Financial Reporting Supervision Key Areas of Focus 2017 Deloitte - - PowerPoint PPT Presentation

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Financial Reporting Supervision Key Areas of Focus 2017 Deloitte - - PowerPoint PPT Presentation

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Financial Reporting Supervision Key Areas of Focus 2017 Deloitte Tuesday 14 March 2017 Michael Kavanagh Trevor Rushe Garrett Ryan Disclaimer and confidentiality Section 940, Companies Act 2014 No person shall disclose, except in accordance

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Financial Reporting Supervision

Key Areas of Focus 2017

Deloitte

Tuesday 14 March 2017

Michael Kavanagh Trevor Rushe Garrett Ryan

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Disclaimer and confidentiality

Section 940, Companies Act 2014 No person shall disclose, except in accordance with law, information that :

  • comes into IAASA’s possession by virtue of performing any of its

functions, and

  • has not otherwise come to the notice of members of the public

Disclaimer The views expressed are my own and do not necessarily reflect the views

  • f the Authority, Board or the staff of IAASA

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Presentation overview

  • IAASA’s financial reporting supervision functions
  • Accounting enforcement – Ireland
  • Accounting enforcement in an EU context
  • Key activities undertaken in 2016
  • IAASA key focus areas for 2017
  • Closed ended funds & Debt – recurring topics
  • Looking to the future
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IAASA Financial Reporting Supervision Functions

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Financial reporting - where IAASA fits in

RAB

RMS

Auditor

AIU/Auditing

standards

Issuer

FRSU

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Legal and Conduct Unit

Protection of investors and capital markets

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Principal Functions of IAASA’s Financial Reporting Supervision Unit

  • Accounting enforcer for Ireland
  • Liaising with other EU countries’ accounting enforcers

through ESMA

  • Co-operating in the development of accounting standards

and practice notes

  • Assisting the Board to discharge its functions as an

advisor to the Minister on accounting related matters

  • Advocacy
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Accounting enforcement - Ireland

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IAASA’s accounting enforcement function

  • IAASA’s role under Article 24(4)(h) of the Transparency

Directive – “..to examine that information referred to in this Directive is drawn up in accordance with the relevant reporting framework and take appropriate measures in case of discovered infringements.”

  • The Central Bank of Ireland is the central administrative

competent authority

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FRSU known constituency at 31 December 2016

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Equity, 28 Debt, 71

Closed-ended Funds, 14

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Who is within FRSU’s remit?

  • CRH - No 1 asphalt and no 1 provider of building materials

in USA (no 2 provider of building materials worldwide)

  • Greencore - one of the world’s largest manufacturers of

pre-packed sandwiches

  • Kerry - World leader in food ingredients and flavours
  • Ryanair - No 1 passenger carrier in Europe – will carry

119m customers this year

  • Smurfit - one of the world’s largest integrated

manufacturers of paper based packaging products

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IAASA’s accounting enforcement function

  • What does it mean?
  • To examine that the annual and half yearly

financial reports of issuers are drawn up in accordance with IFRS, Irish/UK GAAP and US GAAP (for some fund and debt issuers) and take appropriate measures in case of discovered infringements

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Categories of examinations

  • Full scope examinations (based on risk assessment criteria)
  • Focused examinations
  • Follow-up examinations
  • Thematic examinations
  • Topical surveys

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Financial Reporting Supervision Typical Full Scope Review

Risk Assessment, Selection and Review Planning Initial Review Internal/External Drafting and issuing correspondence to issuer Consider issuer response Drafting and issuing correspondence with additional questions Meet with issuer (if necessary) Consider issuer response Communicate views to issuer/agree undertakings Conclude review (EECS Decision, publish decision (?) Plan Follow-Up, etc)

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Accounting enforcement in an EU context

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IAASA engagement with ESMA – mandatory

  • Mandatory application by IAASA of “ESMA Guidelines on

enforcement of financial information” and “ESMA Guidelines on Alternative Performance Measures” – Enforcement Guideline 1 – Enforcers should co-ordinate the enforcement of financial information with ESMA – Enforcement Guideline 2 – Sufficient human and financial resources to carry out activities in an effective manner

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IAASA engagement with ESMA – mandatory

– Enforcement Guideline 3 – adequate independence from Government, issuers, auditors and other market participants – Enforcement Guideline 10 – Enforcers discuss the enforcement of IFRS during meetings of EECS and identity Common Enforcement Priorities – Enforcement Guidelines 11 & 12 – harmonisation of European enforcement practices – discussion of Emerging Issues and Decisions takes place in EECS

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IAASA engagement with ESMA – mandatory

– Enforcement Guidelines 15 & 16 – All Emerging Issues and Decisions meeting the ESMA criteria should be submitted to the EECS database – Enforcement Guideline 18 – European enforcers must provide a report periodically on national enforcement activities to ESMA

  • Also:

– Issuer selection criteria – Participation in ESMA surveys – Embed CEPs in financial statement examinations – Reporting of activity and findings to ESMA annually

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IAASA involvement with ESMA/EECS

  • IAASA plays a leading role in European accounting

enforcement – Publications – the benchmark for others – IAASA input into ESMA common enforcement priorities – EECS involvement – Subgroups – examples include:

  • EECS Agenda group;
  • Deferred Tax Assets sub-group; and
  • Task Force on IFRS 13.
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IAASA interactions with the IASB

  • They know us well at this stage!

– Accounting for uncertain tax positions – Current/non-current classification of liabilities – IAS 1.69(d) – “unconditional right” – IFRS 8 amendment – aggregation criteria – Deferred tax assets – forecast period – Classification of puttable instruments – liability v. equity

  • Income Statement presentation

– Materiality Practice statement – arose from ESMA group chaired by IAASA

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Key activities undertaken in 2016

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Examinations Undertaken in 2016

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5 10 15 20 25 30 Equity CEF Debt 30 5 10 21 7 5 2016 examinations 2015 examinations

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Examinations Undertaken in 2016 by type

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Unlimited scope examinations: 9 Focused examinations: 24 Follow-up examinations: 12 4 19 7 1 4 4 5 1 Debt CEF Equity

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Outcome of examinations

  • A total of 61 undertakings were provided
  • Unlimited scope examinations – 33 undertakings provided
  • Focused examinations – 28 undertakings provided

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Outcome of examinations

  • Equity issuers (IFRS adopted by EU) – 24 Undertakings
  • CEF and debt issuers (IFRS adopted by EU) – 25

Undertakings

  • Debt issuers (FRS 102/FRS 104) – 12 undertakings

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Analysis of Undertakings received from IFRS equity issuers

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0% 5% 10% 15% 20% 25% 30% 35% 40% 45% IAS 1, IAS 8 & IAS 7 IAS 12 IFRS 2, IFRS 3, IFRS 11 & IFRS 13 IAS 17 & IAS 19, IAS 36, IAS 39 & IAS 34 IFRS 7

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Publication of Financial Reporting Decisions

  • S.I. 44 of 2015
  • Since 9 February 2015 – 17 financial reporting decisions

have been published

  • 6 decisions published relating to examinations undertaken

in 2016

– Aryzta AG – IAS 28/IFRS 10/IFRS 11 – Cairn Homes plc – IFRS 7

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2016 IAASA Publications

  • Survey of operating lease commitments by Irish equity

issuers

  • Survey of issuers’ defined benefit pension scheme

assumptions

  • Survey of recognition of intangible assets and scale of

acquisition activity

  • Share-Based Payments – a Survey
  • Survey on the application of IFRS 13 Fair Value

Measurement by Irish Companies

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2016 IAASA Publications

  • Observations on selected financial reporting issues –

years ending on or after 31 December 2016

  • Information note: Consideration of the impact of Brexit

for issuers’ half-yearly financial reports

  • All publications can be located on the IAASA website:

http://www.iaasa.ie/Publications/FRSU

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Key areas of focus for 2017

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IAASA’s key focus areas for 2017

  • IAASA 2016 Observations Document
  • Brexit – the financial reporting challenges
  • New accounting standards not yet effective – IFRS 9,

IFRS 15 and IFRS 16

  • IFRS 13 Fair Value Measurement
  • Retirement benefit obligations
  • Classification of financial instruments – debt or equity
  • Deferred tax assets – recognition, measurement and

disclosure

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IAASA’s key focus areas for 2017

  • IAASA 2016 Observations Document
  • Current interest rate environment: Discount rates in

financial statements

  • Presentation of the financial performance and the quality
  • f disclosures
  • Company only financial statements – notification to

shareholders

  • Cash flow statements – ‘operating, investing and financing

cash flows

  • ESMA Guidelines on Alternative Performance Measures
  • Recognition of intangible assets
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IAASA’s key focus areas for 2017

  • Likely thematic surveys for 2017:
  • ESMA APM Guidelines
  • Tax Reporting
  • Impairment Testing
  • Operating Segments
  • Earnings Per Share
  • New Accounting Standards disclosures (IAS 8.30)
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Closed Ended Funds & Debt – Recurring topics

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Closed Ended Funds & Debt: Recurring topics

  • Significant accounting policies
  • Enhanced disclosures are required under IFRS 13
  • Risk disclosures - IFRS 7
  • Statement of Cash Flows
  • Netting in the financial statements

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Some Trends in Closed Ended Funds & Debt Financial Reporting

  • Selected issuers have shown improvement in the quality
  • f the financial reporting
  • Still many issues with some outliers
  • Need to tailor financial reports to specific circumstances of

the entity in current year - don’t just add to last year

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Closed Ended Funds & Debt

  • IAASA’s Recommendations
  • Enhance entity specific qualitative disclosures

Quality of disclosures rather that the quantity

  • Tell the story of entity in c/year:

Changes in both the financial performance and risks

  • Avoid boiler plate disclosure

(e.g. repetition of accounting standard)

  • Remove unnecessary or irrelevant policies

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Closed Ended Funds & Debt: An IAASA Published Decision

Matters identified in Morgan Stanley Asia Products Ltd Ye 2014:

  • Presentation of gains and losses - IAS 1
  • Statement of Cash Flows - IAS 7
  • Credit risk and Market price risk disclosures - IFRS 7
  • Offsetting of financial assets and financial liabilities
  • Related parties transactions - IAS 24
  • Operating segment disclosures - IFRS 8
  • Management Report – fair review and principal risks and

uncertainties (Regulation 5(4)(c)(ii)).

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Summary

  • Functions of FRSU
  • European dimension
  • 2016 activities
  • 2017 hot topics
  • Fund and debt issuers

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Briefly – beyond 2017!

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BREXIT!

– Major increase in 3rd country issuers?

  • Some examples – Diageo, Tesco, debt issuers

– UK IFRS –v- EU IFRS – FRS 102 post Brexit – time for Irish GAAP? – Divergence in UK and Irish Company law

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Questions?

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Contacts & Further Information

IAASA 2nd Floor Willow House Millennium Park Naas Co Kildare Tel: + 353 45 983600 Fax: + 353 45 983601 e-mail: info@iaasa.ie Web: www.iaasa.ie / www.iaasa.eu