ACCA expresses support for short term plan to clear local authority audit backlog

ACCA (the Association of Chartered Certified Accountants) has announced that it welcomes the new proposals to clear the ‘huge’ backlog in local authority audits. However, the global professional accountancy body highlights the need for the government to focus on the reasons why the backlog has developed to avoid similar crisis points in the future. 

Responding to a government consultation on audit issues in local government, ACCA has noted that it supports the proposed backstop dates for the publication of audited financial statements up to 2022/23 (Phase 1) and for financial years up to 2028 (Phase 2). The response, however does express concerns that the plans are ambitious and that they are a short-term fix to more fundamental problems. 

With 1 in 5 councils in England and Wales saying they could become bankrupt in the next parliament, it is clear local authorities are facing an unprecedented financial crisis. The importance of an effective, functioning system of local audit has never been more important. 

Commenting on this, ACCA UK director of policy and insights, Mike Suffield, said: “The backlog of audited accounts presents a complex, multifaceted problem. The fact that the proposed reset period will take until 2028 shows the problem’s intricacy. While we support the reforms proposed, a longer-term plan is required. 

“Clearing the backlog by September 2024, setting deadlines for future audits, and streamlining procedures for timely financial reporting are positive steps. However, permanently addressing the root causes of this long standing issue will require comprehensive and concerted efforts from various stakeholders including the government, audit firms, regulators, and audit and accountancy bodies.” 

The ACCA has further made it clear that publishing late undermines the usefulness of accounts hindering transparency, accountability and informed decision making. Local authorities need to publish their audited accounts in a timely manner as one important step in restoring public trust in councils’ financial management. 

ACCA policy and insights lead, Jessica Bingham, added: “ACCA is also calling for measures to address underlying problems of shortages of experienced staff in local authority finance teams, attraction and retention hurdles in the profession, increased workload pressure on finance and audit staff, and the impact of reduced local government funding.” 

Longer term plans need to consider resourcing and financial capability at local authority level, the system for delivering local audits, and building a market in which audit firms want both to participate and to invest in skilled public sector audit professionals. Arrangements need to be made for the oversight of how the system is working and audit quality is being achieved.

IAASA publishes reports on the quality assurance review of firms that audit public-interest entities

IAASA has published its 2023 quality assurance review reports in respect of seven firms that perform statutory audits of public-interest entities in Ireland. The reports summarise IAASA’s inspection of each firm’s implementation of the International Standard on Quality Management (Ireland) 1 (ISQM 1) which was effective for the first time during this inspection period. 

The inspection included an assessment of the design of each firm’s system of quality management and an evaluation of the quality objectives, quality risks and related responses identified. The quality assurance review reports include any findings and recommendations made by IAASA to the firms regarding their system of quality management. 

The reports also summarise the results arising from IAASA’s inspection of a sample of audits of public-interest entities performed by each firm, including the grades assigned to the audits inspected and any key recommendations made to the firm. 

Taken together, the reports show that while findings of issues in firms’ overall systems of quality have declined, there has been an increase in the number of audit file inspections where improvements were required. In 2023 23% of files inspected required improvement, up from 11% in 2022. While the issues varied across files inspected, there were consistent findings in relation to the review of financial statement disclosure, audit of related party transactions, and communications with those charged with governance. 

Commenting on these results, IAASA chief executive Kevin Prendergast said: “The results of the 2023 inspections are disappointing, with 23% of audits inspected requiring improvement. Our team takes a risk based approach to inspections, seeking to identify where there is a greater risk of poor audit performance, meaning that the results are not representative of the quality of all audits performed. 

“Notwithstanding this, clearly there is work to be done to improve the consistency of performance. We expect audit firms to carry out a robust root cause analysis to address the issues identified. We will continue to work with the audit firms under our remit to drive improvements in audit quality.”

IASB consults on proposals to improve reporting of acquisitions

The International Accounting Standards Board (IASB) has published a package of proposals aimed at enhancing the information companies provide to investors about acquisitions. 

Acquisitions continue to play a significant role in the global economy, with deals totalling US$3.2 trillion announced in 2023, according to data from Bain & Company. Investors need to understand the management decisions behind important acquisitions. 

The proposals in the Exposure Draft published today respond to stakeholder feedback that reporting on acquisitions poses difficulties for both investors and companies: 

  • Investors lack sufficient and timely information about acquisitions and post-acquisition performance. 
  • Companies seek to provide useful information to investors but see risks and costs in providing some information, particularly commercially sensitive information that could be used by competitors. 


Stakeholders have also expressed concern about the effectiveness and complexity of the impairment test for operations which have been allocated goodwill. 

The IASB is proposing amendments to IFRS 3 Business Combinations. The proposed amendments would require companies to report the objectives and related performance targets of their most important acquisitions, including whether these are met in subsequent years. Companies would also be required to provide information about the expected synergies for all material acquisitions. However, companies would not be required to disclose information that could compromise their acquisition objectives. 

The IASB also proposes related amendments to IAS 36 Impairment of Assets to make targeted improvements to the impairment test. 

Commenting on this, IASB chair, Andreas Barckow, said: “More transparency about acquisitions is critical to investor confidence. In developing this package of proposals, the IASB has maintained an active dialogue with all stakeholders. 

“Our aim is to ensure a balanced approach to enhancing the information companies provide to investors about acquisitions, while also considering the risks and costs to companies.”

AFRC announces pecuniary penalties

The AFRC has imposed sanctions on Chan Steven Kwok Keung and Sino Corp CPA Limited in relation to the professional irregularity arising from the preparation and issuance of an accountant’s report for a solicitor’s firm for the year ended 31 March 2021. 

According to the AFRC, Chan and Sino Corp have failed to act diligently when preparing and issuing the accountant’s report. In particular, they failed to conduct proper procedures in determining the law firm’s compliance with the Solicitors’ Accounts Rules (Cap. 159F), which are designed to protect client’s money entrusted to solicitor’s firms.  As a result, the AFRC has concluded that Chan and Sino Corp have committed a professional irregularity and are guilty of CPA misconduct. 

The AFRC has reprimanded Chan and Sino Corp, imposed pecuniary penalties of HK$50,000 each, and ordered them to each pay the costs and expenses of, and incidental to, the investigation.   

In determining the sanctions imposed, the AFRC had considered all relevant circumstances, including that there is no evidence of intentional, dishonest, deliberate or reckless misconduct, nor evidence of any loss to third parties as a result of the misconduct, as well as the clean disciplinary record of Chan and Sino Corp.

ICAEW announces support for E-Commerce Week

ICAEW has offered its support to the inaugural E-Commerce Week, which takes place from 18-24 March 2024, ahead of the launch by the UK’s first industry-led E-Commerce Trade Commission.   

E-Commerce Week aims to encourage 70,000 more British businesses to sell their goods and services through e-commerce around the world, and to support business owners to use e-commerce to grow or start a new business venture.   

Commenting on this, ICAEW director of public sector and taxation, Alison Ring, said: “Chartered accountants are trusted advisers to business owners, and they have an important role to play as a sounding board for entrepreneurs and as a first port of call for advice, so we are very pleased to support E-commerce Week.  

“The week will help businesses to put the ‘ease into e-commerce’ by highlighting opportunities for exporting, and through providing resources and support to enable them to do so.”   

Several events and webinars will take place throughout E-Commerce Week for businesses to get involved with, which will be announced in the days to come. These will explore topics such as the social value of e-commerce, as well as tips on international e-commerce trading, among others.

PCAOB proposes misleading statements rule

The Public Company Accounting Oversight Board (PCAOB) has issued for public comment a proposal for a new PCAOB Rule 2400, False or Misleading Statements Concerning PCAOB Registration and Oversight. 

The proposed rule would address how a registered firm and its associated persons present the firm’s PCAOB registration status, including the scope of the PCAOB’s oversight of their work. If adopted, the rule would prohibit false or misleading statements regarding firms’ registration status to clients, potential clients, or the public. The proposal also includes a new procedural mechanism that would enable the Board, under specified conditions, to treat a PCAOB-registered firm’s failures both to file annual reports and to pay annual fees for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration and to deem the firm’s registration withdrawn. 

The deadline for public comment on the proposal is April 12, 2024. 

Commenting on this, PCAOB chair, Erica Williams, said: “PCAOB registration is not an advertising gimmick for firms. In order to protect investors from misinformation, there must be consequences when firms misrepresent their registration status or what it means.” 

Why the PCAOB Is Issuing This Proposal 

PCAOB oversight is aimed at improving audit quality, and registration of audit firms with the PCAOB is a critical component of the PCAOB’s oversight. Under the Sarbanes-Oxley Act, public accounting firms must register with the PCAOB before they can prepare or issue an audit report for an issuer or a broker-dealer or play a substantial role in those audits. When they perform such work, PCAOB-registered firms must follow PCAOB auditing standards and are subject to PCAOB inspection and potential enforcement actions. 

While it is a linchpin of PCAOB oversight, registration in and of itself does not indicate that a firm provides high-quality service. Furthermore, the PCAOB does not endorse registered firms or their services. Nevertheless, the PCAOB has observed instances where registered firms have misrepresented PCAOB registration as a “seal of approval” or a “mark of excellence.” 

Currently, nearly half of the firms registered with the PCAOB do not engage in any audit-related work for issuers or broker-dealers that is subject to PCAOB oversight. Some of these firms promote their PCAOB registration in a manner that could lead investors and other market participants to mistakenly think that their work is subject to PCAOB oversight. 

Adding complexity for investors and others, while some registered firms may perform a portion of their work within the scope of PCAOB oversight, they may also do certain other work that falls outside the PCAOB’s jurisdiction, including auditing the financial statements of clients that are not issuers or broker-dealers. 

Although there is a risk that false or misleading statements concerning a firm’s PCAOB registration and oversight might mislead clients, potential clients, and the public, no specific PCAOB rule now expressly prohibits auditors from making such statements. 

Key Components of the Proposal 

Proposed Rule 2400 seeks to strengthen investor protection and confidence in three principal ways. 

Establishing a general prohibition on false or misleading statements concerning registration. The proposal would generally prohibit a registered firm and its associated persons from making false or misleading statements concerning the firm’s PCAOB registration status, including the extent of the PCAOB’s oversight over the firm’s services. 

Providing specificity about the application of the general prohibition. The proposal sets forth a non-exhaustive list of scenarios that would violate the general prohibition. These include certain statements regarding PCAOB registration and oversight that (i) state or imply the PCAOB sponsors, recommends, or otherwise endorses the firm or its services; (ii) are made by a firm that is not currently subject to PCAOB oversight; (iii) refer to particular services that are not subject to PCAOB oversight; (iv) appear in auditor’s reports for clients other than issuers or broker-dealers; or (v) are made about a firm with a pending request to withdraw from PCAOB registration. 

Codifying the Board’s practice of considering false or misleading statements during the registration process. The final provision would codify the Board’s current practice of considering any prior false or misleading statements made by an applicant firm or its personnel regarding the firm’s PCAOB registration status, including the extent of PCAOB oversight of the firm, when reviewing an application for registration with the PCAOB from the firm. 

The proposal also includes a new procedural mechanism, proposed new paragraph (h), Constructive Withdrawal Requests, of existing PCAOB Rule 2107, Withdrawal from Registration, that would permit the Board, under specified conditions, to (i) treat a PCAOB-registered firm’s failures both to file annual reports to the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration and (ii) to deem the firm’s registration withdrawn. 

Throughout the proposal, the Board requests comments on specific aspects of the proposed rule and related amendments. Readers are encouraged to answer the Board’s questions, to comment on any aspect of the proposal, and to provide reasoning and relevant data supporting their views.

CIPFA study identifies success factors that can accelerate levelling up in the UK

CIPFA’s Investing in regional equality – four English examples report finds funding for levelling up in England is insufficient and fails to meet local needs.    

The research, carried out in conjunction with the University of Birmingham, is published today ahead of the government’s highly anticipated Spring Budget on 6 March. It finds that if the UK government want to address regional inequalities, investment should be proportionate to a region’s specific tasks and responsibilities. Single pot funding would offer local authorities greater flexibility to respond to local priorities than multiple smaller funds with prescribed uses.   

The report examines English local authorities applying the approaches that have been used successfully by international cities to overcome social and economic inequalities, identified in CIPFA’s 2022 Investing in regional equality: lessons from four cities report. Implementing some success factors in England has been more challenging than in the international city-regions explored in CIPFA’s previous work. This report finds that local areas generally struggle to invest for the long term and to conduct effective monitoring and evaluation. 

The UK-focused report looked at four different areas in England: Dudley, Enfield, South Yorkshire and Tees Valley. All four areas recognised the nine success factors identified in CIPFA’s 2022 report, including that a long-term outlook was needed, backed with significant levels of sustained funding. Enfield’s flagship regeneration project, for example, has a 20-30 year strategy to build community wealth.  

An additional tenth success factor of transferable learning and knowledge exchange was identified as important in England. Prioritising knowledge exchange via a mentorship partnership in Tees Valley helped to relieve challenges of short-term funding, restricted timescales for project bidding and capacity constraints. The government should focus on long-term funding commitments, which will help local authorities utilise local knowledge, bring regional partners together and share experiences between places, the report adds.   

Commenting on this, CIPFA CEO, Rob Whiteman, said: “This report shows that short-term and insufficient funding threatens the UK’s approach to levelling up. If the government ensures that funding meets local needs, we can reduce inequalities and better improve lives.  

“Along with CIPFA’s international research, the regional examples in this report also confirm the importance of partnership working and collaboration. But learning lessons requires time and money to devote to these activities – the UK government should support these activities in its levelling up agenda.”

CIPFA chief economist and report co-author, Jeffrey Matsu, added: “There is no one-size-fits all approach to addressing regional inequalities. Government policies should therefore be flexible enough to allow local regions to adapt support.  

“The research shows that access to local knowledge, a willingness to collaborate and the capacity to monitor and evaluate projects can accelerate levelling up across the UK, leading to a better quality of life for communities.”

FCA to improve pace and transparency around enforcement cases

The Financial Conduct Authority (FCA) has made a statement highlighting that it is “committed” to carrying out enforcement cases more quickly as the organisation seeks to increase the deterrent impact of its enforcement actions.  

In the future the FCA will focus on a streamlined portfolio of cases, aligned to its strategic priorities where it can deliver the greatest impact. The FCA will also close those cases where no outcome is achievable, more quickly.  

As part of the new approach the FCA has begun a consultation on plans to be more transparent when an enforcement investigation is opened. Under the plans the FCA will publish updates on investigations as appropriate and be open about when cases have been closed with no enforcement outcome. 

The moves are a step change from the current process where investigations are only announced in very limited circumstances.  

Commenting on this, FCA joint executive director of enforcement and market oversight, Therese Chambers, said: “By being more transparent when we open and close cases we can enhance public confidence by showing that we are on the case.   

“At the same time, we will amplify the deterrent impact of our work by enabling firms to understand the types of serious failings that can lead to an investigation, helping them to change their own behaviour more quickly. Greater transparency will also drive greater accountability for us as an enforcement agency.”   

FCA joint executive director of enforcement and market oversight, Steve Smart, added: “Reducing and preventing serious harm is a cornerstone of our strategy. By delivering faster, targeted and transparent enforcement, we will reduce harm and deter others. We will also make greater use of our intervention powers to stop harm in real time.”  

Any decision to announce an investigation would be taken on a case-by-case basis and depend on a variety of factors which will indicate whether to do so is in the public interest. These include whether the announcement will protect and enhance the integrity of the UK financial system, reassure the public the FCA is taking appropriate action, or assist in any investigations.    

Announcing an investigation does not mean that the FCA has decided whether there has been misconduct or breaches of its requirements.  Investigations into individuals will be different and the FCA will not usually announce these types of investigations.

AICPA & CIMA back implementation of IFRS sustainability disclosure standards

AICPA & CIMA, which together form the Association of International Certified Professional Accountants, have announced they have become members of the IFRS Foundation’s Partnership Framework and a contributor to the standard-setting organisation’s Knowledge Hub. The two initiatives are designed to raise global awareness about the IFRS Sustainability Disclosure Standards and support implementation of them. 

Commenting on this, IFRS Foundation chief of strategic affairs and capacity building, Mardi McBrien, said: “The IFRS Foundation is working in partnership with organisations globally to build market readiness and support companies and other stakeholders with the implementation of IFRS Sustainability Disclosure Standards. 

“We welcome AICPA & CIMA partnering with us to build capacity amongst their members.” 

The Partnership Framework was formed at COP 27 in late 2022 and is designed to smooth implementation of global sustainability disclosure requirements. More than 35 private and public organisations are part of its network. The Knowledge Hub, launched at COP 28 in late 2023, serves as an online repository for thought leadership, surveys and reports about sustainability disclosure standards. 

Last summer, the IFRS Foundation’s International Sustainability Standards Board (ISSB) issued two standards, IFRS S1 and IFRS S2, that are designed to form a global baseline for sustainability disclosure. CPAs and management accountants will play a crucial role in the international implementation of these rules, as well as the European Sustainability Reporting Standards, the state of California’s recent climate risk disclosure rules and the U.S. Securities and Exchange Commission’s eventual rollout of its final climate risk disclosure standards. 

AICPA & CIMA global head of sustainability, Jeremy Osborn, concluded: “We’re pleased to work with the IFRS Foundation in highlighting the need for consistent, comparable and high-quality sustainability information for capital markets.”