Newswire September 2021

AUDIT & ACCOUNTING

 

FRC thematic review findings

The FRC has published the findings of its review of reporting on emissions, energy consumption and related matters under the new Streamlined Energy and Carbon Reporting (SECR) rules which came into effect from 1 April 2019. The review sampled companies and Limited Liability Partnerships (LLPs) which had complied with the new SECR requirements and identified examples of emerging good practice and outlined its expectations for future reporting. Our web article distils these good practices and can be accessed here.

 

Separately the FRC has also published its review on viability and going concern disclosures.  Although aimed primarily at listed entities it provides useful guidance on what constitutes best practice, identifying that improvements can often be made in disclosing the assumptions and inputs used when preparing forecasts to support an entity’s going concern status, along with the significant judgements that have been made when considering whether an entity was a going concern or if there was material uncertainty over its status. The FRC is also encouraging companies to extend the period over which they assess their viability and provide longer term information wherever possible.  

 

FRC Illustrative Auditors Reports – updated Bulletin and new FRC guidance - addressing exceptions in the use of audit data analytics

Last month we noted that The FRC has issued an updated Bulletin of Illustrative Auditor’s Reports which includes updated references to legislative changes post-EU exit transition period. We can now also report that the ICAEW’s Audit and Assurance Faculty has updated its series of audit report guides to bring them up to date with the latest regulatory requirements. These provide a useful reference source whenever a modification to the audit report is being considered. 

 

The FRC has also issued guidance for auditors on addressing potential exceptions when using data analytics in an audit. This guidance clarifies the difference between “outliers” and “exceptions”.  

 

Both FRC publications will be reflected in our next update to the Mercia Audit Manual due for publication next month. This update to audit methodology will also cover a number of best practice amendments that we have identified following a detailed internal review of the methodology.   

 

FRC audit quality inspection results

The FRC has released its latest audit quality inspection results, in the form of an overview report and then individual documents for each of the firms reviewed, being the “big four” and the three largest firms outside this group. Overall, 71% of audits required no more than limited improvements, and the balance remaining was described as “unacceptably high”.

 

The reports contained criticism of KPMG particularly around their banking audits; looking at the next tier of firms the FRC noted that they would be particularly watching firms with growth in their PIE audit share since audit quality needs now to be robustly embedded, and while firms’ efforts were praised, it is recognised that they still have more to do.

 

Perhaps unsurprisingly the most criticisms came around auditor challenge of management including their assumptions used in areas such as estimates, impairment and going concern.

 

FRC announces proposals to strengthen significantly the UK’s Audit Firm Governance Code

The FRC has announced a consultation on proposals to update and strengthen the Audit Firm Governance Code in support of the FRC’s objectives to promote high-quality audit and audit market resilience. The Code only applies to the Big Four and to other firms auditing FTSE 350 companies. Going forward it will also apply to firms that audit significant numbers of other types of public interest entities. These proposals will embed a continued focus on the public interest and audit quality across the UK’s largest audit firms and strengthen key areas of accountability and firm resilience.  

 

Sanctions against Ernst & Young LLP and an audit engagement partner

The FRC has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against EY LLP and the audit engagement partner, in relation to the statutory audit of the consolidated financial statements of Stagecoach Group plc. Our web article on the FRC findings note the key issues in determining the sanctions and concludes that a lack of professional scepticism is at the heart of many of the points and is often a common finding on Mercia’s own experience of reviewing audit files. 

 

New IAASB outreach plan for audits of less complex entities consultation published and supplemental guidance on auditor reporting and mapping documents published

Last month, we noted that after a long period of discussion and outreach, the IAASB issued a draft standard for the audit of less complex entities (LCEs). Over the last month they have published a targeted outreach plan which details the IAASB’s focused efforts to facilitate feedback from different stakeholder groups through roundtables, presentations and other related activities. The IAASB have also published proposed supplemental guidance on auditor reporting to provide further guidance on modifications and other changes to the auditor’s report and “mapping” documents to help users navigate between existing, equivalent International Standards of Auditing (ISA) and the newly proposed ISA for LCE.  

 

Our recent web article gives an overview of the draft standard and can be accessed here. We will be producing further articles on this draft standard due to be released in the coming months. As a reminder, the comment period for the draft standard closes at the end of January 2022 and this is your opportunity to have a say.  

 

ICAEW probate consultation: mandating transparency disclosures through regulation

The current version of the Probate Regulations are those effective from 23 February 2017. The ICAEW are required by the Legal Services Board (LSB) to alert the following proposed changes to the Probate Regulations, approved by the IRB at its meeting in June 2021, which will mandate transparency disclosures within section two of the regulations under the heading ‘continuing obligations’. The consultation closed on Monday 13 September 2021. 

 

As a reminder, all ICAEW probate accredited firms are subject to ongoing monitoring by ICAEW’s Quality Assurance Department, and they aim to carry out a first monitoring visit to newly accredited firms within their first 24 months of accreditation and on a risk-based cycle thereafter.  

 

 

TAXATION

 

 

Significant tax rises announced

In a precursor to the Autumn Budget, the government has announced significant tax rises for 2022/23. The UK-wide Health and Social Care Levy will be based on ringfenced national insurance contributions (NICs) which already help to partly fund the NHS. A transitional increase to the main and additional rates of NICs will take effect from 6 April 2022 and will last during the 2022/23 tax year only.

Plans to update HMRC systems mean that from April 2023, the 1.25% Levy will be separated out and will also apply to those working above State Pension age. From April 2023 NIC rates will return to their 2021/22 levels.

To read more on the government’s announcement, please click here:

https://www.gov.uk/government/publications/impact-of-building-back-better-our-plan-for-health-and-social-care-on-households, https://www.gov.uk/government/news/record-36-billion-investment-to-reform-nhs-and-social-care and https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care

And it appears that there will be an Autumn Budget

The Treasury has invited representations for the Autumn Budget and Spending Review 2021 until 30 September 2021. Additionally, business groups have started to submit their Budget ‘wish lists’ to the government, outlining the tax and spending changes they would like to see announced.

The Institute of Directors (IoD) has called on the government to reduce the planned level of business tax rises ‘now that the economic outlook is more positive than was expected at the time of the last Budget’.

 

HMRC reveals absurd excuses for not paying National Minimum Wage

In the continuing clamp down on employers failing to pay at least the National Minimum Wage (NMW), HMRC have published ten outrageous excuses employers have used to try and flout the rules. HMRC noted that while the majority of employers pay their employees at least the NMW, it had received bizarre excuses for not paying the legal minimum.

Some of the excuses given included 'the NMW doesn't apply to my business'; 'I have got an agreement with my workers that I will not pay them the NMW'; and 'my workers like to think of themselves as being self-employed and the NMW does not apply to people who work for themselves'.

 

Thousands of teenagers missing out on Child Trust Fund cash

Teenagers are being urged by HMRC to check if they have money waiting for them in a Child Trust Fund. It is now one year since the first account holders started turning 18 and around 55,000 CTFs mature every month. This means their owners can withdraw funds or transfer savings into an adult ISA. HMRC says hundreds of thousands of accounts have been claimed so far, but many have not.

 

HMRC settlement opportunity for Eclipse Film Partnership members

HMRC have released information about settlement opportunities for tax owed due to the Tax Tribunals and Court of Appeal finding that Eclipse Film Partners No 35 LLP was not trading. HMRC took the stance that Eclipse members are not entitled to any Eclipse interest relief. The Courts did not decide the amount of the income from the complex financial arrangements or who would pay tax on it.