by John McCarthy Consulting Ltd. | Oct 14, 2016 | News
As is already widely known the Department of Foreign Affairs has withheld €10.1 million in aid for the charity Goal since it learned of a USAID investigation at Goal USA in April 2016 into its operation in Syria. Goal is accused of being involved in a bribery scandal involving humanitarian contracts in Syria.
While there is no mention of money laundering or terrorist financing in this story, it is only a matter of time that some charity will become ensnared in accusations of funding terrorism either directly or indirectly.
In a separate AML development, the NI Charity Commissioners consulted earlier in 2016 with Charities in Northern Ireland including ‘matters leading to the knowledge or suspicion that the charity or charitable funds have been used for money laundering or such funds are the proceeds of serious organised crime or that the charity is a conduit for criminal activity’. The suggestion is that accountants and/or auditors of charities would be required to report suspicions of AML to the NI Charities Regulator.
by John McCarthy Consulting Ltd. | Oct 14, 2016 | News
The accounting rules for changes in estimates are in section 10.15 of the standard. They are dealt with prospectively i.e. by including the effect in profit or loss in the period of the change and, if relevant, in future periods. Adoption of the new FRS 102 standard is not an opportunity to revisit accounting estimates retrospectively (thereby pushing changes through reserves rather than recognising them in profit).
The standard gives very little explanation as to what an ‘estimate’ actually is.
Typical estimates might include:
- Determining an impairment for doubtful debts;
- Impairments for slow-moving or obsolete stock;
- Estimating the useful life of tangible fixed assets;
- Fair values of financial assets and liabilities;
- Recoverability of deferred tax assets; and
- Estimating the correct value for warranty provisions.
Related to the above are two completely new disclosures required in FRS 102 that were not specifically addressed in old GAAP. They are:
- Information about judgements that management has made in applying the accounting policies and that have the most significant effect on the amounts recognised in the financial statements. FRS102 paragraph 8.6.
- Information about key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, including details of their nature and carrying amounts. FRS102 paragraph 8.7.
Many sets of FRS 102 financial statements that we have reviewed in the last 12 months don’t need any transition journal entry adjustments but are lacking sufficient information about judgements and key sources of estimation uncertainty. Greater care and attention is needed by preparers in these particular areas in order to fully comply with the standard.
by John McCarthy Consulting Ltd. | Oct 7, 2016 | News
On 1 July 2016 a new International Education Standard (IES) issued by the International Accounting Education Standards Board (IAESB), part of the International Federation of Accountants (IFAC) came into force. IES 8 sets new professional competence requirements for audit engagement partners. In addition, a new version of the International Standard on Quality Control 1 (ISQC 1) was issued by the Financial Reporting Council (FRC) in June 2016. IES 8 supplements the CPD component of ISQC 1. This blog focuses on IES 8.
The new IES builds on the existing focus on:
professional competence which is already a requirement of legislation;
professional body licensing requirements; and
statutory auditors’ internal due diligence.
The revised standard may require audit partners to document evidence that CPD activity undertaken has contributed to the development and maintenance of the professional competence required for their role as an Audit Engagement Partner.
The learning outcomes to be achieved include, but are not limited to, areas such as:
- technical competence
- professional skills
- professional values
- ethics and
- attitudes.
Audit Engagement Partners are expected to undertake CPD targeted to those aspects of their role which are in need of update. This may include industry specific CPD.
In their review work from 1 July 2016, CARB will check that firms have appropriate procedures in place to meet the requirements of IES 8 and that selected engagement partners and other RIs are using a planned programme of CPD to ensure the maintain the competencies required by IES 8.
A new Quality Control Procedures Manual under the ISQC1 (Revised) is available to purchase (including the IES 8 amendment) for €125 + VAT at https://jmcc.ie/d7/content/publications
by John McCarthy Consulting Ltd. | Sep 23, 2016 | News
We carry out regular FRS 102 compliance reviews for client accounting firms. Here is a selection of some of the most common findings.
Balance sheet
- ‘Equity’ is often labelled as ‘Called-up share capital’ when it should be correctly labelled as ‘Called-up share capital presented as equity’ and Note 18 to the financial statements must correspond accordingly.
- One cannot use the terms ‘Non-Current Assets’, Trade Receivables’ or ‘Trade Payables’ under the Companies Act, 2014 (CA 2014).
Accounting Policies
The financial statements are required under section 3.24 FRS 102 to (a) disclose the legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office); and (b) a description of the nature of the entity’s operations and its principal activities, unless this is disclosed in the business review (or similar statement) accompanying the financial statements.
If the above information is shown elsewhere, then one may cross-reference it to that location in the financial statements.
Turnover
In the accounting policy note for ‘turnover’ the words ‘fair value’ need to be included and worded to indicate that the accruals concept was used (‘received and receivable’) in order to comply with Section 23 of FRS 102 e.g. something like: ‘Turnover comprises of the fair value of sales income of the company received and receivable during the year, excluding Value Added Tax’.
The accounting policy for ‘Property, Plant & Equipment’ often needs re-worded to use the words ‘Tangible Fixed Assets’ under the CA 2014.
Provision for doubtful debts
Some financial statements make no mention of a policy on bad debts. The language needs to be compatible with FRS 102. See the text in paragraphs 11.22 to 11.24 in the standard and ensure to use language like ‘objective evidence’ rather than saying the estimate is based on ‘historical experience’ which might not necessarily be objective.
Stock – no such thing any more as ‘net realisable value’. The new terminology is ‘stock is stated at the lower of cost and estimated selling price less costs to complete and sell’.
To hear more about these types of issues and get up to date with FSR 102 come to our forthcoming FRS 102 courses in Dublin.
For more details and booking visit https://jmcc.ie/d7/content/cpd-courses
by John McCarthy Consulting Ltd. | Sep 16, 2016 | News
Many sole practitioners and small firms may need an external cold file review before the end of 2016 in order to comply with Irish Audit Regulations.
One of the contributing reasons why audit firms’ get a poor rating on their monitoring visits is because they have not been in the habit of having experienced external input into their audit quality procedures. Quite often they lack a systematic means of improving the audit process.
The CARB Audit Regulations and Guidance (effective from 1 January 2014) require an independent cold file review (CFR) of completed audit engagements for each responsible individual at least once every third year, to meet the monitoring requirements of the clarified International Standard on Quality Control 1 (ISQC 1). Any firm registered with CARB to carry out audit work must comply.
CFRs are best conducted by a suitably qualified and experienced individual. The reviewer should be someone who has not been involved in the audit and preferably someone who is independent of the audited entity.
These requirements can be particularly challenging for small firms and sole practitioners. Some small practices have sufficient senior audit staff, so they may be able to undertake CFRs internally. One senior auditor could potentially review an engagement that they were not involved in, but this is seldom an option for sole practitioners.
If a suitable individual is not available to undertake the review within the firm, then an external reviewer should be used, at least once every three years. (Audit Guidance paragraph 3.20 effective 1 January 2014).
Many small firms interpret this as meaning that CFRs are required only once every three years but the CARB Audit Regulations require a cold file review every year with internal reviews sufficing for two of those three years.
As the clarified ISQC 1 (for UK and Ireland) came into force for reviews of audits for periods ending on or after 15 December 2010, the second three-year deadline for external cold file reviews will expire on 31 December 2016, so there is still time to get this right.
