Accounting roundup: FRC criticises audit firms' quality
The US Financial Accounting Standards Board (FASB) has issued an accounting update dealing with how employee benefit plans must in future report an interest in a master trust.
Unveiling the changes, the FASB said many of its stakeholders had argued that US master trust disclosure requirements were limited and incomplete.
The FASB’s changes clarify presentation requirements for a plan’s interest in a master trust. They also require sponsors to make more detailed disclosures of the plan’s interest in the master trust.
Finally, the amendments also remove what the US standard setter calls “a redundancy” related to 401(h) account disclosures.
In the UK, the country’s audit watchdog, the Financial Reporting Council, has called on audit firms to improve overall quality.
In its latest thematic audit review, the FRC found that “one-third of the audits sampled for the review required more than just limited improvements”.
This suggested, the watchdog said, that the quality control procedures adopted by the firms had not been effective.
Melanie McLaren, who is responsible for audit and actuarial regulation at the FRC, said: “There is evidence of audit quality being of greater focus at firms’ leadership level.
“However, it requires more effort on the basic quality control procedures if real sustained improvement is to be achieved.”
Meanwhile, the International Accounting Standards Board (IASB) confirmed at its 23 February meeting that it was satisfied that it had complied with its due process steps on the project to date.
The board instructed project to staff to start drafting the updated conceptual framework.
IASB members also tentatively decided that both the Board and the International Financial Reporting Standards (IFRS) Interpretations Committee would start using the revised framework as a basis for their decision-making as soon as it was issued.
The issue of prudence in accounting has recently come under intense political scrutiny in the UK.
In December, Lord Clive Hollick, who chairs the economic affairs committee in the UK parliament’s upper house, wrote to the FRC’s chief executive, Stephen Haddrill, asking him whether he was “satisfied with the [IASB’s] definition of prudence” or whether “a more conservative” definition should be adopted.
In his response, Mr Haddrill noted: “The exposure draft of the new framework does include prudence in the main body of the text, which is a significant step in the right direction.”
The response goes on to note that the IASB has “accepted” the FRC’s arguments in favour of so-called asymmetric prudence.
In addition, Mr Haddrill says that the FRC will “seek to ensure that a proportionate view of prudence is actually applied in the development of standards”.
In November 2015, IASB staff confirmed they expect the board’s new “conceptual framework” to have little impact on preparers reporting under IFRS.
Staff told a board meeting in November last year that this was because “few preparers develop accounting policies by reference to the framework”.
They explained in a meeting handout that most transactions were covered by existing IFRSs.
Finally, IASB staff have confirmed that they do not expect to start work on any of the projects in the research pipeline in the next few months.
The board’s research agenda includes a planned project to tackle pension promises linked to an investment return.