Specialist Assignment
Manual News
Welcome to the July 2014 edition of our Specialist Assignment Manual (SAM) newsletter.
Inside you will find a review of the updates that have been issued to your manuals over the
past 12 months, as well as news about the changes you can expect to see in the year to come.
Please forward this newsletter on to any colleagues at your firm who might also find it useful.
Keeping you up to date
Looking forward at this time last year we noted that the focus of
our technical manual updates was set to change, with accounting
moving into the spotlight as decisions about the future of UK GAAP
were made. Another 12 months on and while we of course now
have the suite of FRSs that make up the future of accounting (the
‘new UK GAAP’), the last 12 months have seen consultations begin
on how this will be reflected in the SORPs that provide guidance
for a number of specialist sectors. As these become finalised over
the remainder of 2014, we will incorporate the changes needed into
2015 updates to your SAMs, in time for mandatory adoption for
periods commencing on or after 1 January 2015.
Waiting for various legislative changes for small companies
that might potentially take effect has also been something of a
theme in recent newsletters. 2013 saw the legislation on ‘microentities’ introduced but we are still waiting to see how the new EC
Accounting Directive will be implemented in the UK. Doubts over
the long-term future of the FRSSE have also been raised this year.
You can find out more under ‘Audit Exemption’ below.
More generally this year we sent email alerts to subscribers of
relevant SAMs in respect of:
Academies
As the academies sector continues to
evolve, subscribers to the Academies SAM
will start to see more primary converters
and multi-academy trusts than in previous
years. Though this change to the dynamic of
the sector is relatively recent, one thing that
has not changed is the high level of public
scrutiny into academies, with connected
party transactions likely to be a particular
area of focus in accounts to August 2014.
The Academies Financial Handbook,
effective from 1 September 2013 included
relaxations to rules that may have impacted
on regularity reporting in previous years.
This, however, was contrasted by an
increased focus on sponsor provided
• Statutory Instrument 2013/1970 - The Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013), which
you may recall from the August 2013 email alert affects narrative
reporting requirements for limited companies; and
• the revised ISA+ 700 series, which you may recall from the
October 2013 email alert affects the scope of your audit reports.
As updates incorporating these changes are rolled out, we have
also been taking the opportunity to make a number of nontechnical improvements to our audit documentation following
changes made in our corporate audit manual. These have resulted
from feedback received from subscribers and also from audit quality
monitoring file reviews.
Finally, looking ahead we will be in touch later in the summer with
details of a new SAM to add to our range, covering Assurance. With
an ever-increasing number of companies no longer
requiring an audit, the option of providing an
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services, noting that they must not include
any element of profit. A further revision to the
Handbook, effective 7 November 2013, then
cast the net a little further with requirements
for all connected party transactions to be
conducted ‘at-cost’.
The Accounts Direction 2013 to 2014,
released in May 2014, also included
additional ‘transparency’ requirements for
related party transactions disclosures in
2014. These changes complement other
amendments made to help focus the work of
regularity assurance engagements; improve
auditor reporting of issues and enhance
transparency within a number of other
sensitive accounts disclosures.
What’s next?
Key developments noted above have been
reflected in the July 2014 update (5.0) to the
Academies SAM. Headline changes included
updated regularity risk assessments and
example procedures, essential engagement
letter updates and amendments to
the accounts disclosure checklist.
Subscribers will also see enhanced auditor
communication templates to help adhere to
best practice recommendations outlined by
the Education Funding Agency (EFA).
soon!
Though, for many, August 2015 may seem
dim and distant on the horizon, it is worth
noting that a handful of new academies
will be amongst the first entities required
to apply the new UK GAAP next year. For
a majority of academies, however, the first
relevant set of new UK GAAP accounts will
be for August 2016.
We will keep you updated with the EFA’s
plans for adoption of a new Charities SORP
(or SORPs), as they develop, over the next
12 months.
The new UK GAAP
If you need to find out more about the
new UK GAAP and the changes it will
bring, take a look at the free downloads
included on our new UK GAAP website
page.
Following an overview in January,
‘Changes in financial reporting. The
time to act is now...’ we have been
taking a closer look at a number of areas
relating to the most comprehensive
changes to accounting requirements in a
generation.
Audit Exemption
It has been another busy year for the Audit Exemption SAM, with the
introduction of a subcategory of small company known as a ‘microentity’ and the expected narrative reporting changes implemented.
Following the August 2013 email alert outlining the narrative reporting
changes, version 11.0 (December 2013) of the Audit Exemption SAM
contained changes which reflected SI 2013/1970 as well as SI
2013/3008 - The Small Companies (Micro-Entities’ Accounts)
Regulations 2013, which introduced the new reporting framework for
the UK’s smallest companies (‘micro-entities’), essentially for financial
years ending on or after 30 September 2013.
SI 2013/3008 amends the Companies Act 2006 and the Small
Companies and Groups (Accounts and Directors’ Report) Regulations
2008 to allow qualifying micro-entity companies to prepare and publish
simplified primary financial statements with a very limited number of
notes instead of the usual small company accounts for members.
The updated manual contained guidance, proforma accounts and
a disclosure checklist for companies adopting these micro-entity
provisions.
At the time of publication, the FRSSE had not been updated for
the micro-entity provisions. Once it had been updated, following
consultation, a minor update (version 11.1, revised May 2014) to the
manual was issued, reflecting the changes made in the FRSSE. At
this stage we also revised our Micro-Entities Q&A and Sample
Accounts download, published in our May 2014 Newswire.
Registered Social Housing
Providers (RSHP)
Version 7.0 of the RSHP SAM was issued in May 2014. The update
incorporated guidance from the new version of Practice Note 14
published by the FRC - The Audit of Housing Associations in the
United Kingdom. It also reflected updated guidance from the
Homes and Communities Agency (HCA) - Regulating the Standards
2014, as well as the general updates and improvements being
made across Mercia’s range of audit manuals.
Looking ahead
In accordance with the advent of new UK GAAP, the new RSHP
SORP is expected to be published in autumn 2014. The HCA has
also announced that a new Accounting Direction
will be issued to reflect the changes. Ahead
of this we will be updating the manual
for changes resulting from the
introduction of the Co-operatives
and Community Benefit
Societies Act 2014 discussed
under ‘Clubs and Friendly
and Industrial and Provident
Societies’ below.
What’s next?
Estate Agents
You may recall that back in 2013 the European Council, Parliament
and Commission reached a compromise agreement on the new EC
Accounting Directive. The implications of the new Directive were
potentially far reaching. The text includes provisions which could
increase the small company limits for turnover and balance sheet total
and reduce the length and complexity of small company statutory
accounts.
Or should we say ‘Property Professionals’ as this will be the new
name for this SAM when the next update is issued later in July. The
manual is being expanded to include guidance and documentation
for clients who are members of the Association of Residential
Managing Agents (ARMA), as well as for those who have been
asked to provide a factual report of findings on service charge
accounts.
We have been expecting the government to consult on the
implementation of these provisions in the UK for some time now. As
we await this consultation from BIS, the FRC has also outlined the
scope of its own summer consultation on the future of the FRSSE.
Further to seeking views on plans to bring small entities within
the scope of FRS 102 (with reduced disclosures), views on a new
Financial Reporting Standard for Micro-entities (FRSME) will also be
sought. The FRSME would be based on the micro-entities regime,
currently reflected in the FRSSE and may include further recognition
and measurement simplifications. We can expect to see these
consultations issued alongside each other over the summer. Further
updates to the Audit Exemption SAM will follow.
What’s next?
You can see what our technical team think of the on-going changes
affecting small companies in their blogs.
We still await final guidance on the statutory accounts of Residential
Management Companies! The withdrawal of UITF Draft Abstract
49, and subsequently FRED 50 (Draft FRC Abstract 1), have
again left this area in doubt. The FRC has indicated that it will
look to provide some guidance in the specialised activities section
of FRS 102 in the future. We will keep you up to date with any
developments.
The guidance provided for ARMA clients in the forthcoming update
covers the current requirements. Those already acting in this
area may be aware that a new system, ‘ARMA-Q’, will arrive in
January 2015. Your manual will be updated to reflect the changes
introduced as they happen.
Clubs and Friendly and Industrial and Provident Societies
Changes are afoot for industrial and provident societies as we finally see some long-awaited legislative changes take place.
The Co-operatives and Community Benefit Societies Act 2014 received Royal Assent in May 2014.
As it is a consolidating Act, the 1965, 1967, 1975, 1978 and 2002 Industrial and Provident Societies Acts; the Friendly and Industrial and
Provident Societies Act 1968; the Co-operatives and Community Benefit Societies Act 2003 and parts of the Co operative and Community
Benefit Societies and Credit Unions Act 2010 will be repealed and replaced with the new Act, which comes into effect on 1 August 2014.
As it is consolidating legislation, the new Act will not bring about substantive changes to the law. Its aims are to reproduce the effects of the
existing legislation but use updated and simplified language where possible.
We are updating your SAMs to take account of the new Act and adding supplementary documentation on Community Interest Companies to
the FIPS SAM. The updated SAMs will be with you later in the summer.
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Solicitors’ Accounts Rules
Charities
The current version of the Solicitors’ Accounts Rules SAM (7.0)
was issued in November 2013. We were able to remove all
references to the now expired 1998 Solicitors Accounts Rules in
this update. Up until fairly recently, it had been a quiet year and
despite the Solicitors Regulation Authority (SRA) issuing version 10
of the SRA Handbook in July 2014, there have been no changes to
the Accounts Rules. However, this all looks likely to change in the
not too distant future.
The main update to the Charities SAM issued in March 2014
incorporated the general improvements being made across our
range of specialist audit manuals, as well as the technical changes
affecting audit reports and corresponding documents.
Looking ahead
The SRA is continuing its process of regulatory reform and at the
time of writing, there are two closed consultations, the results of
which are being analysed and which look likely to impact on the
work that you undertake for solicitors.
The first, relatively minor proposal is to make changes to the rules
regarding residual balances. Currently, Rule 20.1(j) allows residual
balances below £50 to be paid to charity without permission from
the SRA provided the solicitor has made a reasonable attempt to
repay them to the client. The proposal is to increase this figure to
£500.
At the same time, the question as to whether there should be
some restriction on the nature of the charity, for example those
involved in access to justice issues, is being considered.
The future of the Accounts Rules?
The second, and much more fundamental matter under
consideration, is whether to remove the mandatory requirement
for all firms of solicitors who hold client money to submit an annual
accountant’s report to the SRA. It is proposed to replace this with
the requirement for the COFA to sign an annual declaration that
client money is being managed satisfactorily. The SRA may impose
requirements for an external accountant’s report but this would be
on a risk basis rather than the current blanket requirement.
The suggested timescale, should this proposal be accepted, is
October 2014, although it is not clear whether this applies to
accounting periods ending or reports submitted after this date.
Not surprisingly there is a great deal of opposition to this proposal
from many in the accountancy profession who feel that client
money will be put at risk without the discipline of external scrutiny
and we have submitted our views on this to the SRA.
If, however, this proposal is implemented in its current form
there will clearly be a significant impact for you and your clients.
Whilst some solicitors will see the benefit of retaining an external
and independent check on their handling of clients’ money and
continue to require some form of accountant’s report, it is likely
that others may not. For those that do continue to have external
scrutiny (either voluntarily or because of SRA requirement) the
nature of the assignment may be somewhat different from the
current, very specific, rules based approach.
Once the outcome of the consultation is known we will be able
to consider the impact on your manual and make any necessary
changes to enable you to respond as required.
This update also dealt with the changes relevant to charitable
companies in light of the SI 2013/1970. You may recall that these
regulations require medium and large sized companies to include a
Strategic Report, rather than a business review, within their financial
statements. In light of this change the Charity Commission (CC) and
the Office of the Scottish Charity Regulator (OSCR) published specific
supporting guidance for charities in a new SORP Information
Sheet (5), which was incorporated into the update. Changes in
regulation in Northern Ireland were also covered in this update.
The current version of the manual (10.1) revised the March
2014 update, in a small number of areas, in May 2014
following the publication of FRC Bulletin 4, which
affected the limited company audit reports in the
manual.
What’s next?
The FRC Board has already considered
and approved the Charities SORP for
the new Financial Reporting Standard
(FRS 102) as well as the Charities
SORP for the Financial Reporting
Standard for Smaller Entities
(FRSSE)! Having two SORPs in this
way is something of a change for
the sector, although with the future
of the FRSSE currently uncertain,
the longevity of the FRSSE SORP
is unclear. The new SORPs are
expected to be published shortly.
Limited Liability Partnerships
(LLP)
Version 9.0 of the LLP SAM was issued in March 2014. This
update reflected the improvements and general updates being
made across Mercia’s range of audit manuals. We will have to
wait and see if the changes introduced for micro-entity companies
discussed under ‘Audit Exemption’ above are applied to LLPs, as
they have not been to date.
What’s next?
We will be looking out for the publication of the final LLP SORP,
following the autumn 2013 consultation on the new UK GAAP
update. Other changes that may affect limited companies over the
next 12 months are also likely to affect LLPs, so we will be looking
out for news on the implementation of EC Accounting Directive in
the UK, as well as news about the FRSSE as discussed under ‘Audit
Exemption’ above.
Details of this consultation can be found on the SRA’s website.
Stop Press!
The SRA Board met in early July to discuss the changes to
reporting accounting requirements and decided to defer a decision
on this proposal until its next meeting. The Board recognised the
need to ensure that, where firms choose to hold client money,
appropriate safeguards are in place to assure the safety of
that money. Further analysis of the consultation responses and
consideration of options will be undertaken before the Board
reaches its decision.
Keeping up to date
Remember that you can check
that you are using the latest
versions of our manuals on
our website at www.merciagroup.co.uk/technical_
manuals/updates.htm
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Financial Conduct Authority regulated firms
Following the significant changes to the overall regulation of the
financial services sector that took place on 1 April 2013, including
the introduction of the Financial Conduct Authority (FCA), detailed
changes to the CASS rules were expected to follow in due course.
As you will know from our recent email alert, for DIFs, the wait is over!
FCA Designated Investment Firms (DIFs)
On 10 June 2014, the FCA issued Policy Statement 14/9, which
introduces widespread changes to the CASS rules for investment
business. The changes are being introduced in three phases: from
1 July 2014, 1 December 2014 and 1 June 2015 (the latter date
representing the bulk of the substantial change). Whilst these final
rules have been anticipated for some months, the publication of PS
14/9 allows little time before the first changes take effect. We will be
updating the reasonable assurance programmes contained in your
SAM as needed for the first phase of changes over the summer.
FCA Mortgage and General Insurance Intermediaries
(MGIs)
Widespread changes to the CASS 5 rules for insurance
intermediaries were expected following Consultation Paper 12/20
(August 2012) but these have not yet been announced and it is not
clear what the expected timetable will be.
Mortgage intermediaries have, however, been getting to grips with
the Mortgage Market Review (MMR), a thorough review of the
way in which mortgages are sold to the public, similar to the Retail
Distribution Review (RDR) that has effected sweeping changes
for financial advisers. The MMR largely took effect at the end of
April 2014. It does not directly affect your work for MGI clients
but should provide some key talking points when understanding
changes in their business.
Pension Schemes
Accessing your manuals online
The next update to the Pension Schemes SAM will reflect the general
improvements being rolled out across our specialist audit manuals.
Following that, we will await the publication of a finalised Pensions SORP,
updated for the new UK GAAP. The Pensions Research Accountants Group
(PRAG) has now published an Exposure Draft of this, with the exposure
period closing later in July 2014.
Email alerts announcing the release of an update will continue to be
sent to the email contact supplied to us either through your initial
order or by subsequent instruction from you. Over the next 12 months
we will replace our follow up letter system with a second reminder
email alert that an update has been issued.
Specialist Conferences and Training
It is therefore as important as ever that you keep us up to date with
your contact details. Should these change, please let Karina Johnston
know, in writing, by email at [email protected] or by fax
on 0116 258 1250.
We run a number of courses over the year that cover specialist
sectors through our specialist course programme as well as specific
conferences and webinars. Details of our current programme can be
found on our website.
Solicitors
Conference 2014
For Accountants with Solicitor Clients
An essential practical update covering:
¡ An update from the SRA
¡ ‘Survive and Thrive’ the New
Legal Market
¡ Improving Financial Results
through Risk Management
¡ Professional Indemnity
Insurance
¡ COLP and COFA update
¡ Partnerships and LLPs
– the Tax changes
Follow us on
Twitter
@merciagroup
Read our Blog on
“Best solicitors conference
that I have attended.”
James Burrett,
Peters Elworthy & Moore
www.mercia-group.co.uk/blog
Like us on
www.facebook.com/merciagroup
The Midlands
14 May 2014
Hilton National, East Midlands
For more information on QR Codes,
please visit www.mercia-group.co.uk/blog
For further details on this conference
please contact Felicity Kedward on 0116 258 1200 or
email [email protected]
Full Day Conference £290
(including lunch) plus VAT per person
£50 for MembershipPLUS • 25% Discount for Members
www.mercia-group.co.uk
Mercia’s paperless audit software partners
An increasing number of firms are introducing paperless audit software to their practices in order to improve efficiency. At Mercia we have
believed in this concept for a long time and have worked closely with three software houses to develop truly paperless audit systems.
We believe these three approaches offer firms a choice of platforms from which to use the Mercia audit methodology. You can find out more
on our website at www.mercia-group.co.uk and also from our partners’ websites below. If you would like to discuss the options available
please contact David Smith or Emma McDonough on 0116 258 1200.
Caseware Paperless Audit
CCH Audit Automation
IRIS OpenAudit
Visit www.caseware.co.uk
Visit www.cch.co.uk
Visit www.iris.co.uk
Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of regulations in force at the date of publication and no action should be taken without consulting the detailed legislation
or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.
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