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.
by John McCarthy Consulting Ltd. | Sep 2, 2016 | News
Since the implementation of the new Companies Act, 2014 on 1 June 2015, the financial statements of regulated insurance intermediaries and investment brokers will no longer qualify for certain exemptions.
Those affected are those carrying on business under the Insurance Act, 1989 or otherwise authorised by the Central Bank. The full list of entities affected is on the 5th Schedule of the Companies Act, 2014
This applies to financial statements approved by the directors on/after 1 June 2015 and means they:
1. Are not allowed to qualify for the ‘small’ or ‘medium’ thresholds as defined in company law;
2. Cannot abridge their financial statements. They must file full accounts with the CRO;
3. Cannot avail of audit exemption;
4. Cannot avail of the FRSSE (the Financial Reporting Standard for Smaller Entities (January 2015);
5. Must apply FRS 102 in full with effect from financial years commencing on/after 1 January 2015 (including a compulsory cash flow statement);
6. Must disclose auditor remuneration in the four categories required by section 322 of the Companies Act, 2014 (along with comparatives);
7. Cannot use FRS 105, the proposed micro-entities standard, when it is endorsed in Irish company law (expected to be signed off later this year);
8. Will not be allowed adopt section 1A of FRS 102 even after it has been endorsed in Irish company law (expected to be signed off later this year for certain other entities).
9. Will not be allowed use the PASE (Provisions Available for Smaller Entities) as the entity is deemed to be large.
To hear more about financial reporting developments in FRS 102 and in FRS 102 for Charities (and other Not for Profit Entities) including the Charities SORP please come to our upcoming training days in Dublin and Cork. See our CPD courses page for the latest news.
by John McCarthy Consulting Ltd. | Jun 10, 2016 | News
The proposed Companies (Accounting), Act 2016 is expected to make some changes in Irish company law. These changes have been expected almost since the Companies Act 2014 became effective on 1 June 2015. Publication of this new company law has been delayed by the formation of the new Government. We understand that legislators are actively working on the new law at present.
We covered the new company law as well as its potential impact on current accounting practice in FRS 102 and with the proposed FRS 105 accounting standards, at our public seminar on Monday 27 June 2016 at the Talbot Hotel, Stillorgan, County Dublin. More seminas will take place in 2016 and 2017. see our CPD Courses page for details.
Among the changes expected in the new law are:
Increased thresholds for company sizes
The new Act will trigger an increase in the accounting disclosure thresholds for company sizes. The existing size thresholds are shown in brackets.
- Small Company – a turnover of €12m (€8.8m), 50 employees with a balance sheet of €6m (€4.4m);
- Small Group – a turnover of €12m (€8.8m) net or €14.4m gross, 50 employees with a balance sheet of €6m (€4.4m) net or €7.2m gross. The reference to the term ‘gross’, is before taking account of any consolidation adjustments;
- Medium Company – a turnover of €40m (€20m), 250 employees with a balance sheet of €20m (€10m).
Micro Companies and Directors Remuneration
One of the key features of the new Bill is that micro companies (those with turnover of less than €700,000, among other criteria) will be exempt from Sections 305 to 312 of the Companies Act, 2014 which require disclosure of directors’ remuneration and certain loan arrangements.
This is likely to appeal to many company directors who wish to keep their remuneration and loan arrangements private. Those companies classified as ‘small’ will still be required to disclose directors’ remuneration and loan details in their financial statements. Certain ineligible entities cannot be micro companies and these include financially regulated entities like investment intermediaries.
In addition, directors of micro companies will not have to a file director’s report.
Medium Sized companies
Medium sized companies will have to file full financial statements as Section 354 of CA 2014 will be deleted from Irish company law. At present they do not need to disclose certain matters including their turnover.
The commencement date of the new law is not yet certain and it remains to be seen what precise changes the law will introduce.
by John McCarthy Consulting Ltd. | May 27, 2016 | News
The Companies (Accounting) Bill, 2016 is expected to introduce several changes to the Companies Act, 2014. The Bill has been in draft since prior to Christmas last year and it is speculated that it will be introduced in the Dail before the Summer recess.
Among the changes the Bill will introduce is:
1. A new type of company called “the Micro Entity” which will impact on accounting disclosures. The name is slightly misleading in that it is only for companies and not for other types of entity.
2. It is expected the regime would apply for accounting periods beginning on or after 1 January 2016.
3. The regime is an ‘opt in’ one and is not compulsory. Companies are free to use FRS 102 instead, but that requires more widespread use of ‘fair value’ measurement rules, while FRS 105 uses ‘cost’, which is a lot simpler.
4. The Micro Company will have far less accounting disclosure requirements than an ordinary ‘small’ company. It will be basically a Profit & Loss Account, Balance Sheet and a certain minimum number of notes.
5. The only notes required are for directors’ benefits such as advances, credits and guarantees made on behalf of a director.
6. The regime will not apply to certain regulated entities like credit institutions, insurance intermediaries and charities, among others.
7. Cost will be the main measurement rule used. The expected size thresholds are:
- Turnover not to exceed €700,000, excluding VAT.
- Balance sheet total assets (fixed plus current, ignore liabilities) not to exceed €350,000.
- Average monthly number of employees not to exceed 10.
8. In order to qualify the micro company must satisfy two of the three criteria for two consecutive years, except in the first year.
To hear more about the latest accounting changes in Irealnd on FRS 102 and FRS 105, come to our public course on Monday 27 June 2016 at the Talbot Hotel, Stillorgan, County Dublin (free parking at venue).
For booking and more informaiton click here.
by John McCarthy Consulting Ltd. | Apr 12, 2016 | News
The advent of the new accounting standard FRS 102 for financial periods commencing 1 January 2015 has triggered the need to update engagement letters for both audit and audit exempt companies. Some of the issues that the new engagement letters will need to deal with include:
- the Companies Act, 2014
- allocating responsibility for the decision to apply the ‘undue cost or effort’ exemption for any items in the financial statements and the rationale for so doing;
- financial instruments (including the treatment of long term directors’ and inter-company loans);
- investment properties;
- business combinations including goodwill and the recognition and treatment of intangible assets;
- deferred tax and
- defined benefit pension schemes.
For auditors, the engagement letter will need to clearly spell out what types of advice are permitted and which are not allowed e.g. advice on the implementation of current and proposed accounting standards (e.g. FRS 102) is excluded from the definition of ‘accounting services’ in ES5 ‘Non-audit services provided to audited entities’ [1]. However, auditors will need to take care in providing such services, and guard against giving bookkeeping advice and making specific accounting entries, where these go beyond the technical, mechanical or informative nature.
If you would like complete templates of the different entity engagement letters (and indeed representation letters) they are available at €50 plus VAT each. There is a discount for orders of five or more when the charge is five for the price of four.
Among the types of letter available are
- Standard company audit engagement letter;
- MUD Act company limited by guarantee audit engagement letter;
- MUD Act company limited by guarantee audit representation letter;
- Standard company limited by guarantee audit engagement letter;
- Standard company limited by guarantee audit representation letter;
- Standard company audit representation letter;
- Audit exempt company engagement letter;
- Audit exempt company representation letter.
We can also tailor other letters to order. Please send us an e-mail to john@jmcc.ie with the words ‘engagement letter’ in the subject line.
To hear more about the accounting developments in FRS 102 and for online booking on our upcoming FRS 102 course on Tuesday 19 April in the Camden Court Hotel, Dublin 2, please click the following link FRS 102 – The Journal Entries.
[1} Paragraph 156, ES5 ‘Non-audit services provided to audited entities’ (updated December 2011)
by John McCarthy Consulting Ltd. | Mar 23, 2016 | News
Welcome to our second of a two part series of blogs on preparing for FRS 102 transition. This is an area that is causing a lot of difficulty for firms at the moment while their clients are probably not very interested. Clients may become a lot more interested at some point in the future when third parties point out the inaccuracies in their financial statements. Use these checklists to be forearmed.
Learn more at our upcoming course on April 19, for more details click here.
Part 2 of 2 (see our earlier blog for Part 1 of 2)
Thirty important issues arising from transition to FRS 102 (new Irish GAAP).
For further training, support and information on the changes, please visit www.jmcc.ie call
00 353 86 839 8360 or email john@jmcc.ie
D.
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Small companies and FRSSE (‘Small’ as defined in the Companies Act, 2014)
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1. 5.1
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Has the firm identified those ‘small’ company audit clients where the optional ES PASE may be adopted and those where safeguards against a self-review threat are required?
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2. 5.2
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For firms using FRSSE 2015: are directors of ‘small’ companies able to reliably assess the useful economic life of goodwill?
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3. 5.3
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For firms using FRSSE 2015: are directors of ‘small’ companies able to confirm the completeness of all known related parties under the FRSSE 2015 definition?
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Independence and other matters for auditors
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Does the firm have an up to date audit programme that includes relevant questions about FRS 102 implementation and transition?
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Does the firm audit any entities that are transitioning to FRS 102? If so, have any additional implications for independence been identified?
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Has the firm considered the ethical independence risks of assisting clients with their accounting and has the firm implemented suitable safeguards?
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Do all clients have the correct systems to produce the information required, or might the firm be asked to help improve those systems?
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Where a client appoints an external valuer have the audit implications of assessing the reasonableness of that valuation been considered?
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Is the firm confident that clients will be “informed management” for the purposes of FRS 102, or can the firm help them become informed?
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10.
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Have the firm’s staff working on transitional issues been briefed as to the documentation required, if the work is to be relied upon by the audit team?
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How John McCarthy Consulting Can Help You
Training Courses
FRS 102 will have a major impact on your financial reporting, auditing and tax work. We’re running a wide range of courses on FRS 102 to help ensure your staff are up to date with the changes in relation to your accounts, audit and tax work.
Contact us for details of in-house courses on FRS 102 brought direct to your office. With an in-house course, we can tackle specific issues relevant to your firm. You and your staff save on travel costs and down time.
- Transition Consulting Service
You provide us with a set of FRS 102 financial statements for the transition year 2014 and we will supply you with a written report containing a commentary with suggested adjustments and changes to accounting policies etc.
- Public Course on Tuesday 19 April 2016
For online booking and more details of our next FRS 102 all day public course at the Camden Court Hotel, Dublin 2 click here.
We provide you with an FRS 102 Transition Checklist which helps quickly identify the issues you need to focus on. The Checklist retails for €100 plus VAT and comes with a free template letter to clients explaining the main changes to Irish GAAP and a free document listing the Main Differences Between Old Irish GAAP and FRS 102. Go to www.jmcc.ie for details.
File Reviews
With a file review, we can help ensure your audit teams are complying with the new FRS 102 rules. Our file review feedback time counts as a specifically structured CPD learning session for you and your staff.
We can provide:
- Cold file reviews – we review the file after it has been signed off and provide you with verbal feedback and guidance from our findings. We also provide you with a free written report on the day of your review.
- Hot file reviews – we review the file before it has been signed off, allowing you to make any necessary changes before you sign it off. We provide you with verbal feedback and guidance from our findings. We also provide you with a free written report on the day of your review.
Reviews may consist of a full audit or audit exempt file or the review may be confined to a specific issue on a file.
Reviews may be arranged on-site or we can also conduct postal/electronic reviews, provided we are given sufficient notice.
For details of all our FRS102 services
E-mail john@jmcc.ie or call 086 839 8360
