Bill Heritage - Tupizagram #10

It's six months since the last Tupizagram. The time seems to have gone by very quickly. And busily, with the complications of changing to the new accounting regime. We now understand why the Chinese are said to have used “May you live in interesting times” as a curse!

The New Accounting Regime

Beware of odd balance dates. One of our auditor clients diligently issued a new engagement letter, with references to the Financial Reporting Act 2013, etc. Unfortunately the client balanced at the end of February, so the 2015 financial statements covered a period that started on 1 March 2014, 31 days before the changeover date.

If you are not sure you have a 100% grasp of how everything fits together, you are in good company. A different auditor client had several audit reports rejected for filing by the Companies Office because they referred to the Financial Reporting Act 1993. Yes, they were for the year ended 31 March 2015 when, in general, the FRA 2013 applies, but the clients were all Securities Act issuers. We have advised the bureaucrats to read section 55 of the FRA 2013 where the ongoing application of the FRA 1993 in such circumstances is mandated.

Exactly when an “issuer” becomes an “FMC reporting entity” depends on a number of factors or “trigger events”. The Financial Markets Authority has issued an information sheet on the topic. You can hunt around the FMA web site for it, or ask us for a copy.

Certain issuers may opt-in to the FMC Act and actually gain relief from reporting requirements, because they fall outside the definition of FMC reporting entity. We can describe how this works, but strongly recommend taking legal advice before committing to action.

We have frequently advised clients that legal advice on such matters must be from a practitioner experienced in securities law. This was recently underlined by an opinion we saw that referred to exempt companies in the new regime. Dear solicitor, they no longer exist!

More Changes for Auditors

As if keeping up with the legislation wasn't enough, with its impact on which statutes to refer to, some subtle changes to the auditing standards have been sneaked in. We get frequent updates from the XRB and its committees, but the changes to ISA (NZ) 700 kept under our radar until a couple of months ago. When will the XRB realise that the only way to make sure auditors know about an update is to get it announced on the 6 O'Clock News?

Audit reports for periods beginning on or after 1 April 2014 must name the reporting framework that the client has adopted. As we read it, a reference to generally accepted accounting practice is not enough.

Given the myriad of frameworks now extant (our count is 8 'gaap' frameworks, 2 non-gaap standards and 3 special purpose frameworks), this makes some sense.

If you want a draft audit report checked for compliance with the revised standard, send it through to us.

Audit Regulation

Licensed auditors, as we all know, are reviewed by the Waffen-SS. Sorry, that's a typo. They are reviewed by CAANZ under delegated authority from the FMA. They look for perfect compliance with the auditing standards, and pay no attention to whether an omission has any effect on the substantive audit.

There is increasing evidence that the CAANZ reviewers are stepping over that, already extreme, line. We have seen a number of details in FMA review reports that are a subjective interpretation of the standard. They are still presented as absolute 'must do's'. For example, an issuer had no 'other comprehensive income' in either the year audited or the prior year so the accounts did not mention other comprehensive income. The FMA review report ticked off the auditor for not insisting that the statement of comprehensive income was amended to include a line with nil amounts in both years.

If non-licensed auditors are now feeling they are well out of it, just remember that many of the individual reviewers do both examinations of licensed auditors for the FMA and practice reviews of all other auditors for the Institute. Do you think that they forget chunks of the standards when they come to review you?

On 29 June 2015 the FMA published the Auditor regulation and oversight plan for the three years ending 30 June 2018. This set out the areas of focus for quality reviews as follows:


These are unchanged from the previous year. Call us if you want to discuss just what an FMA review will be looking for in specific circumstances.

Taking a Break

The Golden Oldies hockey is coming up soon in Leipzig, Germany. Eve and I are regulars at these festivals, which I describe as week-long parties with hockey breaks. And if we are going all the way to Germany we both have relatives in England to visit, and Prague is just across the border and ...

The upshot is that we will be away from 24 July to 31 August. Emails and text messages will be monitored, but not necessarily daily. Because of the difference in time zones replies will be overnight, at best. I will not be taking my reference library on holiday with me!

Apologies for the curtailed service during this period.

Disclaimer. Tupizagrams are designed to give accurate but general information. No liability is accepted in any way to any person arising out of reliance on the contents for any purpose.

Best wishes,

Bill Heritage

2471 Motueka Valley Highway, RD1, Motueka 7196

Tel: +64 3 543 3668

Mob: +64 21 141 8831
Email: 
bill.heritage@tupiza.co.nz
Web: 
www.tupiza.co.nz
Skype ID:  bill_heritage

At my age people expect me to be mature, wise and sensible.  I aim to disappoint them.

(reprinted with permission - to subscribe direct to Bill's email contact him via the above)

Have more questions? Submit a request

Comments

Powered by Zendesk