In with the New - Professional Expectations for 2017Jan 09, 2017
Crowe Horwath International Accounting & Audit Director David Chitty looks forward to 2017.
2017 will see the challenges arising from the implementation of three major accounting standards, the widespread implementation of more informative audit reports, and the continuing revision of auditing standards. Attention on non-financial reporting (NFR) will have significant implications for the transparency and understandability of corporate influence.
Three major accounting standards will be implemented in 2017 and 2018. IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts, and IFRS 16 Leases are significant standards that contain major changes. IFRS 9 improves the reporting of financial instruments, including learning from the crisis and experience of previous standards. The endorsement by the EU of IFRS 9 has been vital for its global credibility. IFRS 15 addresses revenue recognition, an area where IFRS has been deficient for many years. IFRS 16 abolishes operating leases. Virtually all leased assets will be presented on the balance sheet. The days of structuring lease contracts to keep debt off the balance sheet will be over, marking the end of another off balance sheet financing practice. The implementation of three significant standards across two years has challenges for companies, auditors and analysts. The result will be better reporting, but the time and effort needed to properly implement the standards cannot be understated.
The 31 December 2016 reporting season will see the first widespread international implementation of the IAASB's (International Audit & Assurance Standards Board) new and revised reporting standards. Most significant will be the reporting of "Key Audit Matters" ("KAM") detailing the most significant matters arising from the audit. For the first time, readers of the annual report will see feedback from the audit. KAM will improve transparency and has the potential to narrow the "expectation gap" between audit delivery and the demands of readers of reports.
IAASB will be continuing its significant reform of standards with the aim of keeping auditing standards "fit for purpose". Exposure drafts will be issued on the audit of accounting estimates and quality control. Work will continue on other areas including risk assessment and the audit of groups. The resulting standards will reflect feedback from regulators as well as changes in audit practice and the use of technology by auditors.
IAASB consultations on assurance on emerging external reporting (EER) and the impact of data analytics on audit will close soon. The EER consultation is much needed because of the rapid development of reporting on areas such as NFR on objectives, strategy and value added, integrated reporting, and sustainability reporting. Existing standards neither cover assurance techniques nor the presentation of reports on EER. The use of technology by auditors is changing fundamentally, and current auditing standards reflect a very different environment. IAASB has to use the results of the data analytics consultation to improve so that standards reflect the way that auditors are working. The consultation is an opportunity to focus minds to how audit practice is changed by technology, as wide-ranging implications effect risk assessment, materiality, and sampling amongst others.
NFR is now on all corporate agendas, with attention being given to the reporting of the how corporate strategy is adding value, on reporting sustainability and integrating financial and non-financial information. Currently there are too many reporting frameworks for the different forms of NFR. Imagination and innovation is needed to bring the best of the different frameworks together with the aim of enhancing transparency and understandability of corporate reports. Integrated Reporting (using the International Integrated Reporting Council's framework) may form the core approach, building on the growing international acceptance and respect of this framework.
The professional agenda for 2017 has many areas of interest that together should enhance the quality and transparency of reported corporate information. Discussions about data analytics, EER and NFR present an opportunity for creativity in the future of reporting, ultimately helping to add value to business.