Mercia Newswire November

COVID-19: how HMRC will continue to support customers and the economy
HMRC have issued a briefing sets out how they will continue to support customers and the economy over the coming months. To read more, please click here.

AIA changes
The Government has announced that the temporary £1m cap has been extended until 31 December 2021. To read more, please click here.

AUDIT AND ACCOUNTING

Letters of Support
The ICAEW Audit and Assurance Faculty has produced some timely guidance for auditors of subsidiary undertakings that rely on their parents for financial support. In such cases it is common practice to request a letter of support from the parent as part of the evidence needed to address going concern. This guidance considers how much reliance can be placed on such letters along with other issues that the auditor will need to consider whenever they are used.
This forms part of the Institute’s 2020/21 Reporting Season guidance which also considers areas such as COVID transparency, the cash flow statement and other topical issues.

Suspicious Activity Reporting

In its recent thematic review of Suspicious Activity Reports (SAR) the ICAEW revealed that over half of all reports made to the National Crime Agency were as a result of audit and assurance work. This report, as well as providing some interesting statistics, also highlights areas where firms are already doing well along with where they can improve their reporting procedures further. Unsurprisingly it refers to the need to monitor clients that have taken advantage of pandemic-related government support such as the Coronavirus Job Retention Scheme and to ensure that SARs are made where fraudulent claims may have arisen.

Brexit Transition

With little more than a month to go before the end of the Brexit transition period, BEIS and the FRC have joined forces to issue letters to the accounting and audit sectors to set our how the regulatory framework will change from 1 January 2021. Firms should review these letters to ensure that they are ready for the changes about to come into force.

FRC reports on climate change

The FRC has issued several documents on climate change. Its main review document sets out key findings, expectations and next steps. While at present there are no new climate reporting requirements, the FRC is encouraging companies to start to report against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics. It has also released reports covering various aspect of climate change reporting including financial reporting, audit and governance.

Developments in audit

The FRC’s latest Developments in Audit report, issued this month, has pointed out that there continue to be inconsistencies in audit quality. Issues noted continue to relate to insufficient challenge of management, with considerable extra difficulties now added because of the practical effects of Covid-19.

Expectations of company directors

The FRC has written its annual public letter to boards, outlining it expectations for the coming reporting season. The contents are not controversial, and emphasise explaining risks and uncertainties, whether these relate to the ongoing effects of Covid-19, or Brexit. Boards are also reminded to consider what will be an appropriate reporting timetable when there are many extra pressures on both preparers and auditors: taking time to get reporting right will be particularly important in this cycle.

Thematic review on cash flows

The FRC has published a thematic review covering cash flow and liquidity-related disclosures under IAS 7 and IFRS 7. While much of the content is IFRS-specific, there is also the observation that many entities are still making simple preparation errors in their cash flow statements, which can be picked up just from reviewing the accounts. This highlights the fact that financial reporting problems are not always related to complex judgements – some relate to errors, and cash flow statements are not always straightforward to draft or to update when the other primary statements are adjusted.

FRC consultation on third country auditors' fees

The FRC has opened a public consultation on fees payable by third country auditors, covering the FRC’s costs in regulating them. After 31 December 2020 these will be relevant to all auditors outside the UK that perform UK audits. Under the proposals the fee levels would not change but are reviewed each year.

Audit of housing associations

A consultation is now open on updating the FRC’s Practice Note on the audit of housing associations, which hasn’t been revised since 2014. Under the proposals the note would be updated to ensure the materials in it were only those relevant to housing associations, and to provide clear explicit links to current ISAs. Anyone wishing to comment on the proposals has until 29 January 2021 to do so.