Technical and evolutionary process for the IAASB and IESBA to work with national standard setters, and for national standard setters to work with each other, to consider new ideas in pursuit of mutually shared objectives. The meeting advanced already significant IAASB and IESBA coordination efforts, which acknowledge the importance of audit and ethics standards to audit quality. The meeting facilitated further collaboration between a number of national audit and assurance standard setters and the IAASB, as well as identifying ways national standard setters can work more effectively together in the interests of international standard setting. Some important themes emerged from the “quadrilogue”: ●● the value of continued IAASB and IESBA coordination, the significant advances made to date, and how this serves as a catalyst for national coordination; ●● the importance of early coordination between the two boards, and increased stakeholder communications about it; ●● recognition that it is important to identify the areas where four-way engagement makes most sense; and ●● quality management within accountancy firms, implications of technology developments, stakeholder engagement, and enhanced implementations activities are possible topics for further exploration.
UK AND IRELAND Revision of Practice Note 19: The audit of banks and building societies in the UK The Financial Reporting Council (FRC) has issued a revision of Practice Note 19: The audit of banks and building societies in the United Kingdom. Practice Notes are intended to assist practitioners to comply with the requirements of UK auditing standards, by providing additional contextual material on the application of those standards in particular circumstances or in specialised sectors. The revisions to Practice Note 19 reflect: ●● revisions to UK auditing standards (ISAs (UK)), in particular ISA (UK) 540 (revised December 2018), Auditing Accounting Estimates and Related AIAWORLDWIDE.COM | ISSUE 106
Disclosures, which is effective for audits of financial statements for periods beginning on or after 15 December 2019 (early adoption is permitted); ●● guidance relevant to the audit of estimates for expected credit losses (ECL). Auditors may find this guidance helpful for the audits of periods ending before 15 December 2019 even if they have not early adopted ISA (UK) 540 (revised December 2018); ●● changes in relevant legislation and regulation (at the time of publication, there are EU regulations, including binding technical standards, that apply directly to UK banks and building societies. References to these are made in this revised PN. When the UK ceases to be a member of the EU, these references will be updated accordingly); and ●● the establishment of the of the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) in place of the Financial Services Authority (FSA). The Practice Note has been developed with input from an expert working group, including representation from audit firms with bank audit expertise, the banking industry and the banking regulators. The revisions that the FRC has made will support the delivery of high quality audit, and responds to findings from the FRC’s audit inspection work covering bank audits, which were covered extensively in public reports in June 2018. The final revised Practice Note reflects the actions that the FRC determined should be taken, having considered the responses received.
Regulators welcome government’s Green Finance Strategy In a joint statement, the FRC, the PRA, the FCA and the TPR have welcomed the government’s Green Finance Strategy. Climate change is one of the defining issues of our time. The bodies recognise it presents far reaching financial risks relevant to their mandates from both physical factors, such as extreme weather events, and transition risks that can arise from the process of adjustment to a carbon neutral economy. Companies should consider the likely consequence of climate change on their business decisions, in addition to meeting their responsibility to consider the company’s impact on the environment.
Financial risks will be minimised by achieving an orderly transition and via a collective response. The bodies welcome the action being taken as part of the UK’s Green Finance Strategy to ensure a coordinated approach and look forward to further collaboration to advance progress in the near term on climaterelated issues. Sir Win Bischoff, chair of the Financial Reporting Council said: “The effect of climate change on society and business is one of the defining issues of our time. As well as reporting on their impact on the environment, public companies and their boards should address the impact of climate change on their business. The FRC is pleased to play its part in supporting the UK’s Green Finance Strategy in co-operation with other regulators. We are outlining our actions to encourage and monitor companies’ responses.” Sam Woods, deputy governor for Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority, said: “Climate change has the potential to create significant financial risks for the firms the PRA regulates. The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a carbon-neutral economy. We will play our part and work with government, fellow regulators and industry through the UK Government’s Green Finance Strategy, the Climate Financial Risk Forum, and the Network for Greening the Financial System.” Andrew Bailey, CEO of the Financial Conduct Authority, said: “Climate change and the transition to a carbon-neutral economy will transform financial services markets and shape consumer priorities and needs. This brings unprecedented challenges for us in mitigating risks and enabling positive changes. Working with other regulators and government is an essential part in our approach to successfully tackling these challenges. We welcome the shared understanding of the nature, importance and urgency of financial risks of climate change amongst the regulators and government.” Charles Counsell, chief executive of The Pensions Regulator, said: “Climate change is no longer simply a social responsibility issue. It is a core financial risk impacting broadly across business, the economy and markets. Climate change is a risk to longterm sustainability pension trustees need to consider when setting and implementing investment strategy, while
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