracts where previous audits have been significantly delayed. The government should support auditors and finance teams to address the backlog of outstanding audits. We believe an increase in fees is necessary to support high quality and timely audits, especially in the context of the current challenges in the market and the increased regulatory requirements on auditors. However, a rise of over 150% will be difficult for local authorities, which are already under severe financial pressure. We would hope this increase in fees is reflected in future allocations of resources to local authorities.”

For more on CIPFA

IAB – Going Digital Supplement 2022

Throughout IAB’s Going DigitalSupplement 2022, research shows that IT transformation is offering companies a chance to get to market faster.

Industry 4.0 is propelling greater investment into digital transformation for the processing, analysis and leveraging of huge volumes of data with new technologies such as IoT, machine learning and demand for storage. There are pressures brought to bear for securing sensitive data, protecting intellectual property, regulatory reporting, communication, attracting funding and investments and accelerating time to market.

In this Going Digital Supplement 2022, take a look at our collaborative features and case studies by IAB partners, GlobalData analysts and editors on the future of fintech and digital transformation of the industry.

  • GlobalData: Digitalisation of financial services – how accountancy firms need to shift to adapt
  • AICPA & CIMA: Navigating digital disruption with the use of data rich analytics
  • HLB International: How digital transformation is evolving the audit, tax and advisory landscape
  • Xero: Growing area of app advisory

Read the full supplement here

Chartered IIA raises concerns with Ofgem

The Chartered Institute of Internal Auditors (Chartered IIA) has raised concerns on serious audit and corporate governance shortfalls at regulated energy suppliers. Ofgem has so far failed to put in place a requirement for all energy suppliers to have an internal audit function despite dozens of its regulated firms going into administration in the U.K. According to Citizen’s Advice, 30 energy suppliers have gone bust since the start of 2021. This includes Bulb, the 7th biggest supplier of energy in the UK, which left over 1.7 million customers in limbo until the company was recently acquired by Octopus Energy.

In response the Chartered IIA which represents 10,000 internal audit professionals in the UK and Ireland, is now urging that Ofgem make it a requirement for energy providers to have an internal audit capability, arguing this will help strengthen their financial resilience and ensure they are better equipped to weather economic shocks in the future.

The letter points out that while energy suppliers are providing an essential public utility, there is still no requirement for them to have an internal audit function, which is vital when it comes to mitigating risks for organisations.

Research by the Chartered IIA, suggests that none of the energy providers that have recently been placed into administration had any internal audit capabilities. We are in no way claiming that the absence of an internal audit function was the primary cause of these suppliers going into administration. However, we do think it is in the public interest that Ofgem are made aware how important internal audit is when it comes to reducing risks for organisations and helping them preserve their assets, reputation, and long-term sustainability.

For more on the Chartered IIA

FRC unveils competition & resilience plans

The FRC has today published a policy paper that outlines the regulator’s approach to competition in the audit market.

The paper sets out the need for a market that consistently delivers high quality audit and is resilient. It makes clear the need for the package of measures proposed by the Government in its response to the consultation on Restoring Trust in Audit and Corporate Governance.

It also looks at recent developments in the market that suggest that increased competition and choice has more recently tailed off, and that more entities tendering for an auditor are struggling to identify firms willing to bid. The top four audit firms still dominate the market, resulting in limited choices for businesses and ongoing concerns about resilience.

The paper sets out how the FRC is seeking to progress the Government’s seven competition policy proposals, and how it proposes to deliver on the operational objective for ARGA to promote effective competition in the market for statutory audit.

The FRC has already started to address issues in the market through measures such as operational separation and its recently published draft standard for audit committees. However, legislation is needed to make a significant difference by providing ARGA the powers to implement all seven proposals.

FRC executive director of regulatory standards, Mark Babington, said: “The FRC has set out a high-level policy overview of what we think about competition in the market and the powers we think legislation should give us. It’s intended to encourage discussions with our stakeholders so that they can provide us with their views on creating an audit market that works for everyone. One of the FRC’s strategic objectives, set out in its three-year plan, is to create a more resilient audit market, and these proposals are a road map to achieving that target.”

For more on the FRC

First financial reporting guide for non-profit organisations released

In 2019, CIPFA and Humentum joined forces to develop international financial reporting guidance specific to non-profit organisations (NPOs), leading to the release of the first international accounting guidance for NPOs in draft form.

The International Non-Profit Accounting Guidance (INPAG) aims to provide greater clarity and consistency for the financial reports prepared by non-profit organisations, such as charities, NGOs and faith groups.

Currently there is no international accounting guidance for non-profit organisations. INPAG aims to be the first.

Stakeholders, including auditors, regulators, donors, public interest groups and non-profit organisations themselves, are being asked to comment on the guidance. The consultation period is open until 31 March 2023.

INPAG is being developed by CIPFA and Humentum through the IFR4NPO project, which launched in 2019. Today’s draft follows a consultation with the sector internationally, which ran in the first half of 2021.

For more on the non-for-profit sector

FRC presents Annual Review

The Financial Reporting Council (FRC) has reiterated the need for high-quality disclosures from companies during periods of economic uncertainty. To support more informed decision-making, companies must ensure that investors and other stakeholders receive reliable information about a company’s financial performance and prospects.

The FRC’s Annual Review of Corporate Reporting, published on 27 October, performed 252 reviews of companies’ accounts and, while the overall quality of corporate reporting within the FTSE 350 had been maintained, 27 companies were required to restate aspects of their accounts.

The FRC was disappointed to find errors in cash flow statements, an area where both companies and their auditors must improve. The review also identified scope for improvement in reporting on financial instruments and deferred tax assets.

In times of economic uncertainty companies must clearly identify their principal risks, ensure these are reflected in their business strategy and disclosed in their annual report and accounts. To support better disclosures, the review includes examples of key matters companies must consider during uncertain times such as the need to disclose significant judgements in relation to going concern assessments.

FRC executive director of supervision, Sarah Rapson, said: “During periods of economic and geopolitical uncertainty it is vital that companies not only comply with relevant reporting requirements but deliver high-quality information for investors and other stakeholders. While these are challenging economic times, companies need to be agile, continually assess evolving risks and ensure these are clearly explained in their annual reports. As an improvement regulator, the FRC will be closely monitoring companies cash flow statements and other areas of reporting where we expect to see further improvements.”

The FRC will also be hosting a webinar on November 2 to discuss the key findings from this year’s annual review.

For more on the FRC.