Accounting and auditing update video: March 2016
Watch this month's Accounting and Auditing Six Minute Update video from James Barbour, ICAS Director of Technical Policy, covering key changes to UK GAAP and international financial reporting updates.
This month's video includes information on:
IFRS 16 Leases was issued in January 2016.
It applies for accounting periods commencing on or after 1 January, 2019.
Although a joint project, there are some differences with FASB’s final standard – i.e. how costs are allocated in the income statement.
The standard is still to go through the EU endorsement process.
IFRS 16 – Key Points
Operating/Finance lease classification is removed.
All leases will be included as an asset and a liability on the balance sheet other than:
- Those for a duration of less than 12 months and which do not contain a purchase option.
- Those for small amounts.
The asset will be a “right of use” asset.
Gearing ratios etc may obviously be impacted.
There could be potential other impacts and entities affected may need to discuss these with key stakeholders.
IASB amendments to IAS 7 ‘Statement of Cash Flows
Entities to provide disclosures that enable users of FS to better evaluate changes in liabilities arising from financing activities.
These requirements include disclosure of:
- Changes from financing cash flows.
- Changes in fair values.
Changes are effective for annual periods beginning on or after 1 January, 2017 (earlier application allowed).
BIS will introduce legislation to align the financial reporting regimes for LLPS and companies, and introduce new ‘micro-entities regimes’ for LLPs and qualifying partnerships.
The changes include raising thresholds used to determine the size of LLPs.
Audit Exemption Thresholds
The UK audit exemption threshold will remain aligned to the small company definition.
For periods commencing on or after 1 January, 2016 (early adoption not permitted) the qualifying conditions will be:
- Turnover not more than £10.2m.
- Balance sheet total not more than £5.1m.
- Not more than 50 employees.
- A company needs to satisfy two out of the three conditions. The two year rule continues to apply with transitional provisions also applicable.
Extended Auditor Reports
FRC has published its review of the second year of extended auditor reports.
Investors welcomed the information included in extended auditor’s reports (particularly for smaller companies).
Investors prefer reports which are well structured, and which signpost key information.
Areas where investors suggested further improvement include:
- Providing more complete information about the sensitivity ranges used in audit testing.
- Giving greater insight into the auditor’s assessment of the quality of an entity’s internal controls informing their significant risk assessment.
- Being more explicit about the auditor’s view on the appropriateness of management estimates.
- More auditors should include information about ‘performance materiality’, how it is derived and how it impacts on the audit.
If you have any question on the content of this video - please feel free to contact James Barbour, Director of Technical Policy.