An update for Audit Committees – governance, corporate reporting and technical accounting developments
This session, held in Jersey on Tuesday 28 January 2014 and in Guernsey on Wednesday 29 January 2014, was held primarily for Non-Executive Directors and members of Audit Committees to further their understanding of corporate governance, reporting and accounting developments.
The September 2012 update to the UK Corporate Governance Code introduced a number of revised recommendations that come into force for periods beginning on or after 1 October 2012 and will therefore first apply to September 2013 year ends. One concerns directors having to make a formal statement about the annual report being ‘fair, balanced and understandable’,accompanied by auditor reporting thereon.
Another is that the Audit Committee report should include the significant issues that the Committee considered in relation to the financial statements and how these were addressed.
Alongside this will be changes to the audit report in response to criticisms that auditors’ reports are uninformative. The audit report now needs to provide more insight into judgements made as ‘inputs’ to the audit process. Company-specific information on audit risks, materiality and group audit scope will now be publicly reported. Audit Committees and auditors will need to work together to ensure the appropriate level of consistency between their respective reports.
In addition, the Competition Commission’s provisional decision on remedies as part of its review of the statutory audit services market proposes a requirement for an advisory vote on the Audit Committee report. It has also recommended that the audits of FTSE 350 companies should be subject to mandatory tendering every five years which is shorter than the ten years previously recommended by the FRC in the UK Corporate Governance Code. As the provisional remedies currently stand, each FTSE 350 audit will be reviewed every five years by the Financial Reporting Council’s Audit Quality Review team with the findings and grade reported to shareholders.
There are, therefore, several corporate governance developments impacting the Audit Committee and its remit.
At the same time, corporate reporting continues to evolve. The Department of Business, Innovation and Skills (BIS) has issued its revised narrative reporting regulations.
A Strategic Report, with a strategic, forward-looking focus, will replace the Business Review and move to the front of the annual report. This is part of BIS encouraging companies to tell an integrated story in their own words, starting with their business model and strategy, covering their performance and looking towards their future.
Whilst accounting developments have slowed as regards pace of change, there are a number of common themes that continue to emerge from the regulators – particularly around accounting policies, assumptions and judgements, cash flow statements and income taxes. Other important accounting projects, such as those looking at revenue recognition and leasing, are continuing and may result in significant changes to current practice going forward.
Iain Selfridge, a partner with PwC's Accounting Consultation Services Group examined the most significant developments for companies /funds and their Boards.
Amongst the areas the workshop addressed were:
The presentation attached gives some highlights that were covered in the workshops. If you have any queries please do not hesitate to contact either Paul Silcock, Alex Burne or your usual PwC contact.