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IESBA PIE definition to include more entities
The International Ethics Standards Board for Accountants (IESBA) has revised its definition of public interest entities (PIE).
The revised provisions specify a broader list of categories of entities as PIEs whose audits should be subject to additional independence requirements to meet stakeholders’ heightened expectations concerning auditor independence when an entity is a PIE.
- Articulate an overarching objective for additional independence requirements for audits of financial statements of PIEs.
- Provide guidance on factors to consider when determining the level of public interest in an entity.
- Replace the term “listed entity” with a new term “publicly traded entity,” providing a definition of the latter term.
- Recognise the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly refine the PIE categories and adding any other categories relevant to their environments.
- Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.
IESBA chair Gabriella Figueiredo Dias said: “The concept of a PIE is central to the application of the IIS and determines how far an auditor must go in meeting the fundamental requirement to be independent. The revised definition and related provisions represent the third pillar in our package of measures to significantly strengthen auditor independence in the public interest, following the release of our revised Non-Assurance Services and Fees standards last year.”
The revised PIE definition and related provisions become effective for audits of financial statements for periods beginning on or 15 December 2024. Early adoption is permitted and encouraged.
IAASB updates standard for group audit
The International Auditing and Assurance Standards Board (IAASB) has released International Standard on Auditing (ISA) 600 (revised). This standard addresses special considerations that apply to audits of group financial statements (group audits).
IAASB chair Tom Seidenstein said: “ISA 600 (Revised) is a significant step forward to enhance the consistent performance of quality group audit engagements and thereby supports users’ interests and broader financial stability. Group audits is an area identified by regulators requiring attention. The changes in the standard build off other recent IAASB revisions, such as the revisions to the quality management standards, and should enhance audit quality by strengthening the accountability of group auditors and clarifying the interactive relationship between group and component auditors.”
ISA 600 (Revised) includes a risk-based approach to planning and performing a group audit. The approach focuses the group auditor’s attention and work effort on identifying and assessing the risks of material misstatement of the group financial statements and designing and performing further audit procedures to respond to those assessed risks.
The revised standard becomes effective for audits of group financial statements for periods beginning on or after 15 December 2023.
UK’s FRC takes further steps to ARGA in 3-year plan
The UK’s Financial Reporting Council (FRC) has set out its progress towards establishing the Audit, Reporting and Governance Authority (ARGA) in its three-year plan.
The plan considers how and when the FRC will need to increase it’s capacity to adapt to new powers and responsibilities. It comprises a detailed breakdown of the FRC’s intended expenditure for 2022-23, alongside a summary of expected costs and headcount for the following two years.
To support the plan, the FRC’s objectives are to:
- Set high standards in corporate governance and stewardship, corporate reporting, auditing and actuarial work, and assess the effectiveness of the application of those standards, enforcing them proportionately where it is in the public interest.
- Promote improvements and innovation in the areas for which we are responsible, exploring good practice with a wide range of stakeholders.
- Influence international standards and share best practice through membership of a range of global and regional bodies and incorporate appropriate standards into the UK regulatory framework
- Promote a more resilient audit market through greater competition and choice.
- Transform the organisation into a new robust, independent, and high-performing regulator, acting in the public interest.
FRC CEO Jon Thompson said: “In the three years since Sir John Kingman’s review of the FRC, we have made significant progress implementing those recommendations within our power to ensure better outcomes for stakeholders who rely on high quality audit, reporting and corporate governance. As we continue to lay the groundwork for ARGA it is pleasing to see the continued level of support from our stakeholders for the FRC’s current plan.”
ICAS launches public finances accountability guide
The Institute of Chartered Accountants of Scotland (ICAS) has launched a public finances accountability guide to provide a comprehensive source of public finance accountability arrangements between the UK and Scottish governments.
The Accountability Matrix, which explains the complete public finance trail matched to accountability arrangements, has been developed to provide independent and balanced information on public finances and how decision makers are held to account.
ICAS chief executive Bruce Cartwright said: “The processes and accountability arrangements surrounding public finances in the UK and Scotland continue to evolve and there has been a need for an accessible guide to help navigate the complexity. ICAS’ new Accountability Matrix is an important step forward in supporting transparency, public understanding and effective scrutiny of public money, and the overall UK and Scottish government accountability arrangements.”
The Accountability Matrix includes information about the setting of the UK budget and the associated budget scrutiny process, and how the UK Government is held accountable for public spending. The guide then considers how powers are split between the UK and Scottish Parliaments.
SMS Latinoamérica translates revised Integrated Reporting Framework into Spanish
SMS Latinoamérica, an organisation of independent firms specialised in auditing, tax advice and consulting services for companies, has, together with an international committee of experts, translated into Spanish the International Integrated Reporting Framework , which will be used by for all Spanish-speaking companies.
The Integrated Report is a global initiative led by the Value Reporting Foundation that promotes a new dimension of corporate reports, where the results on finances, sustainability and other data related to the actual circumstances of a company are reflected in a single document.
Revisions to the International Integrated Reporting Framework were originally published in January 2021 with the purpose of providing more orientation and clarity for report writing and intending to move forward towards the adoption of high quality integrated reports. The current publication, in Spanish, reflects these revisions and enables the Spanish speaking countries to hasten the adoption of this Framework.
“We would like to thank SMS Latinoamérica for producing the translation, and the review committee from Pontifical Javierian University, University of Buenos Aires, Roche Colombia, Masisa and Instituto Tecnológico Autónomo de México (ITAM) whose expertise facilitated this translation”, said the Value Reporting Foundation
“We’re seeing an increasing number of new integrated reporting adopters in Latin America, following in the footsteps of business leaders who have used Framework since its first release in 2013. These organizations are looking for a new way of combining financial and ESG information in a comprehensive report and a concise tool to communicate how they create value for a sustainable future”, commented Pablo San Martín, President of SMS.
Meanwhile, Julián Costábile, Director of the Sustainability Area added, “Framework is clearly the most appropriate tool to achieve this goal, especially after the improvements that were published in 2021”.
US’ SEC proposes climate-related disclosures
The US’ Securities and Exchange Commission (SEC) has proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports.
This would include information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. It would also include information on climate-related risks and the disclosure of the registrants greenhouse gas emissions.
SEC chair Gary Gensler said: “I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.
“Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures. Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.
“[This] proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do. Companies and investors alike would benefit from the clear rules of the road proposed in this release. I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance. Today’s proposal thus is driven by the needs of investors and issuers.”
The SEC’s proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2).