Archives For Cecile Bonino

By Sue Almond, technical director, ACCA

reporting

 

I was fortunate to chair a roundtable on the future of audit while MEP Karim, rapporteur for the JURI committee on the EC audit proposals, was in New York recently on a fact-finding visit to understand more about the US and the global audit market, to consider the broader impact of the EU audit proposals. The roundtable attracted a wide range of attendees, and it was interesting to hear the perspectives from the US. Not surprisingly, much of the debate focussed on the critical EU proposals such as mandatory auditor rotation, tendering and non-audit services.

There were some general recurring themes that arose at the roundtable:

  • Although a single country, the US state system is not so different to EU member states – for example auditors are required to be registered with the state.
  • The distinction between public company audit (regulated by PCAOB and SEC) and private company audit (AICPA and state) is quite significant.
  • The rules on audit committees are set by the SEC. These tend to relate to the legal requirements, including independence of Audit Committee (AC) members, rather than the functioning of the AC, and there was strong support for an enhanced, and more transparent, role for the AC. There was general support for the role of the AC in evaluating non-audit service provision.
  • There was very strong disagreement with mandatory audit rotation across almost all sectors (in line with the feedback to the recent PCAOB consultation on the topic), and in fact the day before the roundtable a motion was tabled in Congress to prohibit any proposed rules on this. The practical impact on global businesses of potentially different mandatory rotation requirements in different jurisdictions was noted. However, it appears PCAOB may still be interested in pursuing rotation.
  • FASB will shortly publish going concern proposals. This is important because the current position is that management in the US have no requirement/responsibility to make a going concern assessment – it is purely the role of the auditor. This is causing significant problems for the IAASB in its auditor reporting project, where there is pressure for the auditor not to be generating ‘new’ information.
  • There was support for global standards, e.g. ISAs (International Standards on Auditing) and IESBA Code of Ethics.

MEP Karim published his final proposed amendments for the EU Audit proposals for vote just after the roundtable. They are very much in line with the position ACCA took on the original proposals more than 18 months ago:

  • We support adoption of global standards (e.g. ISAs, including on auditor reporting, IESBA Code, independence/non-audit services, ISQC1)
  • We support strengthening the role of the audit committee and increased transparency
  • We do not support mandatory rotation of auditors as we do not believe that there is evidence that supports an improvement in audit quality as a result
  • We do not support restricting the role of professional bodies, particularly in relation to the monitoring of auditors of unlisted entities.

Following the approval on MEP Karim’s report, the focus now moves to the Council. Let’s hope that they will recognise the good work that has been done in the Parliament as they now work on their revisions to the audit proposals …

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By Cecile Bonino, public affairs and media relations officer – EU, ACCA

The European Commission is currently undertaking a wide-ranging analysis of the nature of the pension challenges that face Europe through a public consultation entitled Towards Adequate, Sustainable and Safe European Pension Systems.

These challenges are inextricably linked to issues in the wider economy and wider society and should be tackled through a joined-up, strategic approach at government level that would take into account all the relevant dynamics and tries to forge a pragmatic way forward. This would involve communicating the message to all concerned, including individual citizens, that pension provision can no longer be taken for granted and needs to be properly planned and financed.

The EU Commission suggests that the three elements of the strategy agreed at the 2001 Stockholm Council – reducing public debt, raising employment rates, and productivity – and pension reform, health care and long-term care systems should be linked; this seems the right way to go. It is clear that some member states' budget deficits are unsustainable in the long term. If they continue, they will make it increasingly difficult to pay for pensions.

The ability of any pension scheme, whether private or public, to fund retirement benefits will depend to a great extent on the EU's high unemployment rates. In some countries, youth unemployment exceeds 40%, which exacerbates the long-term financial pressures on governments, and increases the prospect of pensioner poverty in the future.
 

This point is echoed in ACCA's response to the consultation, which stresses that the EU strategy on pensions must be interlinked with efforts to create jobs. It is also essential that all unjustifiable legal and practical barriers to the participation of older workers in the workforce are dismantled, otherwise those workers will be forced to rely on state welfare benefits where those are available rather than contribute to the economy. Statutory intervention should, however, not be the only means for ensuring it and employers should be encouraged – rather than obliged – to make reasonable adjustments to working practices.

This process will of course necessitate a certain degree of cultural and attitude change on the part of employers and their younger workforces, but efforts should be concentrated on persuading employers of the business case for that change.

It is also vital that people are suitably reassured about the safety and security of the assets held by their pension fund. Gaps in regulatory protections must be addressed – especially in the case of pension providers operating across-border. But any additional regulation of schemes must be very careful not to add to the disincentives that already exist for employers and instead should encourage the continuing involvement of employers in the framework of supplementary pension provision.

Confidence could also be engendered through risk sharing: employers should be encouraged to offer collective schemes, which have a greater potential for lowering scheme costs, while legal guarantees for supplementary pension benefits where an employer has become insolvent could also – under certain conditions – play a vital role.

Consistency is key

accawebmaster —  30 September 2010 — Leave a comment

By Cecile Bonino, public affairs and media relations officer – EU, ACCA

The European Commission is currently analysing the impacts, costs, and benefits stemming from the Transparency Directive, focusing on the attractiveness of regulated capital markets for smaller listed companies, holdings of voting rights and the inefficient implementation of the Directive due to diverging national rules; for the modernisation of the transparency regime to be successful, it must be consistent.
 
Although the Commission's desire to improve access to financial information for investors while reducing the burden on issuers of securities – particularly the small and medium-sized ones – is laudable, exempting smaller issuers from the requirement to publish quarterly information would be damaging. The availability of reliable and transparent information for stakeholders in small businesses is vital to encourage investment in, and trade with, such entities and the financial crisis has shown that they can be more risky than larger issuers and therefore merit the highest level of scrutiny and regulatory control.
 
As we've argued in our response to the Commission's consultation, given the experience of abolition of audit and accounting requirements for small, medium and micro entities, the absence of pan-European legislation does not necessarily lead to simplification or a reduction in local administrative burdens, and is even likely to result in the creation of domestic regimes that are incompatible with each other, acting as a barrier to cross-border transactions.

It is inconsistency, rather than the absence of guiding regulatory principles, that causes the problems. The minimum harmonisation approach of the Transparency Directive has the same effect, as individual member states can introduce (or retain) listing rules that are more onerous on issuers than required by the Directive. If investors are to have confidence to invest in businesses outside their home state, then they must not only have confidence on the accuracy of the information, but must also feel comfortable with the presentation and interpretation of that information.

ACCA also warns against a definition of small-listed companies based upon local factors in stressing that investors would see not simply two different types of issuer (SMILEs and 'large' issuers), but up to 54 different types, with the boundary between small and large set at a different level for each of the 27 member states.

In the context of investor requirements to notify issuers of significant interest, this level of complexity would be counterproductive, and risk increasing the perception of a fragmented European investment market from non-EU investors' perspectives.


by Cecile Bonino, ACCA Brussels office

Since the financial crisis, the banking sector has been affected by issues linked to accounting policies and standards. These include challenges associated with fair value accounting, pro-cyclicality and comparability of numbers, as well as performance in financial reports.

It is reassuring that after the G20 request to international standard setters in April 2009 to clarify accounting rules, many of the issues raised have started to be addressed, but it is too soon to be complacent.

The European Union adopted the IFRS standards, including IAS39 – the standard on the recognition and measurement of financial instruments – as part of the move to IFRS by listed companies from 2005.

In 2009, the IASB published the first part of IFRS 9, a new standard to replace IAS 39. This still provides for a 'mixed model' – that is some financial assets to be shown at historical cost and some to be at fair value – but a simpler version. However, IFRS 9 has been seen by some to place too much emphasis upon valuing assets based on market prices.

IASB has also published a proposal for loan loss and other impairments of debts when at historical cost, while proposals are still expected later this year on the measurement of liabilities and on hedge accounting.

The adoption of IFRS 9 by Europe is clearly a crucial question for the future of the IFRS framework as a whole. In this context, a recent roundtable in Brussels organised by ACCA and Barclays – entitled New IFRS 9: Reporting of financial instruments made simpler? – considered if the new standard will align sufficiently financial reporting with the business model and, should this be the case, what still needs to be done.

The European Commission has decided to put a hold on transposing the rule into Community law until the remaining sections of IFRS 9 are released, urging the IASB to strike the right balance between the two different accounting models, the reporting assets at fair value (market prices) and (amortised) cost price.

There is no sign so far of an early endorsement; the whole process will take longer than expected, especially since the IFRS 9 proposals are a part of an even bigger set of expected changes.

Even though no major disagreement among stakeholders exists on the direction standards should be changed, there are still many details to be completed. Improvements have been achieved but the seriousness of the remaining concerns might be a further obstacle. In addition, on the convergence issue, no firm proposals have yet been published by FASB, the US standard setter in this regard, though the body's deliberations have favoured a model where most financial instruments would be at fair value. This is expected to lead to further difficulties.