Regulatory

Briefing

Summary of key regulatory

actions, initiatives and draft

legislation affecting audit,

financial reporting and

corporate governance

Implications for companies

and their auditors

February 2015

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REGULATORY BRIEFING February 27, 2015

Introduction

This Briefing is arranged in two sections:

‘Key Developments’:

Covering a range of regulatory actions,

initiatives and draft legislation being undertaken

or considered within the European Union (EU)

and other territories that could affect the way

businesses report and their governance. These

cover corporate governance, audit and financial

reporting, and tax. It also looks at next steps,

and as appropriate, gives PwC’s views and

suggests possible actions by stakeholders to

engage in the various debates.

‘Watch list’:

Short summaries of other actions, initiatives and

draft legislation being undertaken or considered

around the world, both new and previously

reported. Where no substantive action or

change has occurred since our last Briefing,

these have been included for information.

KEY Key Proposal Adopted

New Update

Key current proposals and actions

Of particular importance are:

Auditor reporting:

Global: International Audit and Accounting

Standards Board (IAASB) - new auditor

reporting standards issued

US: The Public Company Audit Oversight

Board (PCAOB) – Re-proposal release

International tax debate:

EU: tax rulings & fiscal state aid

Global: Debate on transparency and fairness

in the international tax system

Audit reform:

EU: up-date on implementation of the

audit legislation introduced in May 2014

Since out last Briefing (October 2014):

5 regulatory measures have been adopted:

In the EU:

Publication of Directive on the disclosure of

non-financial and diversity information

Global:

International Audit and Accounting

Standards Board (IAASB) - new standards

on auditor reporting

Netherlands:

New ‘Long-Form’ audit report

Nigeria

New guidelines/regulations on inspection

and monitoring of reporting entities

Columbia

Introduction of mandatory firm rotation

16 new initiatives are covered:

In the EU:

EU audit legislation:

UK: consultations on implementation

Ireland: consultation on implementation

European Commission:

Capital Markets Union ‘Green Paper’

UK: FRC

Review of compliance with the Corporate Governance Code

Review of the Audit Firm Governance Code

Release of proposals to streamline financial

reporting within groups

In other countries:

Global:

Basel Committee – new reporting

standards for bank risk disclosures

IAASB:

Revision to ISA 720 enhanced auditor’s

responsibilities for other information in

the annual report.

Forward looking agenda for 2015-2019

Strategy and 2015-2016 work plan

Countries:

Japan – new Corporate Governance Code

India – new accounting standards

Indonesia – proposed removal of

mandatory firm rotation requirements

Malaysia – consultation on enhancements

to the accountancy profession

Singapore - release of revised guidance to

audit committees

Thailand – consultation on revisions to

approval criteria for auditors in the

capital market

US – ACCA commentary on the need to

improve company risk reporting

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February 27, 2015 REGULATORY BRIEFING

Contents

Key Developments

In the EU

Location Subject Page Focus

EU Audit Reform

EU - up-date on progress of implementation of audit

legislation by member states

8 M, E

Ireland - completed consultation on member state options

in the EU audit legislation

9 M, E

UK - consultations by the Department for Business,

Innovation & Science (BIS) and the FRC

10 M, E, R

Tax – avoidance and evasion

Action on tax rulings by the European Parliament (Special

Committee) and the EC regarding fiscal State Aid

11 M, E

European Union:

Publication of Directive on the disclosure of non-financial and diversity information

12 A

European Commission:

Proposals to amend Shareholder Rights Directive 13 M

Institutional arrangements for dealing with IFRS in Europe 14 M

UK – FRC:

Review of compliance with the Corporate Governance Code

requirements relating to Board responsibilities regarding

corporate culture, values and principles

15 M, E

Review of the Audit Firm Governance Code 15 M, E

In other countries

Global Auditor Reporting including:

IAASB – Reporting on Audited Financial Statements: final

new and revised International Standards on Auditing

(ISAs) released

16 A

ISAAB - Revision to ISA 720 enhanced auditor’s

responsibilities for other information in the annual report

A

US – PCAOB – proposals on revision of the auditor’s

reporting model and changes to PCAOB standards, (Docket

34), Release for consultation of Exposure Draft, Re-proposal

expected by Q2, 2015

M

UK - FRC – up-date on introduction of new corporate

reporting requirements

A

Netherlands - Government releases guidelines regarding

new ‘Long-Form’ auditor reporting requirements

A

Tax – transparency and fairness:

Debate on changes to the international tax system to

address transparency and fairness

18 M, E

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REGULATORY BRIEFING February 27, 2015

Banking – Basel Committee - releases new rules regarding

risk disclosures

20 A

Japan Release of new Corporate Governance Code 22 A

‘Watch-list’ of other developments

In the EU

Location Subject Page Focus

EU European Commission:

Release of ‘Green Paper’ outlining proposals for Capital

Markets Union (CMU)

23 M, E, R

Public consultation on equivalence of third country regimes

regarding country by country reporting

24 M

Proposal for a Regulation on structural measures improving the

resilience of EU credit institutions

25 M

UK:

Release of proposals for streamlining financial reporting for

entities within groups

26 M, E

Consultation by the Bank of England’s Prudential Regulation

Authority (PRA) on detailed governance and legal

arrangements for ring-fenced banks

26 M, E

In other countries

Global OECD:

Review of Corporate Governance, principles and guidance,

Page 33

27 M, E

Review of Guidelines on Corporate Governance of State-

Owned Enterprises

29 M, E

IAASB:

Proposals for enhancements to Auditing Standards Focused

on Financial Statement Disclosures

29 R, M

Forward looking agenda set in the Board’s new 2015-2019

Strategy and 2015-2016 Work Plan

30 M

Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB):

Revenue Recognition Standard consideration of possible

deferral of implementation

30 M, E

IESBA – Code of Ethics revisions:

1. Release of Exposure Draft of ‘proposed changes addressing

non-assurance services for audit clients

31 M, E

2. Exposure Draft relating to long association of

personnel and rotation

32 M, E

3. Further consultation on approaches to non-compliance

with laws and regulations (NOCLAR)

33 M, E

Abu Dhabi Introduction of mandatory rotation for enterprises which

have more than 50% state ownership

34 A

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February 27, 2015 REGULATORY BRIEFING

Brazil National Council of Private Insurance (CNSP) – introduction of

mandatory firm rotation for insurance companies

34 A, E, M

Columbia Introduction of mandatory firm rotation 35 A

Hong Kong Government proposals to improve the regulatory regime for

listed entity auditors

35 M, E

India Update on implementation rules by the Ministry of Finance

relating to the 2013 Companies Act

36 M, E, A

Ministry of Corporate Affairs releases plans regarding the

adoption of new accounting standards to achieve greater

compatibility with equivalent international standard

36 M, E, A

Ministry of Corporate Affairs releases further amendments to

the Cost Audit Rules (2011)

37 A

Indonesia Up-date on Ministry of Finance proposals to remove

mandatory firm rotation requirements

38 M

Malaysia Ministry of Finance releases a consultation on proposals to

enhance the accountancy profession

38 M, E, R

Nigeria Institute of Chartered Accountants of Nigeria – rejection of

proposals for the introduction of joint audit

40 M, E

Release by the FRC of Nigeria of new guidelines/regulations for

the inspection and monitoring of reporting entities

40 A

Russia Proposals to the State Duma for the introduction of

restrictions on audits of state owned enterprises by

foreign firms

41 M

Singapore The Monetary Authority of Singapore (MAS) release revised

guidance to audit committees

41 A

South Africa Institute of Directors announces plans for revisions to the

Corporate Governance Code (King III)

42 M, E

Thailand The Thai Securities and Exchange Commission (TSEC) opens

consultation on revisions to the approval criteria for

auditors in the capital market

42 M, E

US/China Dispute between the US Securities and Exchange Commission

(SEC) and the China Securities Regulatory Commission (CSRC)

regarding access to working papers for inspection

purposes

43 M, E, A

US The Association of Chartered Certified Accountants (ACCA)

releases report including comments on the need for

improvement in company risk reporting

43 M, E

PCAOB –proposed amendments to auditing standards to

provide disclosure of the auditor’s report of certain

participants in the audit (PCAOB Release No. 2013-009;

Rulemaking Docket Matter No. 029)

44 M, E

Additional Information 45

Appendix A: Links to regulatory proposals, initiatives & actions

46

Key: Priority 2015/16 A = Action E = Engage M = monitor R = Respond

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REGULATORY BRIEFING February 27, 2015

Things to consider

The next few months will be critical to the

outcome of many of the proposals mentioned

in this Briefing. Many of the proposals and

drafts of legislation are still under discussion

and could be amended

The input of stakeholders is vital to securing

outcomes that reflect their needs and

expectations, and it is important they engage

as appropriate in the debates to make their

views known

Many of the proposals and initiatives are

interconnected, for example:

o National legislation in individual

countries could be superseded by

international or pan-regional legislation

- for example in auditor reporting

(IAASB, PCAOB, EU, the Netherlands,

UK) or accounting standards, and the

recent EU audit legislation (Competition

& Markets Authority audit market

recommendations in the UK, or the

recent Dutch legislation to introduce

MFR and changes to auditor reporting

requirements, etc.)

o Stakeholders should consider the

potential for extra-territorial impacts

which could affect them indirectly

through their subsidiaries (for example,

from the EU audit legislation relating to

parent and controlled undertakings of

EU Public Interest Entities (PIEs))

Regulators around the world are conscious of

the need to ensure better regulation and

where possible greater commonality in

approach, although the current wide range of

proposals risks the broader objectives not

being achieved. There are clear signs of

improved cooperation and inter-connectivity

between regulators and supervisors which

could see simultaneous action in more than

one jurisdiction (For example, by the

International Forum of Independent Audit

Regulators, the International Organisation of

Securities Commissions (IOSCO), or in the

EU the recently convened Committee of

European Audit Oversight Bodies (CEOAB))

What can you do?

Many regulators and politicians have expressed a

clear desire for more business and investor input to

the development and revision of regulations. In

addition to directly responding to a consultation, if

you have a view on any of the proposals you can get

involved in influencing the development and

outcome of these by meeting with or writing to key

stakeholders involved in the various decision

making processes. More broadly it would include

meeting with industry and potentially regulators

and supervisory bodies, to seek to inform their

views. It could also include attending organised

meetings and events.

Currently, stakeholders specifically wishing to get

involved in the various EU member state

discussions and consultations on the

implementation of the new EU audit legislation

should contact their relevant national government

representatives, including the appropriate

supervisory/regulatory body, or their respective

‘industry’ body / association.

Copies of the original documentation from the

sponsors of the proposed legislation and other

current and proposed initiatives are available via

the links provided at Appendix A, including

(where relevant) details for responding to or

commenting on proposals, etc.

Further information is also available on the PwC

website at: www.pwc.com/regulatory-debate and

from your PwC relationship partner.

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February 27, 2015 REGULATORY BRIEFING

Key developments

In this section we summarise key regulatory developments around the world, both new and previously,

reported where there has been substantive action or change since the last Briefing in October 2014.

What is happening in the EU

Audit reform

European Commission

Implementation of statutory audit legislation

Introduction

New EU audit legislation was adopted by the EU

institutions in April 2014; its provisions will be

applicable from the first financial year starting on

or after 17 June 2016.

The legislation introduces:

Mandatory firm rotation (MFR) for all

PIEs in the EU - transitional arrangements

apply depending on length of tenure

The transition arrangements for MFR are as

follows. If the auditor has been in place for

financial years starting:

o Before 16 June 1994 - the engagement

cannot be renewed with the incumbent

auditor from 17 June 2020

o Between 17 June 1994 to 16 June 2003,

the engagement cannot be renewed with

the incumbent auditor from 17 June

2023

o Between 16 June 2003 to 17 June 2006

rotation or tender by 16 June 2016,

noting that the present audit firm can

finish the audit for the financial year that

started before 17 June 20161

1 Subject to the adoption of the member state option to either shorten the initial engagement period and or to extend the engagement period

o After 17 June 2006 - the PIE should

change or retender when maximum

tenure is reached from the first year of

engagement - subject to the adoption of

the member state options1

Restrictions on the provision of non-

audit services (NAS) by the statutory

auditor and his network to PIE audit clients,

their parent undertakings and controlled

undertakings in the EU (regardless of

whether these parents and subsidiaries are

PIE or non-PIEs)

A cap of 70% on permitted non-audit

services, the cap would apply to the audit

firm in a given member state but not to other

network firms, however member states have

the option to impose stricter rules

The relevant audit fees paid include those

paid to the statutory auditor for the audit of

the PIE, and where applicable its parent

undertaking and its controlled undertakings.

The permissible non-audit services are

services provided by the audit firm to the

audit entity and its parent undertakings and

controlled undertakings, whether in the EU

or outside of the EU

The cap will be applicable from the first

financial year starting on or after 17 June

2016. E.g. for a company with a 31 December

year end, the cap would apply on 1 January

2020 (if during the previous three

consecutive years permissible non-audit

services have been provided

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REGULATORY BRIEFING February 27, 2015

A wide range of member state options

which will lead to an increased patchwork of

rules across the EU. It is not known at this

stage which countries will exercise their

option to extend to 20 / 24 years and which

may choose periods shorter than 10 years.

However, it is expected that countries like the

UK and Germany will exercise the option for

20 years (based on a tender) and France will

use the 24 years option for joint audit

Most member state governments are in the

process of consulting with a wide range

of stakeholders on the best possible use of

member state options, whether via a formal

or informal consultation process. Two

countries have already completed (Ireland)

or are undertaking (UK) public consultations

(please see Page 10 for details)

Approaches to consultations on

member state options

We would like to strongly encourage stakeholders

to engage with respective governments and

participate in this process.

Our recommendation would be that member states

adopt options in a way that allows maximum

flexibility for companies and their audit

committees. In particular we recommend to:

Extend the MFR period to 20 years if a

tender has been held after 10 years

Keep the minimum rotation period at 10

years, as a lower period would create a

patchwork of rules across the EU, which

would adversely impact multi-national

companies

Allow the provision of certain tax and

valuation services (which in any case are

subject to satisfying auditor independence

requirements, as well as pre-approval by the

audit committee)

PIEs are defined as:

Entities2 governed by the law of a member

state whose transferable securities are

admitted to trading on any member state

regulated market3

2 Point 14, Article 4(1) of Directive 2004/39/EC 3 The list of specific exchanges is published by the European Securities and Markets Authority (ESMA). The list is up-dated

Credit institutions4 which are defined as

an undertaking the business of which is to

take deposits or other repayable funds from

the public and to grant credits for its own

account

Insurance undertakings5 which are

essentially any undertakings carrying on

regulated insurance business including life,

general, reinsurance and permanent health

Entities designated by member states

as PIEs, for instance undertakings that are of

significant public relevance because of the

nature of their business, their size or number

of employees

Ireland

Consultation on adoption of member state options

The Department for Jobs, Enterprise and

Innovation (DJEI) undertook a consultation to

identify stakeholder’s views and opinions

regarding the adoption of the various member state

options included within the EU audit legislation.

In this consultation (which closed on Friday, 21

November 2014) the DJEI sought stakeholder

views on:

The use of Member State options within the

Regulation and the Directive

periodically and is available at: http://mifiddatabase.esma.europa.eu/Index.aspx?sectionlinks_id=23&language=0&pageName=REGULATED_MARKETS_Display&subsection_id=0 4 In the Regulation(2014/537/EU) Point 1, Article 1 of Directive 2000/12/EC applies; In the Directive (2014/56/EU) Point 1, Article 3(1) of Directive 2013/36/EU which cross-refers to Point 1, Article 4(1) of Regulation 2013/575/EU, apply – this exempts entities listed in Article 2 of this Directive, for example, Central Banks, Post Office Giro operations, and a range of other member state public entities 5 Article 2(1) of Directive 91/674/EEC, states: (a) Undertakings within the meaning of Article 1 of Directive

73/239/EEC, excluding those mutual associations which are excluded from the scope of that Directive by virtue of Article 3 thereof but including those bodies referred to in Article 4 (a), (b), (c) and (e) thereof except where their activity does not consist wholly or mainly in carrying on insurance business;

(b) Undertakings within the meaning of Article 1 of Directive 79/267/EEC, excluding those bodies and mutual associations referred to in Articles 2 (2) and (3) and 3 of that Directive; or

(c) Undertakings carrying on reinsurance business.

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February 27, 2015 REGULATORY BRIEFING

Cost/benefits of the options or any other

provision of the Regulation / Directive

Difficulties of legal interpretation

Practical operability issues

Any other aspect of the Regulation/Directive

that you may wish to raise

The DJEI’s approach to the consultation was to ask

respondents whether they were in favour of taking

an option or not, how they considered it might be

exercised and an explanation on the reasoning for

their response. The DJEI was also interested in

understanding any views regarding adopting the

option in full or whether partial adoption was

preferred. In addition, the DJEI was also

interested in views of stakeholders regarding the

implications of adoption (or otherwise) at an EU

level versus the Irish level only.

Next steps

It is understood that the DJEI will make the

responses to the consultation paper available on its

website shortly, along with the timetable for future

action.

UK

Consultations on adoption of member state options and implications for proposals from the CMA on the market for the statutory audit of large companies

Introduction

December 2014 saw the release of two important

documents:

A discussion document from the Department

for Business, Innovation and Skills (BIS)

entitled ‘Audit regulation: discussion

document on the implications of the EU and

wider reforms’6

A consultation document from the FRC

entitled ‘Consultation: auditing and ethical

standards – implementation of the EU Audit

Directive and Audit Regulation’7

6 https://www.gov.uk/government/consultations/auditor-regulation-effects-of-the-eu-and-wider-reforms 7 https://www.frc.org.uk/Our-Work/Publications/Audit-and-Assurance-Team/Consultation-Auditing-and-ethical-standards-implem.aspx

BIS discussion document

The FRC to become the single competent

authority for regulation of audit in the UK

(currently shared responsibility with

ICAEW). The FRC would have discretion to

delegate certain elements (but not those in

respect of PIE audits) to others

The definition of a “public interest entity”

(PIE) should not be extended from the core

definition in the EU Regulation. A similar

area is addressed, but with a different

proposal, by the FRC (see below)

In relation to mandatory firm rotation, to

take the member state option to allow an

extension of 10 years to the maximum

auditor tenure of 10 years, if a tender is held

after the first 10 years

Responsibility for implementation of the

requirements in respect of non-audit services

to be delegated to the FRC, including the

responsibility to make decisions regarding

member state options

FRC consultation document:

Consideration of whether or not to extend

some, or all, of the more stringent

requirements for PIE entities to other

entities, with a particular focus on non-audit

service restrictions. If this were to happen, it

is possible that entities such as AIM

companies and certain others with a

significant "public interest" would be

impacted by the new restrictions. This

alternative is notable given the clear BIS

position on not extending the definition of a

PIE, explained above

A variety of options for implementing the EU

non-audit services prohibitions, including

the possible introduction of a ‘white list’ of

permitted non-audit services (all services not

specifically included on the white list would

be prohibited). However, there are

alternatives, including implementing the

prohibited list directly from the EU

Regulation, with or without the member

state options on tax and valuation services,

which would allow some flexibility on the

provision of these services

Is the EU Regulation approach prohibiting a

substantial amount of non-audit services

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REGULATORY BRIEFING February 27, 2015

within the EU, but with a less stringent

regime outside the EU appropriate? It

suggests a regime incorporating consistent

prohibitions on a group basis may be better

Consideration of whether some of the less

intuitive aspects of the proposed EU 70%

non-audit services cap calculation should be

amended, including a suggestion to extend

the cap to constrain all of the auditor’s

network firms, not simply the member firm

auditing the PIE

Discussion of sanctions for breaching the

non-audit services rules and an

acknowledgement that an inadvertent or

immaterial breach may not necessarily

render the audit invalid

Next steps

The UK Regulatory Affairs team (led by Gilly Lord)

will be co-ordinating the PwC response to these

consultations and engagement teams should, as a

first point of contact, liaise with Gilly regarding any

questions from clients or themselves.

Consultation submission dates

Entity Response Date

BIS 19 March 2015

FRC 20 March 2015

PwC’s views

PwC remains unconvinced that the measures

introducing mandatory change of the audit firm

and increased prohibitions on the provisions of

non-audit services by the auditor to their audit

client will achieve the EC’s stated objectives of

reducing market concentration, increasing

competition or improving the independence,

scepticism and objectivity of the auditor. In

particular, we do not believe these measures will

address objectives to enhance the role of audit

committees or others charged with the oversight of

the auditor and the statutory audit - in fact, quite

the reverse.

On this basis, we strongly encourage stakeholders

to engage with their respective member state

governments and professional bodies to secure

consistent and appropriate use of the various

member state options to maximise flexibility and

company choice.

Additional information

In additional to our series of ‘Points of View’,

PwC has developed a series of ‘Fact Sheets’ on key

measures included in the legislation which are

available at: www.pwc.com/regulatory-debate

and include:

Mandatory audit firm rotation for PIEs

New requirements for audit

committees (or their equivalent)

relating to their oversight of the

performance of the audit

Additional restrictions on the provision

of non-audit services by the statutory

auditor to their PIE audit clients

New requirements regarding reporting

by the statutory auditor

The definition of Public Interest

Entities (PIEs).

PwC has also produced a new Briefing Note on

potential, unintended, extra-territorial impacts of

the EU audit legislation:

Consideration of potential unintended

extraterritorial impacts

European Union (EP & EC)

Debate on rulings and fiscal state aid

Background

EU member states plus Iceland, Liechtenstein and

Norway (non-EU members of the European

Economic Area (EEA)) are generally prohibited

from providing certain forms of state aid to

undertakings without prior authorisation of the EC

or the European Free Trade Association

Surveillance Authority.

The most straightforward example of state aid is a

subsidy provided directly to an undertaking. This

could include the benefit of a ruling or settlement.

But state aid can also be a reduction of taxes due by

way of a tax exemption or similar measure, where

this provides an advantage to certain undertakings

(i.e. is selective).

Such fiscal state aid has caught the EC’s attention.

At the beginning of 2014, it announced a new focus

in this area and has been carrying out

investigations since then.

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February 27, 2015 REGULATORY BRIEFING

At the same time, there has been an increased

awareness of tax authority rulings provided to

multinational enterprises (MNEs). There has been

concern that certain rulings have effectively

provided selective tax benefits to some MNEs,

including lower effective rates of tax. This has

linked tax rulings with state aid issues, although

questions about the impact of such rulings and

their lack of transparency have not been limited to

state aid.

If the tax benefit from state aid is determined to be

more generous than the local law allowed, or the

local law itself gives an unjustifiable selective tax

advantage, then the EC may be obliged to order the

state to recover the unlawful tax benefit from the

taxpayer(s) with compound interest for the 10

years from the opening of the investigation.

Current position

The EC has made a number of announcements

about formal investigations into fiscal state aid.

There is a focus both on particular MNEs, largely

in relation to transfer pricing cases involving a

member state tax ruling, and on specific tax

regimes in certain member states.

Around 192 Members of the European Parliament

(MEPs) called for a Parliamentary Committee of

Inquiry into tax rulings for MNEs in Luxembourg,

Ireland, Netherlands and Belgium, following the

EC’s initial investigations. The EP’s group leaders

considered this incompatible with the EU Treaty

and Parliament's rules of procedure. Instead they

agreed that Parliament set up a Special Committee

to look into tax rulings in all member states.

The Greens-EFA Group of MEPs referred to the

special committee being a parliamentary

instrument with less standing and reduced

investigative powers. Greens/EFA economic and

finance spokesperson Sven Giegold said:

“Apart from its ability to maximise political

attention and pressure, an inquiry committee

provides the strongest basis for gaining access to

official documents from national authorities, a

key provision as taxation matters remain in

member states' hands.”

The ALDE (liberal-democrat) Group, on the other

hand, were more positive: “It will have more

possibilities thanks to the broader mandate than

an inquiry committee. The ‘special committee’ will

look into the practices of all MS and prepare

legislative proposals to avoid them.”

The mandate given to the Special Committee goes

back to the beginning of 1991 but will also include a

review of the way the EC treats state aid in member

states and the extent to which those states are

transparent about their tax rulings. It will also seek

to ascertain the negative impact of aggressive tax

planning on public finances and will come up with

recommendations for the future.

PwC views

The EC’s investigations could have a direct impact

on many companies in relation to findings of fiscal

state aid. The EP's investigation will run parallel to

the EC's investigations but it cannot interfere with

them, since the EC’s investigations are conducted

strictly under EU competition law rules, whereas

the special committee is a mere enquiry

committee.

A finding of state aid could have significant

financial consequences for a taxpayer that has been

found to benefit. Recoveries and interest over up to

10 years could result in a large repayment demand.

Where you are an ‘interested party’ you have a

right to submit written comments to the EC as a

response to the decision opening a formal

investigation on state aid.

Where you can show that an act of the EC is of

‘direct and individual concern’ to you, you have a

limited time to contest the EC’s finding in the

European courts.

Business and representative bodies should be

watching these proceedings carefully and

considering the need to engage with the process.

Directive for Disclosure of non-financial and diversity information

Introduction

On 29 September 2014, the Council officially

adopted the agreement reached with the EP on the

EC proposal to amend the Accounting Directive to

improve transparency of large listed and unlisted

companies on social and environmental matters.

Companies concerned:

Will need to disclose information on

policies, risks and results as regards

environmental matters, social and

employee-related aspects, human

rights, anti-corruption and bribery, on

a comply-or-explain basis

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REGULATORY BRIEFING February 27, 2015

Can provide disclosures at a group level

rather than the individual company level

If complying, large listed companies also

have to disclose their diversity policy in

their corporate governance statement

The EC is required to deliver, in 2018, a report on

implementation and its effectiveness, in which it

will need to have considered the possibility of

introducing an obligation requiring large

undertakings to produce, on an annual basis, a

country-by-country report (see Section on page 24)

for each member state and third country in which

they operate, containing information on profits

made, taxes paid on profits and public subsidies

received. The report will also take into account

developments to increase transparency in financial

reporting carried out at international level. This

may lead to changes an or additional requirements

being introduced in the future

The Directive was published in the EU Official

Journal on 22 October 2014.

European Commission

Amending the Shareholder Rights Directive

Introduction

On 9 April, 2014, the EC published proposals to

amend the Shareholder Rights Directive which was

adopted in 2007 to improve corporate governance

in EU companies traded on regulated markets. The

directive implemented minimum standards

relating to the exercise of shareholders’ rights to

vote at, and participate in, general meetings as well

as shareholders’ access to information. The

proposals cover shareholder votes on

remuneration policies and related party

transactions and greater transparency obligations

on certain market participants.

Following consultation and the EC’s

communication on 9 March 2014, entitled “Long-

term financing of the European Economy”, the EC

published a proposal to amend the directive to

tackle corporate governance shortcomings and

promote the competitiveness and long-term

sustainability of around 10,000 companies listed

on Europe’s stock exchanges.

Proposals

The key elements in the EC’s proposal include:

Remuneration Policy — A “say on pay”

policy, whereby shareholders would have the

right to vote on a company’s remuneration

policy in respect of directors at least every

three years. Companies would only be

permitted to pay directors in accordance with

the approved remuneration policy (save for

new directors whose remuneration package

has been individually approved by

shareholders). Remuneration policies would

be required to be in line with the company’s

business strategy, objectives, values, and

long-term interests and incorporate measures

to avoid conflicts of interest. Policies would

also be required to explain how employees’

pay and employment conditions were taken

into account when settling the policy,

including explaining the ratio between the

average pay of full-time employees and that

of executives. There would be no EU-wide

cap on executive pay but a company would be

required to stipulate a maximum level for

executive pay in its remuneration policy

Remuneration Reports — to be produced

annually, providing a comprehensive

overview of remuneration, including all

benefits in whatever form granted to

individual directors, is to be provided to

shareholders, who will have the opportunity

to vote on the report at the company’s general

meeting. Although the shareholder vote will

only be advisory, if the report is not

approved, the company will be required to

state in the next such report whether or not

the shareholders’ vote was subsequently

taken into account

Related Party Transactions —

Independent shareholder approval will be

required prior to the completion of any

related party transactions that either

represent more than 5% of a company’s

assets or that have the potential to have a

significant impact on a company’s turnover

or profits. Related party transactions valued

between 1% and 5% of a company’s assets will

be required to be announced on completion

and must be accompanied by an independent

third-party fairness report. Advanced

shareholder approval of certain types of

recurring transactions may be permitted

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Institutional Investors and Asset

Managers — introduction of stronger

transparency measures that will require them

to disclose, on an annual basis, their

investment strategy and shareholder

engagement policies regarding companies in

which they invest

Proxy Advisers — a requirement to adopt

and implement measures to guarantee the

accuracy and reliability of their voting

recommendations and to disclose annually

key information relating to the preparation of

their voting recommendations. Proxy

advisers will also be required to disclose,

without undue delay, any actual or potential

conflicts of interest or business relationships

that may influence the preparation of voting

requirements together with any actions that

they have taken to eliminate or mitigate such

actual or potential conflicts

Intermediaries — a requirement to offer

companies the right for their shareholders to

be identified without undue delay.

Shareholder rights will be enhanced by

requirements that intermediaries must

transmit information to shareholders and

facilitate the exercise of shareholder rights.

Intermediaries will be required to publicly

disclose prices, fees, and any other charges

for services required under the amended

directive

Next Steps

The EP and the Council are now considering the

EC’s proposal as part of the legislative process. If

approved, each member state will be required to

implement the proposal within 18 months.

Institutional arrangements for dealing with IFRS in Europe

Maystadt review

In 2013 the EC appointed Philippe Maystadt to

conduct a review of the legal and institutional

infrastructure for adoption of IFRS standards for

use in the EU. Mr Maystadt’s final report was

published in November 2013 and included, as its

central recommendation, a restructuring of the

European Financial Reporting Advisory Group

(EFRAG). The aim of the changes was to

strengthen Europe's voice at an earlier stage in the

development of the IFRS standards.

EFRAG issued a call for nominations (by 1 October,

2014) of candidates to join the reconstituted

EFRAG Board. Nominations are made by the

EFRAG stakeholder organisations and by national

standard setters. (Members from the accountancy

profession will be nominated by the Federation of

European Accountants (FEE) and the European

Federation of Accountants and Auditors for SMEs

(EFAA). Members from the corporate community

will be proposed by Business Europe.) In

addition, the President or chair of the EFRAG

Board will be selected and nominated by the EC,

having sought the views of the Council and the EP.

In future EFRAG's Board, rather than its Technical

Expert Group, will have the authority to issue

endorsement advice on IFRS standards to the EC

and to approve comment letters on draft

pronouncements of the IASB.

The new EFRAG governance structure became

operational from 31 October 2014.

Review of the IAS Regulation

In addition to the Maystadt review of the

institutional framework for adopting IFRS

standards for use in Europe, the EC also

announced a review of the Regulation requiring

use of IFRS by EU listed companies (the 2002 'IAS

Regulation'), in the light of a decade's experience in

operation.

To assist EC staff with the review, the EC

established an informal Expert Group on the

evaluation of the IAS Regulation. This group

comprises 18 representatives of stakeholder

organisations.

Current position

In August 2014, the EC issued a public

consultation on the operation of the IAS

Regulation, with response due by 7 November,

2014. The EC received more than 200 responses to

this consultation. Release of the EC’s report on its

review of the Regulation is due shortly.

Any proposal for legislative change would require

further consultation, and is unlikely to occur before

mid-2015.

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UK

FRC review of compliance with the Corporate Governance Code regarding corporate culture, values and principles

Introduction

Company statements asserting that they are ethical

are coming under increasing public scrutiny, with

claims that annual reports and statements around

transparency do not give investors and other

stakeholders any means to properly judge or assess

these claims. For example, a survey in 2014 of the

FTSE 100 by the Chartered Institute of Internal

Auditors (IIA) showed that 90% of groups discuss

their integrity or ethics in their annual reports but

only 20% of these indicate what standards they

apply in practice.

Next steps

In response to such concerns, the FRC announced

at the beginning of January 2015 that it would

assess how effective boards were at embedding

good behaviour, and taking responsibility for the

culture, values and principles that govern their

organisation. The FRC will then consider whether

it will promote best practice in this area.

The FRC made this announcement as it released its

2014 report into levels of compliance with the UK

Corporate Governance Code. The report showed

that levels have continued to increase, with

reporting becoming more transparent and

informative, with audit committee reports and

diversity reporting particularly improved.

PwC views

These concerns are important as they link to wider

issues of trust in business and the impacts this can

have on reputation and brand value. This is

evidenced by recent controversies such as LIBOR

and foreign exchange risk rigging, or the debate

around corporate tax ‘avoidance or evasion’. All of

these ‘scandals’ have undermined investor and

market confidence and raised concerns regarding

effective and transparent identification and

management of risk.

We support measures which increase confidence

and stability in the capital markets. Improving

trust and confidence in the integrity and ethics of

the corporate sector are key to this.

FRC review of the Audit Firm Governance Code

Introduction

The FRC continues its review of implementation of

the Audit Firm Governance Code, through a series

of meetings with audit firms, independent non-

executives and shareholders. This process

included a survey of views among these

stakeholder groups on ways to improve confidence

in the value of audit and subsequent report on the

findings by the FRC.

Current position

The FRC shared two iterations of a draft

consultation with the accounting networks during

2014. These gave the impression that much of the

Code would remain unchanged, although the

following suggestions were notable:

The independent non-executives should have

an oversight role with regard to partner

remuneration policy and in particular the

incentive arrangements for the senior

partner and his / her executive team

Shareholders should be given the

opportunity to comment on the selection of

new independent non-executives

Firms should consider how aspects of the

Code, including the appointment of

independent non-executives, could be

introduced to other firms in the network

An FRC stakeholder meeting was held on 25

November, 2014, to discuss the proposals further.

There was considerable debate (much of it

inconclusive) over the purpose of the Code, the

accountability of independent non-executives and

the definition of the public interest.

Next steps

It is understood that the FRC is now amending the

draft consultation substantially, and a revised

version will be issued in March 2015. Informal

feedback is that the FRC may suggest more senior

management accountability is built into a firm’s

governance structures.

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What is happening in other countries

Auditor reporting:

Global, US, UK and the Netherlands:

Introduction

Both the International Auditing and Assurance

Standards Board (IAASB) and the US Public

Company Accounting Oversight Board (PCAOB)

have consulted on proposed new standards

defining what the auditor reporting model of the

future may look like.

Key developments to note:

The IAASB released its new final standards

in January 2015

The PCAOB has indicated that it plans to

issue a re-proposal by Q2, 2015

The new EU audit legislation introduces

similar reporting requirements for audit

reports of PIE across the EU as well

Enhanced reports have already been

introduced in the UK and the Netherlands.

The aim of these initiatives is to make auditor’s

reports more informative by enhancing the current

reporting model that focuses on the auditor’s

‘pass/fail’ opinion with further insight into the

audit.

New requirements

In summary the new reporting models include:

A new section providing insight into Key

Audit Matters (IAASB) or Critical

Audit Matters (PCAOB) or Significant

Risks (EU) by describing those matters that

were of most significance in the audit or

involved the most difficulty. This includes a

bespoke and tailored description of each of

the matters, why the matter was one of most

significance and how it was addressed in the

audit. Increasingly in the UK, auditors are

also including observations and findings. In

the UK and the Netherlands, auditors are

also required to disclose materiality

judgements and scoping decisions.

The IAASB and EU legislation continue to

include a requirement for the auditor to

provide a statement on any going concern

material uncertainties. The IAASB

introduced enhanced descriptions of

respective responsibilities regarding going

concern, with increased focus on the

adequacy of disclosures regarding

management’s judgements, particularly in

‘close call’ situations (IAASB). In approving

the IAASB’s new standards, however, the

Public Interest Oversight Board (PIOB)

expressed disappointment with this outcome

and encouraged the IAASB to work with the

IASB to find a holistic solution that better

meets the public interest. The PCAOB has a

separate project on this issue

A conclusion on the outcome of the

auditor’s consideration of the other

information contained in a Company’s

annual report. The IAASB has, subject to the

PIOB’s approval, finalised revisions to ISA

720, the ISA which defines the auditor’s

responsibilities in relation to other

information as part of the financial

statement audit. The PCAOB is proposing

similar amendments as part of its auditor

reporting project. A broader perspective is

apparent in the required conclusions in the

EU requirements as well.

The IAASB’s new requirements go beyond

that required today, which is limited to

reading the other information for

consistency with the financial statements.

The new ISA requires auditors to consider

not only the consistency of the other

information with the financial statements,

but also with the auditor’s knowledge

obtained during the audit and to remain alert

to other material misstatements in the other

information. The standard defines the work

effort, including comparison procedures and

actions when possible material

misstatements are identified. These

responsibilities will now be described in the

auditor’s report as well as whether the

auditor has anything to report in relation to

them.

A statement regarding the auditor’s

independence (IAASB and PCAOB). In the

EU, in addition to confirming in audit

reports of PIEs its independence the auditor

will also be required to confirm that no

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prohibited NAS has been provided and

disclose any allowable NAS provided if not

otherwise disclosed elsewhere

Enhancements to existing standard language

describing the audit and the auditor’s

responsibilities (IAASB and PCAOB)

Disclosure of the year the auditor

began serving consecutively as the

company’s auditor (PCAOB and EU)

Current position

The IAASB’s final standards have been issued

and will become effective for audits of

financial statements ending on or after 15

December 2016. The PCAOB’s re-proposal is

expected in Q2, 2015. In the UK, auditors are into

the second year of the FRC’s enhanced auditor’s

reports, and auditors in the Netherlands are

implementing the new standard for their reports

on 31 December 2014 financial statements.

National auditing standards setters in other

jurisdictions are in the process of implementing

the new ISAs into national standards, with debate

in some jurisdictions on the scope to which

enhanced reports will apply (e.g. whether to extend

the scope to apply to all PIEs or to allow relief for

smaller listed companies). There is also evidence of

some clients being interested in having the new

expanded audit reports before the new standards

come into effect.

In the Netherlands the professional body for

accountants in the Netherlands (NBA) has decided

to impose rules for the financial statements of

Dutch public interest entities as of 2014. The new

NBA Standard (702N) is based on the new IAASB

standards, and also incorporates certain aspects of

the new auditor’s report introduced in 2014 in the

UK and some requirements from the new EU

Regulation.

The new, long form audit report should be issued

in respect of the 2014 financial statements of all

Dutch public interest entities (on an international

level as of the financial statements 2016). Auditors

of other organisations can implement the new

auditor's report on a voluntary basis.

The Standard will remain in force until

incorporation of the new ISA 701 Standard which

will probably occur by the end of 2015 for periods

ending on or after December 15, 2015.

In June, 2014, the Center for Audit Quality (CAQ)

provided recommendation to the PCAOB as a

result of the field testing of the proposed standard.

The CAQ recommendations included refining the

sources and factors to be considered when

determining whether a matter is a CAM.

Specifically, the CAQ recommended that the focus

be only on matters communicated to the audit

committee, and that the standard include an

explicit requirement to consider the concept of

materiality as a relevant consideration.

As it related to the PCAOB’s proposal for an

auditor’s responsibility regarding other

information, the CAQ recommended that the

PCAOB clarifies the term “evaluate” by providing

more specific identification of the nature and

extent of procedures to be performed by the

auditor.

Next steps

The expected timetable for action on the various

proposals and legislation is:

EU audit

legislation

Applicable to audits commencing

from 17 June 2016

IAASB Released January 2015, effective

2017

PCAOB Issuance of a revised proposal in

Q2, 2015

NBA Applicable to audits ending on or

after December 15, 2014

PwC views

In many respects, there is remarkable consistency

between the models of the various regulators and

standard setters. All of them envisage a more

bespoke and informative auditor’s report that will

supplement the binary “pass/fail” audit opinion

with greater insight about the audit and key areas

of focus in it.

These new standards enable us to deliver

information and insight in a way not previously

permitted. We can demonstrate publicly the

relevance of the audit, rebuild trust in auditors,

and, crucially, underpin confidence in reported

financial information. This is a game-changer for

all stakeholders and we are committed to issuing

reports that reflect the spirit of the reforms.

The introduction of Key Audit Matters (IAASB)

and Critical Audit Matters (PCAOB) is seen as the

most valuable to users, increasing the information

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February 27, 2015 REGULATORY BRIEFING

value of the auditor’s report. Deciding which

matters to highlight and what the auditor should

say are critical to getting the model right.

It is likely that the most valuable change for

shareholders and investors is insight into how the

audit addressed matters that are material to the

financial statements – the most significant

financial statement areas involving complex

estimates and significant management judgement.

Many recognise, however, that it is important to

avoid reporting matters that risk unintended

consequences and that breach the principle that

the auditor’s report should not be the original

source of information about the entity – a concern

that many preparers have expressed. However,

experience in the UK has been that this has not

constrained the preparation of tailored and

informative descriptions that provide real insights

into the risks specific to the audit.

International tax debate

Global

OECD, G20, European Commission

Debate on transparency and fair taxation

Background

Forthcoming changes in international tax rules in

order to stop profit stripping or profit movement

across borders to avoid taxes were highlighted in

our October 2014 briefing. To recap, an OECD

‘Action Plan on Base Erosion and Profit Shifting’

(BEPS) aims to re-align taxation between countries

in accordance with economic activities and value

creation. Various global working parties led by the

OECD have been making a range of potential

proposals as part of the BEPS project, many of

which have been approved by the G20.

At the same time, EC President Jean-Claude

Juncker has made the fight against tax evasion and

avoidance a top political priority of the current

Commission. In his Political Guidelines presented

to the European Parliament on 15 July 2014,

President Juncker stated:

"We need more fairness in our internal market.

While recognising the competence of Member

States for their taxation systems, we should step

up our efforts to combat tax evasion and tax

fraud, so that all contribute their fair share."

The incoming Commission then made a number of

pledges in its Work Programme last December. In

particular, it stated that it would clamp down on

tax evasion and tax avoidance, to ensure that taxes

are paid in the country where profits are generated.

The G20 also distributed a set of draft principles in

2013 to guide governments when drawing up

national rules on disclosure of beneficial ownership

of companies. Negotiations took until November

last year for these plans to be finalised. The G20

principles stated that countries should ensure that

legal persons maintain beneficial-ownership

information onshore and that information is

adequate, accurate and current.

“Countries could implement this, for example,

through central registries of beneficial ownership

of legal persons or other appropriate

mechanisms”.

This information should also be shared between

domestic and international agencies, including

law-enforcement bodies, the guidelines stated.

Current position

Nine sets of proposals were published under the

BEPS project between 31 October and 19 December

2014. An enormous number of comments have

been made in response and these are being

assessed before they are agreed or revised

proposals are put forward.

The OECD/G20 BEPS Project has continued in the

first part of 2015 at a similar fast pace. OECD and

G20 countries have now also agreed

implementation rules for some key elements of the

BEPS Project, including:

A roll-out package for country-by-country

reporting (CBCR) and a related government-

to-government exchange mechanism

A mandate for negotiations to agree a

multilateral instrument that would effectively

update a large number of double tax treaties

at one go, and

Criteria to assess whether preferential

treatment regimes for intellectual property

(IP), particularly so-called patent boxes, are

harmful or not – a modified-nexus approach

linking income and expense in future – with

a phasing out of existing regimes between

2016 and 2021

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The BEPS project does not publish its final

recommendations, with sign-off from the G20,

until December 2015. The extent to which

individual countries (and groups of countries

bound by economic agreements) are choosing to

support the G20 initiatives vary.

The EC held a first orientation debate in February

2015 on possible key actions to ensure a fairer and

more transparent approach to taxation in the EU.

The EC will present a package of measures dealing

with fair and efficient corporate taxation this

summer, taking into account current G20/ OECD

initiatives to tackle tax avoidance. The EC College

of Commissioners also agreed to present a Tax

Transparency Package in March 2015. They

referred to fairer tax competition, within the EU

and globally, but also that tax authorities should

not have to rely on leaks before enforcing tax rules.

Pierre Moscovici, Commissioner for Economic and

Financial Affairs, Taxation and Customs, said:

"Abusive tax practices and harmful tax regimes

breed in the shadows; transparency and co-

operation are their natural foes. It is time for a

new era of openness between tax administrations,

a new age of solidarity between governments to

ensure fair taxation for all. The Commission is

fully committed to securing the highest level of tax

transparency in Europe."

The EC will, in particular, propose legislation to

extend the automatic exchange of information on

tax rulings. The March 2015 proposal will be

accompanied by a wider set of measures to

increase tax transparency.

In specific respects, some countries are not waiting

for the BEPS project to be concluded. While the

OECD maintains its calls for consensus, some

territories are taking unilateral action. The UK’s

attempts to counteract what it calls ‘contrived

arrangements’ by large groups (typically MNEs)

that result in the erosion of the UK tax base’ by the

imposition of a new tax, diverted profits tax (DPT),

is regarded by many as a unilateral BEPS measure.

The DPT is, broadly, a 25% tax on a company’s

taxable diverted profits in two scenarios:

Where foreign companies are regarded as

having exploited the permanent

establishment rules (with some exclusions for

smaller companies), or

Where groups create a tax benefit by using

transactions or entities that lack economic

substance (including UK-UK transactions)

Australia said that it was looking closely at the

UK’s move and will consider introducing new laws

aimed at targeting tax avoidance. In the meantime,

Australia is using its existing powers to carry out

extensive audits of major MNEs. Treasurer Joe

Hockey said:

“Domestically, I believe there will probably be a

number of court cases during the course of next

year where existing laws will be tested. In the

interim we are contemplating further measures

that will give the Australian Taxation Office the

power to get the sort of information they need.”

The UK government has prepared legislation which

will enforce a publicly accessible register of a

company’s beneficial ownership structure.

However, other nations and states have not been as

quick to respond to the G20’s calls. Within the EU,

a draft EU anti-money laundering directive calls

for the ultimate owners of companies to be listed in

central registers in EU countries, accessible to

people with a ‘legitimate interest’, such as

investigative journalists and other concerned

citizens. It will now need to be endorsed by the full

Parliament (March or April 2105) and by the EU

Council of Ministers. Member states will then have

two years to transpose the anti-money laundering

directive into their national laws.

PwC views

We expect the OECD to conclude the BEPS project

on time, by the end of 2015. Final

recommendations will then have to be

implemented and we expect some fairly broad

changes to take place in individual countries. But

there will not be complete consistency. We can also

expect to see more countries, like the UK and

Australia, taking interim measures. In many cases

these are likely to lead to greater uncertainty, but

may well be driven by short-term agendas rather

than longer-term policy objectives.

Implementation of CBCR is expected to apply in

many countries for accounting periods beginning

on or after 1 January 2016 (in line with the OECD

guidance). This leaves businesses with little time to

put in place the necessary processes and controls.

There are likely to be few exclusions, other than on

grounds of size – the OECD recommends groups

with an annual consolidated turnover of less than

EUR 750 million in the previous fiscal year should

be excluded. There are perceived practical

difficulties with the implementation of CBCR. In

our experience in advising MNEs so far, we’ve

needed to offer technical support (including

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February 27, 2015 REGULATORY BRIEFING

conducting initial dry run testing and risk

assessments), as well as help in developing and

implementing the appropriate technology and

governance infrastructures to manage CBCR data

extraction and future reporting.

There is still significant work to finalise the details

of the modified nexus approach to IP benefits. That

includes agreeing a practical approach to linking

R&D expenditure to revenues from products/ IP

licensing, safeguards to prevent abuse of the

grandfathering provisions and the final list of

qualifying IP assets.

We’ve been at the forefront of calls for greater

transparency of meaningful information. We’d like

to see governments taking on board the need to

create more public awareness and understanding

of tax. We’ve also encouraged businesses to

provide more information, not just figures, within

their financial statements about their tax strategies

and to tell the wider story. We’d like to see people

continuing engagement in debating the issues

around tax transparency in its various guises.

Banking and financial services

Global

Basel Committee on Banking Supervision

New reporting standards for bank risk disclosures

Introduction

At the end of January, 2015, the Basel Committee

on Banking Supervision (BCBS) released plans to

overhaul reporting standards for the way in which

banks report their risk assessments, with the aim

of increasing transparency and making it easier to

compare lenders’ assets and capital buffers. The

new standards (known as the revised Pillar 3

Disclosure Requirements and superseding the

previous Pillar 3 disclosure requirements issued in

2004) are part of an increased focus on how banks

assess the riskiness of their assets and impacts on

their capital requirements.

The new standards apply to internationally active

banks at the top consolidated level and will require

these banks to use new, more consistent and

detailed models in their financial reporting from

for the year-end 2016 financial report).

Currently the largest banks tend to use their own

internal models for the assessment of risk-

weighted assets as the basis for determining how

much capital they need to set aside. This has made

comparability of stress-testing of banks’ balance

sheets more difficult.

This is the latest in a series of recent moves by the

BCBS and other banking supervisors to address

concerns with the current systems, including

measures to reduce banks’ reliance on credit rating

agencies to assist in their risk analysis.

Stefan Ingves, Chairman of the BCBS, indicated

that “The revised disclosure framework represents

an important shift in both the format and

granularity of required bank disclosures. The

changes substantially strengthen the disclosure

framework and will help users of the disclosures

to better understand and assess the measurement

of a bank’s risk-weighted assets.”

Requirements

The BCBS has set out five ‘guiding principles’ for

Pillar 3 disclosures to be:

Principle 1: clear – they should be

presented in a form that is understandable to

users and in an accessible medium using

simple language with key terms defined.

Risk related material should be presented in

one location

Principle 2: comprehensive – describing

the bank’s main activities and all significant

risks, with relevant supporting data and

information. Any significant changes in risk

exposure between reporting periods should

be explained with details of management’s

response. Information should be provided in

quantitative and qualitative terms on a

bank’s processes and procedures for

identifying, measuring and managing its

risks. The level of detail should be

proportionate to the complexity of the banks

operations. The disclosure should also

enable users to gain an understanding of the

bank’s risk tolerance / appetite

Principle 3: meaningful to users –

disclosures should highlight the bank’s most

significant current and emerging risks, detail

how these will be managed, and where

appropriate link to items in the balance sheet

or income statement. Any information which

is no longer relevant should be removed

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REGULATORY BRIEFING February 27, 2015

Principle 4: consistent over time – to

enable users to identify trends; any deletions

or other important changes from previous

reports should be identified and explained

Principle 5: comparable across banks –

prescribed formats are designed to enable

users to perform meaningful comparisons

between institutions and jurisdictions

A key element of the new requirements is a

‘hierarchy’ of disclosures, with prescriptive

templates for quantitative information considered

essential for analysing a bank’s regulatory capital

requirements, and more flexible formats for

information which is considered meaningful to the

markets but not essential to the analysing a bank’s

capital adequacy. The latter can also include

management commentary explaining its views on

particular circumstances and risk profiles.

Key requirements in the new ‘framework’ include:

The ‘Pillar 3 Report’ must be produced as a

‘stand-alone’ document which provides

an easily accessible source of prudential

measures for users. Banks and supervisors

must also make these reports available on

their websites (the retention period to be

determined by the respective supervisor)

The report must be published

concurrently with its financial report

for the corresponding period

The information contained in the report is

subject to a minimum requirement that it

is provided with the same level of

assurance as provided within the

management discussion and analysis

section of the financial report

Eligible banks must establish a formal

board approved disclosure policy,

setting out internal controls and procedures,

and which should be described in the year-

end Pillar 3 report or cross-referenced if

provided elsewhere. The board and senior

management are responsible for this

process, and at least one of these senior

officers must attest in writing that the Pillar 3

report has been compiled in accordance with

this policy and the relevant internal controls

Any matters which are considered

proprietary or confidential in nature

which could contravene legal obligations if

made public may not be disclosed, but in

all these instances a narrative

commentary detailing the items not

disclosed and explaining the reasons for

this non-disclosure

The following table sets at the frequency for disclosure of the reporting requirements.

Section Requirement Quarterly Semi- annually Annually

Part 2 – overview of risk

management and Risk-

weighted Assets (RWA)

OVA - approach √

OV1 - overview √

Part 3 –linkages between

financial statements and

regulatory exposures

All √

Part 4 – credit risk CRA to CRE, CR9 √

CR1 to 7 & CR10 √

CR8 √

Part 5 – counterparty credit

risk

CCRA √

CCR1 to 6 & CCRA8 √

CCR7 √

Part 6 - securitisation SECA √

SEC1 to 4 √

Part 7 – market risk MRA & MRB √

MR1 & MR3 to 4 √

MR2 √

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February 27, 2015 REGULATORY BRIEFING

Countries

Japan

Release of new Corporate Governance Code

Introduction

On 26 December 2014 the Financial Services

Agency (FSA) of Japan, in conjunction with the

Tokyo Stock Exchange (TSE), published the

exposure draft of ‘The Corporate Governance Code’

for the sustainable growth of companies and the

increase of medium-to-long- term corporate value.

Background

Japan’s approach to corporate governance has

been very different to the majority of other

international models – taking account of specific

Japanese issues, traditions, and considerations.

Independent directors are very rare and boards

tend to comprise a majority of corporate managers.

This is seen to have led to companies focusing

more on ‘empire-building’ rather than on creating

shareholder value and has boosted low

profitability.

Recently there has been evidence that poor

corporate governance is also partly responsible for

the lack of business investment that is holding back

economic growth. In a recent research report the

International Monetary Fund highlighted that

companies that score poorly on a Bloomberg

measure of corporate governance tend to ‘stock

pile’ cash. Pressure has been rising on the ruling

Liberal Democratic Party to implement a new

corporate governance code, which would enhance

the number of external independent (outside)

directors and encourage greater concern for

shareholders and their interests.

Proposals

The draft of the new guidelines focuses on general

principles, and adopts a “comply-or-explain”

approach. The guidelines provide examples of the

kind of things to do, and identifies what sanctions

or consequences there might be for not adopting

these approaches. Such approaches include:

Introduction of the principle of separation

of management functions from oversight

functions

Better communication with and

participation by shareholders

Valuing shareholders based on the size of

their ownership stake

A greater focus on increasing

shareholder value, with Directors' having

fiduciary obligations to shareholders as well

as other stakeholders

Being more positive towards takeovers

Encouraging diversity and the

promotion of women

An increased focus on profitability,

prudent risk-taking, efficient capital

allocation, and sustainability

Disclosure required as to the ‘reason’ and

logic for cross-shareholdings

The draft Code also includes provisions for the

mandating of:

The use of neutral external auditors

The inclusion of at least two

independent non-executive (outside)

directors (INEDs) on every board. With

strong ‘encouragement’ that one-third of the

board of global companies to be composed

of INEDs

The draft is based on the OECD's Principles of

Corporate Governance but also reflects present

conditions and the legal framework in Japan. It

will apply to all TSE-1 and TSE-2 (2nd level) listed

firms, and with some possible adjustment for the

burdens of compliance for smaller firms, also to all

other exchange-traded companies in Japan.

Current position

The consultation on the Exposure Draft was open

for comments until 31 January 31 2015. It is

expected that the revised Code will be reflected in

the TSE's new listing standards, which must come

into effect by June of 2015.

PwC’s view

PwC is supportive of the principles-based approach

to corporate governance and see the adoption of

the new Code as a positive step in the increased

recognition of the importance of rigorous

governance and global best practices.

Page 23 of 52

REGULATORY BRIEFING February 27, 2015

‘Watch list’ of other developments

Here we summarise other regulatory developments around the world, both new and previously reported –

the latter where no substantive action or change has occurred since the last Briefing in October 2014.

What else is happening in the EU

European Commission

Release of ‘Green Paper’ outlining proposals for Capital Markets Union

Introduction

On 18 February, the EC published a Green Paper

on the Capital Markets Union (CMU). The purpose

of the proposals is to start a debate across the EU

over the possible measures needed to create a true

single market for capital. Two complementary

consultations on 'high-quality' securitisation and

the prospectus directive were also published.

Proposals

The Green Paper identifies the following key

principles which should underpin a CMU,

indicating that it should:

Maximise the benefits of capital markets for

the economy, growth and jobs

Create a single market for capital for all 28

member states by removing barriers to cross-

border investment within the EU and

fostering stronger connections with global

capital markets

Be built on firm foundations of financial

stability, with a single effectively and

consistently enforced rulebook

Ensure effective investor protection

Help to attract investment from all over the

world and increase EU competitiveness

The Green Paper also seeks views on how to

overcome other obstacles to the efficient

functioning of markets including:

how to reduce the costs of setting up and

marketing investment funds across the EU

how to further develop venture capital and

private equity

Whether targeted measures regarding

company, insolvency and securities laws and

taxation could materially contribute to CMU

The treatment of covered bonds, with a

specific consultation in 2015 on a possible

EU framework

Prospectus Directive

The purpose of the consultation on the Prospectus

Directive is to gather views on the functioning of

the Prospectus Directive and the implementing

legislation. The consultation covers a very broad

range of issues, for example:

The scope of the prospectus requirements

and the exemptions thereto

The appropriate level of investor protection

Possible ways to reduce administrative

burden and costs that seem unnecessary

Cross-border issues

The possibility to make the regime more

appropriate for small and medium-sized

enterprises and companies with reduced

market capitalisation

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February 27, 2015 REGULATORY BRIEFING

The responses will be taken into account in the

preparation of a review of the Prospectus Directive

and, if and where appropriate, of proposals to

amend it.

‘High Quality’ securitisation

The consultation on securitisation represents a

first step towards a possible initiative on creating

an EU framework for simple, transparent and

standardised securitisation. Its aim is to gather

information and views from stakeholders on the

current functioning of European securitisation

markets and how the EU legal framework can be

improved to create a sustainable market for high-

quality securitisation. On the basis of the feedback

received, the EC will reflect further on how to reach

that objective.

Next steps

Following the public consultation, the EC will

adopt an Action Plan this summer setting out its

roadmap and timeline for putting in place the

building blocks of a CMU by 2019.

Consultation on equivalence of third country regimes regarding country by country reporting

Introduction

On 26 June 2013, a new obligation for listed and

large non-listed extractive and logging companies

to report all material payments to governments

was introduced in the Accounting Directive.

Payments should be broken down by country and

by project. The following types of payments should

be reported:

Production entitlements

Taxes levied on the income, production or

profits of companies

Royalties

Dividends

Signature, discovery and production bonuses

Licence fees, rental fees, entry fees and other

considerations for licences and/or

concessions

Payments for infrastructure improvements

The new disclosure requirements aim to improve

the transparency of payments made to

governments all over the world by the extractive

and logging industries. Such disclosures will

provide civil society in resource-rich countries with

the information needed to hold governments to

account for any income made through the

exploitation of natural resources and also to

promote the adoption of the Extractive Industries

Transparency Initiative (EITI) standard by those

countries. The information disclosed on payments

to governments will be publicly available to all

stakeholders either through the stock market

information repository or the business registry in

the country of incorporation.

The Accounting Directive includes provisions for

an equivalence procedure, to be implemented by

the EC vis-á-vis third countries with equivalent

reporting requirements. The provisions would

allow EU companies to choose whether to prepare

reports on payments to governments either in

compliance with the laws of a relevant member

state, or in accordance with an equivalent third

country reporting requirement, provided that the

report is published in the EU.

The Directive includes a list of equivalence criteria:

Target undertakings

Target recipients of payments

Payments captured

Attribution of payments captured

Breakdown of payments captured

Triggers for reporting on a consolidated basis

Reporting medium

Frequency of reporting

Anti-evasion measures

Current position

The EC ran a public consultation from 25 June to

10 October 2014, to ascertain the views of

stakeholders on the equivalence mechanism, and

in particular on the criteria, considering as well

future equivalence decisions. The EC received 24

contributions (which are available online) and

released a summary of the views in February 2015,

which indicated that:

Most respondents believed that it was not

necessary to provide further details on

the equivalence criteria already in the

Directive or to add any additional ones

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REGULATORY BRIEFING February 27, 2015

There are differences in views between

respondents regarding:

1. Equivalence mechanisms, with:

o Civil society organisations focussing on

establishing a consistently high global

standard, based on EU standards, to

establish a ‘level playing’ field

internationally

o Preparers and profession organisations

believing equivalence should be based on

achieving similar levels of protection and

avoiding redundant and costly reporting

2. Equivalence of reports, with:

o Civil society organisations, users, public

authorities and ‘others’ support the

adaption of reports, including open

formats and use of EU languages

o Preparers and professional organisations

believe once a third country reporting

requirement has been recognised as

equivalent by the EU, such reports should

be accepted ‘as is’

There was general agreement that

equivalence issues could be solved if there

was a common international standard,

perhaps modelled in the EITI framework

Proposal for a Regulation on structural measures improving the resilience of EU credit institutions

Introduction

In January 2014, the EC suggested parameters for

restructuring EU banks in its proposed regulation

on structural measures improving the resilience of

EU credit institutions. The EC’s proposal followed

options put forward in the October 2012 Liikanen

report on the EU banking sector.

For certain large banks, the EC proposed:

Banning proprietary trading in financial

instruments and commodities

Granting powers to national

supervisors to require the transfer of high-

risk trading activities (e.g. market making,

complex derivatives, and securitisation) into

separate legal entities within a group

The Regulation includes measures to improve

transparency and disclosure in three main areas:

Competent authorities – an obligation on

them to collect additional data on the use of

securities financing transactions (SFTs). This

should be stored centrally and easily and

directly accessible to relevant authorities (e.g.

The European Securities & Markets Authority

(ESMA), the European Systemic Risk Board

(ESRB), the European System of Central

Banks (ESCB)) to allow identification and

monitoring of financial stability risks entailed

by shadow banking activities of regulated and

non-regulated entities

Fund managers to their investors: a

requirement for fund managers to regularly

report to the investors in the funds they

manage detailed information on the risks

associated with the use of SFTs and other

financing structures and any recourse they

made of such structures. The existing

periodical reports that Undertakings for

Collective Investment in Transferable

Securities (UCITS), management of

investment companies and Alternative

Investment Fund (AIF) managers have to

produce will be supplemented by this

additional information on the use of such

structures

Financial intermediaries to their

clients: a requirement for intermediaries,

such as banks, to provide sufficient

information regarding re-hypothecation of

assets (any re-hypothecation should

therefore occur only with the express

knowledge of inherent risks and prior

consent of the providing counterparty in a

contractual agreement and should be

appropriately reflected in the securities

accounts). Rules are also proposed on the

economic, legal, governance, and operational

links between the separated trading entity

and the rest of the bank group

The requirements would apply to the 14 European

global systemically important banks (G-SIBs) and

any EU banks with €30 billion in total assets and

trading activity that totals €70 billion or represents

10% of total assets. The EC estimates that only

some 30 banks would be affected, representing

approximately 65% of total banking assets in the

EU. The EC requirements reflect other

international attempts at restructuring universal

banks, including the Volcker rule in the US and the

UK Banking Reform Act.

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February 27, 2015 REGULATORY BRIEFING

Next steps

The proposal will now be considered by the Council

and EP. The EC anticipates that the final text will

not be adopted before June 2015. The EC want the

proprietary trading ban to apply from 1 January

2017 and the effective separation of other trading

activities from 1 July 2018.

UK:

FRC release of proposals for streamlining financial reporting for entities within groups

Introduction

On 15 December 2014 the FRC issued proposals to

make financial reporting for entities within groups

more streamlined and efficient. In this

consultation the FRC proposes a limited number of

additional disclosure exemptions to FRS 101 which

have arisen in the last year. The objective of the

proposed changes is to address a number of

important developments in IFRS which occurred

during the last 12 months. The proposals are also

in line with the FRC’s commitment to update FRS

101 annually to ensure that the reduced disclosure

framework remains consistent with IFRS.

Proposed changes

The consultation asked for views in four key areas:

Question 1 – IAS 24 Related Party

Disclosures - proposed amendment to

paragraph 8(j) of FRS 101 and paragraphs 13

to 15 of the Accounting Council’s Advice.

Should an exemption be permitted against

the requirement of paragraph 18A of IAS 24

Related Party Disclosures?

Question 2 – IFRS 1 First-time

Adoption of International Financial

Reporting Standards - proposed insertion

of paragraph 7A into FRS 101 and paragraphs

22-23 of the Accounting Council’s Advice.

Should an exemption be permitted from the

requirement of paragraphs 6 and 21 of IFRS 1

First-time Adoption of International

Financial Reporting Standards to present an

opening statement of financial position on

transition?

Question 3 – IFRS 15 Revenue – changes

to Paragraphs 16-18 of the Accounting

Council’s Advice. Do you agree that no

exemption should be permitted in FRS 101

from the disclosure requirements of IFRS 15

Revenue from Contracts with Customers as

its effective date is not until 1 January 2017,

and that for FRS 101 IFRS 15 should be

revisited once preparers, users and auditors

have gained more experience of the

disclosures and are better placed to assess

whether exemptions against all or some of

those required in IFRS 15 are appropriate?

Question 4 – IFRS 9 Financial

Instruments – changes to Paragraphs 19 to

21 of the Accounting Council’s Advice. IFRS

9 Financial Instruments amends the

requirements of IFRS 7 Financial

Instruments: Disclosures. Do you agree that

no amendments should be made to the

existing exemptions permitted in FRS 101

that allow non-financial institutions

exemptions against the disclosure

requirements of IFRS 7 (and IFRS 13 Fair

Value Measurement)?

The FRC was happy to receive any other comments

on the proposed changes.

Next steps

Stakeholders have until 20 March 2015 to submit

their comments to the FRC.

Prudential Regulation Authority (PRA) consultation on detailed governance and legal arrangements for ring-fenced banks (RFBs)

Introduction

The Prudential Regulation Authority (PRA) is

required to make policy to implement the ring-

fencing of core UK financial services and activities.

The PRA as part of this process issued a

consultation paper (CP) which set out the PRA’s

proposed ring-fencing policy, including rules and

supervisory statements. Views were sought from

interested stakeholders on the proposals and issues

set out in the CP by 6 January 2015.

The consultation paper is one of four papers

published by the PRA on 6 October 2014 as part of

its wider resolution and resilience agenda. Its

proposals cover three areas:

The legal structure of banking groups

Governance

The continuity of services and facilities

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REGULATORY BRIEFING February 27, 2015

Key proposals

In summary the new proposals include:

Legal structures of groups containing an RFB

should not:

Own entities which conduct excluded or

prohibited activities to prevent exposure to

risks unrelated to the provision of core

services

Be owned by such firms to ensure the RFB is

able to make decisions independently

These expectations will be set out in a supervisory

statement.

The governance of groups containing an RFB,

including proposals relating to:

Risk management, internal audit,

remuneration and human resources policy as

these functions “underpin how RFBs make

decisions and devise strategy which is critical,

in particular, in enabling an RFB to take

decisions independently of other group

members”

Rules governing how RFBs can receive

services and facilities from other intragroup

entities or third parties outside their group to

ensure the continuity of services and

facilities. The intention is to develop rules

which will help to mitigate risks “to the

ability of the RFB to perform its core

services arising from the acts, omissions, or

the failure of other group entities”.

Next steps

The Government has stated that its intention is for

ring-fencing to be implemented from 1 January

2019. The PRA plans to complete its consultation

process and publish rules and supervisory

statements well in advance of this date to give

firms sufficient time for implementation.

It is now expected that the PRA will issue further

consultations on other areas later in 2015 and will

publish its rules and supervisory statements during

the first half of 2016.

What else is happening in other countries

Corporate Governance

Global:

OECD

2014-2015 Review of corporate governance guidance and best practice

Introduction

The OECD has launched two reviews of

arrangements regarding corporate governance

guidance and best practice:

OECD Principles of Corporate Governance

OECD Guidelines on Corporate Governance

of State-Owned Enterprises

The OECD Principles of Corporate Governance (The Principles)

Introduction

The Principles were first released by the OECD in

1999 and last revised in 2004. The OECD has

launched a new review and consultation on a

revised draft text of the Principles. This was

conducted online between 14 November 2014 and

4 January 2015.

Background

The OECD Principles are one of the 12 key

standards used by the Financial Stability Board

(FSB). They are also used by the World Bank

Group in their ‘Report on the Observance of

Standards and Codes’ to underpin the section

regarding their reporting on corporate governance.

The OECD has indicated that the:

Rationale for the review is to “ensure the

continuing high quality, relevance and

usefulness of the Principles taking into

account recent developments in the

corporate sector and capital markets”

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February 27, 2015 REGULATORY BRIEFING

Expected outcome is to provide policy

makers, regulators and other rule-making

bodies, including stock exchanges, with a

sound benchmark for establishing an

effective corporate governance framework

As indicated, the Principles are a global standard

adopted by the Financial Stability Board (FSB) and

all FSB member jurisdictions have been invited to

participate in the review.

Current position

The basis for the review is the 2004 version of the

Principles, including acceptance of the foundations

of a well-functioning corporate governance system,

including a high level of transparency,

accountability, board oversight, and respect for the

rights of shareholders and role of key stakeholders.

The objective is that “these core values should be

maintained and, as appropriate, be strengthened

to reflect experiences since 2004”. The revised

draft text of the Principles has been prepared by

the OECD Secretariat and is still subject to

approval by OECD Governance Committee and the

OECD Council.

The review includes consultations with key

stakeholder groups, including the business sector,

investors, national and international professional

groups, trade unions, civil society organisations

and other international standards setting bodies.

The following aspects have been addressed by the

OECD Secretariat and are being considered by the

OECD Corporate Governance Committee:

Promoting board effectiveness –

pertaining to board members’ objectivity,

experience, competences and diversity of

thought; their performance evaluation and

disclosure; and education

Enhancing regulatory efficacy – stock

market regulation that supports effective

governance; supervision and enforcement of

governance rules; cross-border cooperation

and information exchange

Referencing some international

standards in the Principles – principally

those of the OECD or IOSCO

Allowing for scalability – a principles based

approach on a comply or explain basis rather

than allowing for application exceptions

where companies are not ‘large’

Consideration of committees - including

those pertaining to risk, remuneration, audit

and nominating committees to support the

full board in their responsibility

Shareholder rights and

responsibilities – considering the

evolution of capital markets, the roles of

intermediaries, institutional investors, proxy

advisors, and as to short-term shareholder

orientation, considerations as to shareholder

stewardship, voting records, participation

(raising potential for director nominations,

and in relation to executive compensation

and related party transactions), beneficial

ownership, board engagement, and

disclosure and transparency

Promoting independent auditor

oversight - independent audit regulators,

aligned to IFIAR’s principles; establishment

of effective, independent audit committees

Tax avoidance, payments to

governments, human rights and

whistleblowing – promoting disclosure,

regarding governance considerations, of

public policy matters

PwC views

We endorse that the revised Principles reflect the

acceptance, importance and adoption of, and

should not undermine the role of audit committees

as a global leading practice for good corporate

governance and identifying key features of an

effective audit committee, including:

That Boards establish audit committees

Baseline responsibilities for an audit

committee include overseeing financial and

non-financial reporting, internal controls,

internal audit and the external auditor

(including the approval of non-audit

services)

Audit committees have at least one

member with financial expertise and

the other members and the Board more

broadly should be financially literate

Audit Committees act independently of

management in fulfilling their duties

Transparency to shareholders on the

audit committee’s responsibilities and how

they are discharged

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REGULATORY BRIEFING February 27, 2015

The audit committee’s delegated duties are

clearly articulated and the Board as a

whole retains plenary responsibility

We also believe that any changes to the Principles

should reflect the evolution of auditor

independence safeguards (since the last revision of

the Principles in 2004), for example the wider

adoption of the IESBA Code of Ethics (to help

mitigate the proliferation of divergent and

inconsistent independence standards, and correct

detail in the Principles that can negatively impact

audit quality or have unintended consequences) as

well as the strengthened role of audit committee

oversight of auditor independence. We also

encourage reference, where applicable, in the

Principles to existent international auditing

(IAASB), accounting (IASB) and internal control

(COSO) standards.

Finally, we agree the OECD should give

consideration to encouraging jurisdictions to

establish an independent audit regulator,

consistent with the principles of IFIAR.

Next steps

The OECD is expected to publish the revised

Principles by May 2015.

The OECD Guidelines on Corporate Governance of State-Owned Enterprises (The Guidelines)

Introduction

The Guidelines were adopted in 2005 as an

internationally-agreed standard on how

governments should exercise ownership of State-

owned Enterprises (SOEs).

The OECD has announced that the Guidelines will

be reviewed and revised during 2014-2015 with the

aim of recognising and responding to:

Accounting developments since their

adoption

The experiences of countries that have

implemented the recommendations

The revision process is being overseen by the

OECD Corporate Governance Committee's

Working Party on State Ownership and

Privatisation Practices (the Working Party). We

understand it involves extensive consultations with

business and labour representatives, civil society

and representatives of OECD's partner countries.

Next steps

The Working party is meeting 11-12 March to agree

on a final version of the Guidelines to be submitted

to the Committee for approval.

Auditing standards

Global

IAASB

Proposals regarding enhancements to Auditing Standards Focused on Financial Statement Disclosures

Introduction

In June 2014 IAASB released for public comment

proposed changes to the International Standards

on Auditing (ISAs) to clarify expectations of

auditors when auditing financial statement

disclosures. Comments were requested by 11

September, 2014.

Proposals

The proposals include new guidance on

considerations relevant to disclosures—from when

the auditor plans the audit and assesses the risks of

material misstatement, to when the auditor

evaluates misstatements and forms an opinion on

the financial statements.

Key proposals include:

Clarifying the meaning of the term

"financial statements" to include all

disclosures subject to audit, noting such

disclosures may be found on the face of

financial statements, included in related

notes, and where permitted by the financial

reporting framework, incorporated by cross-

reference

New application material to assist in

establishing an appropriate focus on

disclosures in the audit, and to bring

consideration of disclosure earlier in the

audit process

Enhancements to encourage a more robust

risk assessment around disclosures,

e.g. consideration of possible assertions for

related disclosures for classes of

transactions, events and account balances, or

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February 27, 2015 REGULATORY BRIEFING

about the source of information for

disclosures, and clarifying the nature of

potential misstatements in disclosures

(including non-quantitative disclosures)

New application material to clarify and

explain the expectations of an auditor

when evaluating misstatements and

forming an opinion. Regarding

misstatements, auditors should highlight the

types that might be identified, provide an

explanation of the need for such

misstatements to be accumulated, provision

of examples that may impact the

‘understandability’ of the financial

statements, and how such disclosures impact

the evaluation of the presentation of the

financial statements

The IAASB’s work was informed by the feedback to

its 2011 Discussion Paper, ‘The Evolving Nature of

Financial Reporting: Disclosure and Its Audit

Implications’. The IAASB also benefited from

liaison and outreach with stakeholders, including

accounting standard setters. The IAASB

acknowledged that many of the issues around

disclosures cannot be solved by the IAASB alone,

and that collaboration and cooperation between

many interested stakeholders is necessary to

further enhance the public’s confidence in financial

statement disclosures.

Next steps

The IAASB’s work to revise aspects of the ISAs and

develop related guidance to clarify the auditor’s

responsibilities for auditing financial statement

disclosures is expected to be finalised within 2015.

Forward agenda

Introduction

The IAASB approved its strategy for 2015-2019 and

a 2 year work plan. Its strategic objectives are:

Ensure that ISAs continue to form the basis

for high-quality, valuable and relevant audits

conducted worldwide by responding on a

timely basis to practice issues and emerging

developments.

Ensure the IAASB’s standards evolve as

necessary to adequately address the

emerging needs of stakeholders for services

other than audits of financial statements.

Strengthen outreach and collaboration with

key stakeholders in the financial reporting

supply chain on public interest issues

relevant to audit, assurance and related

services.

Planned projects

Projects in the new strategy period include:

Disclosures

Auditor reporting – implications of the new

reporting model to the ISA 800 series

New priorities projects commencing are:

Revision of ISA 600 (Group audits)

Audit of financial institutions

Revision of ISQC 1 (Quality control)

The IAASB also plans to explore issues around

assurance on integrated reporting, professional

scepticism and data analytics. Project proposals

will also be prepared for a revision to ISRS 4400

on agreed-upon procedures, and ISA 315.

Implementation support for the new auditor’s

reports is also planned.

PwC view

PwC supports IAASB’s strategy and work plan. We

aim to actively participate in projects of strategic

importance to the network whenever possible,

including through our representatives on the

Standards Setting Boards and the Forum of Firms.

Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)

Possible deferral of implementation of the Revenue Recognition Standard

Introduction

In June 2014, the Financial Accounting Standards

Board (FASB) and the International Accounting

Standards Board (IASB) issued the long-awaited

converged standard on revenue recognition. The

release represents more than a decade of work

between the two groups and represents a

significant achievement in the effort to converge

international accounting standards.

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REGULATORY BRIEFING February 27, 2015

Although much work remains to facilitate an

effective transition for issuers, the completion of

the joint project is recognised as a major

accomplishment.

Current U.S. GAAP is estimated to contain more

than 200 pieces of industry specific literature. The

introduction of the new Standard should improve

the revenue requirements of both IFRS and U.S.

GAAP, through a fully converged standard.

Requirements

In summary, by category of entity, the key

requirements are:

US public companies are required to

comply with the new standard for annual

reporting periods beginning after December

15, 2016, including interim reporting periods

US non-public companies must

implement for their annual reporting periods

beginning after December 15, 2017, and

interim and annual reporting periods

thereafter

Companies using IFRS will be required to

apply the standard for reporting periods

beginning on or after January 1, 2017. Early

adoption also is permitted for companies

using IFRS

Current position

A number of companies have sought a deferral of

the new revenue recognition standard that was

released in June 2014. Due to the level of work

required to enhance system and reporting

capabilities in addition to a variety of

implementation issues that have been raised,

companies do not believe it is feasible to adopt it in

2017 (with retrospective effect to 2015), as

currently required. Based on discussions at recent

Transition Resource Group meetings, the FASB

and IASB have begun considering whether the new

standard should be deferred. The FASB is

expected to decide on a possible deferral during the

second quarter of 2015.

Professional ethics

Global

IESBA

Proposals for revisions to the Code of Ethics for Professional Accountants (the Code)

Introduction

IESBA is currently considering a range of

proposals for revisions to the Code. Three of the

most significant are proposals relating to:

The provision of non-assurance services to

audit clients and threats to independence

Long association of personnel and rotation

provisions and the impacts on independence

and audit quality

Non-compliance with laws and regulations

(NOCLAR)

Non-assurance services for audit clients

Introduction

In 2013 IESBA launched a review of the non-

assurance services provisions in the Code to ensure

they continue to underpin a rigorous approach to

independence for such services, particularly in

relation to the audits of financial statements.

The independence requirements were modified in

2009 in response to the effects of the global

financial crisis. Additionally, a number of major

jurisdictions had initiated, or are actively engaged

in, policy debates on ways to enhance audit quality.

These include consideration of proposed changes

relating to the provision of NAS by audit firms to

their audit clients.

In December 2013 IESBA discussed a number of

possible changes to address concerns raised by

certain stakeholders. Stakeholder concerns

focussed on: the concepts of ‘Management

responsibility’ and ‘informed management’;

potential abuse of the emergency provisions

regarding bookkeeping and certain tax services,

and the need for additional guidance on “routine

and mechanical” booking services. Following a

further discussion in its April 2014 meeting IESBA

issued an Exposure Draft for comment.

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February 27, 2015 REGULATORY BRIEFING

Latest position

Following review of responses received during the

consultation on the Exposure Draft the IESBA

unanimously approved changes to the Code

regarding the provision of NAS to audit and

assurance clients. These changes are subject to

approval from the Public Interest Oversight Board

(PIOB). If approved, the revised provisions will be

published by early April.

The recommended changes to the Code include:

Withdrawal of the exception provisions that

permitted an audit firm to provide certain

bookkeeping and taxation services to public

interest entity (PIE) audit clients in

emergency situations

Additional guidance and clarification on

what constitutes management responsibility

Enhanced guidance and clarification on the

concept of ‘routine or mechanical’ services

regarding the preparation of accounting

records and financial statements for non-PIE

audit clients

IESBA also approved corresponding and

conforming changes to Section 291 of the Code

pertaining to the provision of NAS to assurance

clients that are not audit clients. The changes

will be effective approximately one year after the

release of the final pronouncement.

Long association of personnel & rotation provisions

Introduction

IESBA is reviewing the long association provisions

(Section 290) in the Code to ensure they continue

to provide robust and appropriate safeguards

against familiarity and self-interest threats arising

from long association with an audit client. The

Code provides specific requirements for audit

clients that are PIEs, including a seven-year on /

two-year off rotation requirement for key audit

partners (KAPS). IESBA believes the current

safeguards balance the need for a fresh look on the

audit with the need for continuity of knowledge of

the client's business and the risks inherent in that

business to maintain quality.

Current position

IESBA approved an Exposure Draft (ED) of

proposed changes in July 2014, and this was

released for consultation in August, with a

response date of 12 November 2014.

In summary, the proposals include:

Strengthened general provisions applicable

to all audit engagements regarding the

threats created by long association

With respect to partner rotation, an increase

in the mandatory “cooling-off” period, from

two to five years, for the engagement partner

on the audit of a public interest entity

Strengthened restrictions on the type of

activities that can be undertaken with respect

to the audit client and audit engagement by

any former key audit partner during the

cooling-off period

A requirement to obtain the concurrence of

those charged with governance regarding the

application of certain exceptions to the

rotation requirements

IESBA is also proposing strengthened provisions in

Section 291 of the Code dealing with assurance

engagements. IESBA has proposed limiting the

application of the provisions to assurance

engagements “of a recurring nature” and adding

that the nature of the assurance engagement is a

factor to take into account when evaluating the

significance of any threats created.

Regarding PIEs and KAPs there should be:

No change to those subject to rotation

(KAPs)

No change to the 7 years term

An increase in the cooling off period for

the engagement partner on the audit of

PIEs for five years

Further restrictions on the roles and

responsibilities that could be undertaken

in the cooling off period. The proposals

would restrict the rotated partner from:

Being responsible for leading or coordinating

the firm’s professional services to the audit

client or overseeing the firm’s relationship

with the audit client (sometimes referred to

as the ‘relationship partner’)

Undertaking any other role, including the

provision of non-assurance services, that

would result in:

o Significant or frequent interaction with

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senior management or those charged with

governance (TCWG)

o An ability to exert direct influence on the

outcome of the audit engagement

If the facts and circumstances are such that

rotation of an individual is a necessary safeguard

(even when not mandated) then a cooling off

period should apply.

IESBA concluded there was “little justification for

making any distinction between listed companies

and other PIEs” as they are all entities of public

interest and are treated the same in the Code.

IESBA also proposed minor amendments relating

to required extensions to the rotation period:

An additional year can be served due to

unforeseen circumstances outside the firm’s

control only with the concurrence of TCWG.

The IESBA also proposes requiring the

auditor to discuss with TCWG the reasons

why the planned rotation cannot take place

and the safeguards that will be applied

A partner may continue to serve as a KAP for

a maximum of two additional years only with

the concurrence of TCWG

Next steps

Following review of responses received during the

consultation on the Exposure Draft the IESBA is

considering its approach to a number of issues,

with respect to the audit of public interest entities

(PIEs) including:

The length of the time-on period for all key

audit partners (KAPs)

The length of the cooling-off period for other

KAPs, including the engagement quality

control reviewer

The length of the cooling-off period for the

engagement partner

The proposed provision that a KAP, who at

any time during the seven-year time-on

period served as an engagement partner, be

required to cool off for five years.

IESBA have also indicated that they will consider

significant comments regarding other aspects of

the Exposure Draft and plan to release a revised

draft of the pronouncement at its April 2015

meeting.

Non-compliance with laws and regulations (NOCLAR)

Introduction

In 2012 IESBA issued an ED (‘Responding to a

Suspected Illegal Act’) outlining proposals for

amendments to the Code. Respondents were

highly critical of the proposals which have been

substantially revised and renamed as NOCLAR

(Non-compliance with laws and regulations).

Current position

The Board discussed revised proposals that would

require a professional accountant (PA) performing

a professional service when becoming aware of

information concerning potential non-compliance

with laws and regulations by the client and the

matter is other than clearly inconsequential:

To seek to obtain an understanding of

the matter

Thereafter, if the matter could have

significant consequences for the client or

others, discuss with the client the actions the

client, its management or TCWG plan to

take to address it, including whether they

plan to disclose it to an appropriate

authority

Then, the PA should evaluate whether the

client, its management or TCWG have

appropriately addressed it

If not and depending on the “gravity” of the

matter to then “consider” whether reporting

to an appropriate authority is appropriate in

the circumstances. (This relates to

requirements to act in the public interest as

set out in the Code

Next steps

At its January 2015 meeting, the IESBA considered

a revised draft of the proposed Sections 225 and

360 addressing responding to non-compliance or

suspected NOCLAR. Discussions covered:

Scope of these Sections

Third party test regarding the need for, and

nature and extent, of further action to

achieve the objectives under each Section

Factors to consider in determining whether

or not to disclose NOCLAR or suspected

NOCLAR to an appropriate authority

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A draft rationale for the proposed response

framework which outlines the strengths of

the framework and the main reasons for not

imposing mandatory disclosure of NOCLAR

or suspected NOCLAR to an appropriate

authority in the Code

Illustrative examples of the application of the

proposed Sections.

IESBA discussed the proposals at its Board

meeting in December 2014 and will consider a

revised draft of the standard with a view to

approval for re-exposure at its April 2015 meeting.

PwC views

PwC is keen to be actively involved in the debate

and has participated in all the roundtables with a

view to helping the Board develop an appropriate,

yet practical, set of revised proposals that meet the

needs of stakeholders. A key area of our focus will

be whether the proposals are practicable in light of

legal impediments and protections in different

jurisdictions and to ensure consistency with audit

standards especially ISAs 240 and 250.

Countries:

Abu Dhabi

Introduction of mandatory rotation for state owned enterprises

Introduction

On 11 October, 2014, the Abu Dhabi Accountability

Authority (ADAA) Chairman announced that HH

the Crown Prince had decided that mandatory

audit firm rotation will be implemented in Abu

Dhabi with immediate effect for all Abu Dhabi

Government-owned entities with an ownership

interest of 50% and more. This ADAA indicated

that the change is to promote transparency and

accountability in the local market.

The ADAA announced the changes by releasing the

second edition of the Statutory Auditors

Appointment Rules (the Rules). The Rules were

developed to regulate the process of appointing

statutory auditors across all Subject Entities,

including all Abu Dhabi Government public

entities and state owned enterprises, and to ensure

that the statutory auditors fulfil their professional

duties in accordance with the highest standards of

quality and performance. The Rules also aim at

developing the skills and expertise of the UAE

nationals in the audit and accounting fields by

requiring statutory auditors of the Subject Entities

to include, as a minimum, one UAE national in the

audit team.

Requirements

The new Rules indicate that:

Subject Entities shall appoint statutory

auditors through circulating requests for

audit services’ proposals to at least four

statutory auditors. Statutory auditors may

be reappointed for additional periods, up

to a maximum of three consecutive years,

subject to an annual evaluation by the

Subject Entity on the quality of audit services

provided and the competence of the audit

team while taking into consideration

comments raised by ADAA

To ensure a better independence of the

statutory auditors appointed, statutory

auditors cannot be retained for a

period exceeding four consecutive

years, and Subject Entities can only appoint

the same statutory auditor or the audit

engagement partner after a cooling off

period of four years from the date of the

last audit services provided by either of them

Subject Entities must obtain pledges from

statutory auditor and audit team members

not to disclose any information that was

obtained by any of them during their audit.

Statutory auditors must retain and store

audit working papers of the Subject

Entity within the Emirate of Abu Dhabi

It is understood that if an incumbent auditor has

already served 4 years there may be the possibility

of a 1 year grace period which will be applied on a

case by case basis by the Regulator.

Brazil

Introduction of mandatory firm rotation for insurance companies

Introduction

In June 2014 the Conselho Nacional de Seguros

Privados (National Council of Private Insurance)

(CNSP) approved the introduction of five year

mandatory audit firm rotation for insurance

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REGULATORY BRIEFING February 27, 2015

companies from 2020, with a cooling off period of

three years.

PwC views

The accounting profession is opposed to this

measure. The original proposals related to the

introduction of rotation for work performed in

actuarial audits required by insurance regulators.

Following concerns expressed by the Ministry of

Finance agreement was reached to introduce MFR

for firms performing actuarial audits and for

accounting and audit firms. Discussions continue

to try and secure a review of the requirements.

Columbia

Introduction of mandatory audit firm rotation

Introduction

The Financial Supervisor proposed a series of

revisions to Colombia’s corporate governance code

that would require, on a ‘comply or explain’ basis,

listed companies to change:

Audit firms every 6-10 years

The lead audit partner half way through the

engagement

Current position

The Supervisor indicated that these proposals were

in response to the financial crisis and to bring

Columbia into line with international best practice

including with those set out in the corporate

governance recommendations of the Development

Bank of Latin America.

The requirements in the revised Code are effective

as of 1 January 2015.

Hong Kong

Proposals for a listed company auditor regulatory framework

Introduction

In June 2014 the Financial Services and the

Treasury Bureau issued a consultation on revised

proposals to enhance the independence of the

existing regulatory regime for listed entity auditors

from the audit profession, with a view to ensuring

that the regime is benchmarked against

international standards and continues to be

appropriate in the local context. The consultation

closed on 19 September 2014.

In summary, under the Government’s proposals:

HKICPA, as the relevant professional

body will perform the statutory

functions of registration, setting of

Continuing Professional Development (CPD)

requirements and standards on professional

ethics, auditing and assurance with respect

to listed entity auditors, subject to oversight

by the independent auditor oversight body

(i.e. FRC)

The HK FRC will be vested with the

disciplinary and inspection functions

and powers with regard to listed entity

auditors, in addition to its existing

investigatory functions and powers

Based on the “user pays” principle and the

principle that the auditor oversight body

should be operationally and financially

independent of the Government, FRC will

in future be funded by levies coming

from three sources, namely listed entities,

securities transactions and listed

entity auditors on an equal basis

Current position

The Government is now studying the consultation

responses and will shortly issue a report setting out

the direction of the legislative proposal. This will

then be examined by the Panel on Financial Affairs

of the Legislative Council (LegCo), while the

Financial Services and the Treasury Bureau will

draft the bill. The Department of Justice will write

the legislation, which is expected to consist of a

major rewrite of the Ordinances for Professional

Accountants and the Financial Reporting Council,

and amendments to the Companies Ordinance.

The bill will then be tabled in LegCo for its first

reading. It is expected that the whole process could

take a further 8 to 12 months, with the legislation

tabled before the end of 2015.

PwC views

We agree that there is a need to enhance the

independence of the regulatory regime for listed

audited entities with a view to ensuring it is

benchmarked against international standards and

continues to be appropriate in the local context.

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February 27, 2015 REGULATORY BRIEFING

We also believe it is important in this context that

Hong Kong does not try to be a leader and should

not move beyond international best practice and

standards and that this principle should be

enshrined in the legislation while ensuring

appropriate flexibility.

We have some concerns regarding the balance

between the new powers for the FRC to investigate

irregularities and their responsibilities for

inspections of listed company auditors with a view

to ensuring quality in the audit process, and

suggest that further clarity is provided regarding

the roles to avoid disproportionate responses to

matters identified in inspections. Equally, the

proposed three tier disciplinary process to address

accounting irregularities could be cumbersome and

subject to delays and could in the current form

undermine the expected benefits. We also believe

a transaction levy type approach, similar to that

used in the US, would provide a more practical and

effective means to secure a stable funding base for

the FRC.

India

Implementation requirements for the 2013 Companies Act

Introduction

The 2013 Companies Act is effective via

implementation rules from April 1, 2014 – however

certain provisions include transitional

arrangements (for example, MFR).

The Act also included provisions for the

establishment of a new independent supervisory

body – the National Financial Reporting Authority

(NFRA) - which will be responsible for monitoring

and ensuring compliance with accounting and

auditing standards, including powers to probe and

review audits of companies, including those which

have securities listed outside India.

Requirements

The key requirements relating to the audit and

auditors and which apply to all companies

(including subsidiaries of global companies

operating in India) comprise provisions covering:

Mandatory auditor rotation: after ten

years and an enabling provision for joint

audits

Non-audit Services (NAS): prohibition of

certain services, with all other services to be

approved by the Board or Audit Committee

Auditing Standards: The Standards on

Auditing have been given legal standing and

are subject to notification by the new

National Financial Reporting Authority

(NFRA) and compliance by the auditor is

now mandatory

Current position

India's Lok Sabha passed the Companies Act

(Amendment) Bill 2014. The legislation is among

the government's first initiatives to change the

country's regulatory framework to improve its

global ranking for ease of doing business. One of

the welcome changes relates to party transactions,

and how some of the provisions with the same

requirements have been aligned. The changes are

aimed at making it easier to do business in the

country. Amendments include:

Replacing "special resolution" with "ordinary

resolution" for approval of related-party

transactions by minority shareholders

Replacing a provision that prohibits the

public inspection of the board resolutions

filed with the Registrar of Companies

Frauds, which are only beyond a certain

threshold, would need to be reported by the

auditors to the government

prescribing specific punishments for deposits

accepted under the Act

Release of plans regarding the adoption of new accounting standards

Introduction

The Ministry of Corporate Affairs (MCA) has

accepted recommendations for new accounting

standards to align the reporting requirements of

Indian companies with the International Financial

Reporting Standards (IFRS).

Requirements

The new standards will initially be applicable for

large companies that can voluntarily start adopting

them in the next fiscal year starting April 1, 2015,

before the rules become compulsory in 2016.

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The MCA has undertaken these reforms to help

improve India’s ranking in the World Bank’s ‘Ease

of Doing Business’ Index, and increase inbound

foreign investment. The Ministry has announced a

revised roadmap for implementation of the Indian

accounting standards (Ind-AS), which will be

applicable to all companies, with the exception of

banking and insurance companies and non-

banking finance companies (NBFC’s), as follows:

1. On a voluntary basis for financial statements

for accounting periods beginning on or after

1 April, 2015, with the comparatives for the

periods ending 31 March, 2015 or thereafter

2. On mandatory basis for the accounting

periods beginning on or after 1 April, 2016,

with comparatives for the periods ending 31

March, 2016, or thereafter, for the

companies specified below:

a. Companies whose equity and/or debt

securities are listed or are in the process

of listing on any stock exchange in India

or outside India and having net worth of

Rs. 5 Billion (USD 80.65 Million) or more

b. Companies other than those covered in

(a) above, having net worth of Rs. 5

Billion (USD 80.65 Million) or more

c. Holding, subsidiary, joint venture or

associate companies of companies

covered under (a) and (b) above

3. On mandatory basis for the accounting

periods beginning on or after 1 April 2017,

with comparatives for the periods ending 31

March, 2017, or thereafter, for the companies

specified below:

a. Companies whose equity and/or debt

securities are listed or are in the process

of being listed on any stock exchange in

India or outside India and having net

worth of less than rupees 5 Billion (USD

80.65 Million)

b. Companies other than those covered in

paragraph (2) and paragraph (a) above

that is unlisted companies having net

worth of rupees 2.5 Billion (USD 40.32

Million)or more but less than rupees 5

Billion (USD 80.65 Million)

c. Holding, subsidiary, joint venture or

associate companies of companies

covered under paragraph (a) and (b)

above

MCA release of amendments to the Cost Audit Rules

Introduction

In June 2011, the MCA published the Companies

(Cost Audit Report) Rules, which applied to every

company engaged in the production, processing,

manufacturing and mining activities which

satisfied the following cumulative criteria:

Aggregate net worth as on the last date of the

immediately preceding financial year exceeds

Rs.50 million (USD 1 million)

Aggregate value of the turnover made by the

company from sale or supply of all products

or activities during the immediate preceding

financial year exceeds Rs.200 million (USD

37.1 million)

Companies whose equity or debt securities

are listed or are in the process of listing on

any stock exchange (inside or outside India)

The Rules require these companies to maintain

cost accounts at its registered office or any other

place decided by the Board of Directors.

Requirements

At the beginning of January 2015 the MCA

announced further amendments to the Cost Audit

Rules (previous amendments were released in

2012 and 2014). The most significant are:

Instead of four categories of companies, the

rule now prescribes only two categories: (I)

Category A - Regulated sectors; and (II)

Category B - Non-regulated sector

As regards maintenance of cost records as a

part of their 'books of accounts':

1. Criteria for net worth has been removed

2. In the earlier rules, every company

operating in the sector which was

classified under 'strategic sector' was

required to undergo a cost audit.

However, under the amended rules, these

sectors are referred under Category A and

for companies operating in these sectors,

a turnover criteria has been prescribed,

namely, overall turnover of Rs. 500

Million (USD 8.06 Million) and turnover

of an individual product / service to be of

Rs. 250 Million (USD 4.03 Million). This

helps few companies to be outside of the

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February 27, 2015 REGULATORY BRIEFING

scope of cost audit

3. For companies operating in the sector

which is classified as category 'B', the

turnover criteria has been reduced to Rs. 1

Billion (USD 16.13 Million) (overall

turnover) and Rs. 350 Million (USD 5.65

Million) (for individual product / service).

This ensures that a large number of

companies are caught by the requirements

Certain sectors have been granted a breather

of one year and they will be required to

maintain cost records for financial year

commencing from 1 April, 2015 (instead of 1

April, 2014 as was stated in the Rules)

Indonesia

Update on proposals to remove mandatory firm rotation

Introduction

The Ministry of Finance (MoF) is considering

revising Indonesia’s audit firm and audit partner

rotation rules. Current requirements for non-

financial institutions include six year mandatory

firm rotation and three year audit partner rotation.

The regulation provides a one-year cooling off

period for the audit firm when the six-year period

is completed. The rotation requirements for banks

include five year rotation for the audit firm.

Current position

The MoF is considering removing the current

mandatory audit firm rotation requirements. It

would retain audit partner rotation for auditors

working on public interest entities and state-owned

entities, but amend the rules to apply every 5 years

with a new 2 year cooling off period. The draft

implementation regulation was not endorsed by

the former President in October 2014 as a result of

elections and subsequent Ministerial and political

reshuffle. Consequently, the proposal will now

need to be approved by the new ministry and new

President.

PwC views

PwC is supportive of changes which reinstate the

responsibility of audit committees and or those

charged with governance for the selection and

oversight of the auditor and the audit process. We

believe the removal of a mandated requirement to

change the audit firm on a fixed time period is

good for audit quality and corporate governance.

Malaysia

Consultation on proposals to enhance the accountancy profession

Introduction

The Committee to Strengthen the Accountancy

Profession (CSAP) was set up by the Ministry of

Finance to “formulate and recommend strategies

and measures to strengthen the accountancy

profession and to improve the contribution of the

profession in enhancing the competitiveness of the

country in line with the government’s

transformation agenda”. This move followed

publication in 2012 by its ‘Report on Observance of

Standards and Codes – Accounting and Auditing’.

The remit of the CSAP is to consider the future

demand for accountants in Malaysia, accountancy

education and training as well as regulatory issues

including the governance of the accountancy

profession.

Current position

In December 2014 the CSAP released a

consultative document and invited public feedback

on fifteen proposed recommendations to enhance

the accountancy profession in Malaysia.

The aims of the recommendations are to enhance

the contribution of the accountancy profession in

nation building, to ensure the economy is supplied

with the requisite number of professional

accountants and to reset the governance of the

accountancy profession to ensure its effectiveness.

The recommendations were developed following

consultations with a wide group of stakeholders,

including regulators, professional accountancy

bodies, the business community, government

agencies, university students, graduates and

employer groups. The CSAP will also consider

global developments in accountancy education to

ensure the accountancy profession in Malaysia

secures global respect.

Recommendations

The fifteen recommendations made by CSAP were:

Establishment of a new regulatory

body to regulate the accountancy

profession in Malaysia:

1. Introduction of a new regulatory

structure - to develop the accountancy

profession and promote public interests

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REGULATORY BRIEFING February 27, 2015

through the formulation and enforcement

of professional standards

Meeting the demands for professional

accountants in Malaysia:

2. Ensure baseline competencies are met -

by ensuring an adequate supply of

professional accountants for the economy

that fulfils market expectations in terms

of knowledge, skills and values

3. Co-ordinate efforts to build capacity - by

improving the effectiveness and efficiency

of the disciplinary structure for the

enforcement of professional standards to

ensure protection of public interest

4. Increase support to the SMEs and Small

& Medium Sized Practitioners (SMPs) -

ensure financial support for education,

research and capacity building for the

accountancy profession

5. Widen pathways into the profession - by

the creation of a conducive and inclusive

environment to attract students to pursue

professional accountancy profession

6. Focus funding on accountancy education

- to foster support to the Malaysian

Institute of Accountants (MIA) members

to enhance their skills and competency to

match market expectations

7. Make accountancy the profession of

choice - by strengthening SMPs to render

professional services for SMEs

Strengthening the accountancy

education sector and capturing

opportunities as the hub of

accountancy education and training:

8. Make Malaysia a hub for accountancy

education – including the establishment

of centres of excellence which offer

professional accountancy programmes at

institutions of higher learning in key

locations; Lecturers should be

encouraged to obtain professional

accountancy qualifications; and

Industries should be encouraged to

directly finance developmental needs

9. Encourage co-operation between the

industry and universities – for example

between industries and universities to

undertake research and facilitate

knowledge transfer; encourage placement

programmes for lecturers with industries;

and encourage experienced professional

accountants to teach at institutions of

higher learning

10. Revise promotion and reward structures

for lecturers – excellence in teaching

should be rewarded in an equal manner

with excellence in research

11. Create an accommodating human capital

development environment – focus should

be on education and learning

programmes and qualifications for more

experienced accountants to acquire more

advanced and specialised knowledge

12. Introduce certification in specialised

areas – more formal qualification

programmes such as certification or

advanced diploma should be offered for

specialised areas such as valuation, risk

management, integrated reporting, IFRS

and other new and emerging bodies of

knowledge

13. Nurture SMPs that are relevant to SMEs

– provision of financial incentives to

encourage more SMPs to merge. This

includes funding for leadership training

and development of the merged firms and

funds to acquire intellectual assets and

relevant services tools and systems; more

programmes which enable the firms to

provide value-added services to their

clients; firms which have attained certain

sizes and provide comprehensive training

and development programmes for their

staff to be supported by being given

opportunities to bid for certain services

for the government, government-linked

companies and other agencies

14. Capitalise existing expertise – provision

of more comprehensive educational and

training programmes for accounting for

Islamic finance;

15. Establish a more inclusive profession –

encouragement for more Bumiputeras

and students in remote parts of Malaysia

to pursue professional accountancy

qualifications

Next steps

The consultation closed on 31 January 2015. No

timetable has been released for the next stage of

the process.

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February 27, 2015 REGULATORY BRIEFING

Nigeria

Institute of Chartered Accountants of Nigeria (ICAN) call for joint audit

Introduction

The ICAN was established to regulate the

accountancy profession with a public interest

mandate for professional development and

advocacy. As part of this brief the President of the

Institute issued a paper setting out his views on the

benefits of joint audit, citing compliance with the

Local Content Act, building capacity of small and

medium-sized practitioners and raising the quality

of financial reporting, the confidence of investors

and of the general public.

Current position

The ICAN organised a forum of the accounting

firms to discuss its ideas. There was a divergence

of views between the larger networks (against

mandating joint audit) and the smaller / medium

sized practices / firms (largely in support of the

proposals).

As no consensus could be reached within the

profession on the proposals the President of the

Institute decided to withdraw them and no further

action is planned.

Release of new guidelines / regulations for the inspection and monitoring of reporting entities

Introduction

On 6 October, 2014, the Financial Reporting

Council of Nigeria (FRCN) released new guidelines

/ regulations regarding inspections and monitoring

of reporting entities, to be observed in the

preparation of their financial statements.

New requirements

The key areas of new guidance and regulation

include:

New powers to impose sanctions and

penalties related to the nature and

materiality in the case of contravention of

the applicable financial reporting standards,

code of corporate governance or

requirements of the Act

The regulation sets out six categories of

non-compliance which are deemed to be

material, Type 1 -5 are not considered to

render the financial statements to be ‘totally

misleading’ and Type 6 which could lead

to the need for restatement:

o Type 1 – NGN 5m (US$ 25,000)

o Type 2 – NGN 15m (US$ 75,000)

o Type 3 – NGN 25m (US$125,000)

o Type 4 – NGN 50m (US$ 250,000)

o Type 5 – NGN 100m (US$500,000)

o Type 6 – not less than NGN 100m (US$

1m) but not more than NGN 5 Billion

(US$2.5 Billion)

Where a contravention is considered

material but not misleading it can be

corrected in the following year’s

financial statements. The auditor should

confirm its understanding of the Inspection

results in writing to the FRCN

The costs of inspections are to be borne

by the inspected entity (NGN 250,00 /

US$1,240 per hour or NGN 1m / US$4,950

per one day on-site inspection)

Where a restatement is required this must

be by way of a full revision of the

accounts, with appropriate publicising of

the need to do so, and recirculation to all

original recipients within 60 days of a

judgement by the FRCN. The audit

engagement partner and the FRCN are

jointly responsible for overseeing compliance

Any imposed penalty must be paid by the

inspected entity within 14 days, after

which additional penalties are imposed

Appeal against the FRCN decisions and

penalties must be made within 14 days

PwC views

We are supportive of regulatory regimes which

encourage best practice and appropriately address

non-compliance with financial reporting

standards, regulations and codes of ethical and

professional good conduct. However, we have

concerns that some of the proposals are potentially

disproportionate and could undermine the

integrity of the audit and have unforeseen impacts

on the stability of the financial markets. We are in

discussion with the Ministry and the FRCN to

make them aware of our concerns.

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Russia

Restrictions of foreign owned entities auditing state owned entities

Introduction

In June 2014 a new legislative proposal on foreign-

owned entities, allowing the Government to

impose restrictions was put forward, which

appears to have support from the ruling party.

These new proposals covered accounting and

consulting companies, and could involve such

companies being labelled as being from “aggressor

states” and therefore liable for sanctions. The

restrictions would also apply to any Russian

affiliates and would prohibit the conducting of

audits and the provision of legal and other advisory

services to state-owned enterprises.

Current position

Discussions are underway to try and determine

more exactly what is proposed and how such

restrictions might be implemented. The measures

raise concerns regarding the ability of Russian

corporates, many of whom have offshore holding

structures governed under English law, to function

effectively. There have been no further discussions

in the Duma and there has been no indication from

the Government that it wishes to take them

forward – if at all – in the near future.

Singapore

Revised guidance to audit committees

Introduction

The Monetary Authority of Singapore (MAS), the

Accounting and Corporate Regulatory Authority

(ACRA) and the Singapore Exchange (SGX) have

issued a revised Guidebook for Audit Committees

in Singapore.

This is the second edition of the Guidebook which

was developed by the Audit Committee Guidance

Committee (ACGC) and first issued in October

2008. The Guidebook is a valuable source of

practical guidance for Audit Committee members

to assist in carrying out their functions, duties and

responsibilities as AC members, bearing in mind

relevant requirements set out in the Companies

Act, the Singapore Exchange Securities Trading

Limited Listing Manual and the Code of Corporate

Governance (as revised in 2012).

Requirements

The Guidebook is arranged in six sections looking

at key areas of the AC’s composition, organisation

and activities:

Composition - guidance for current and

prospective AC members to assess their

independence and suitability for

membership in the AC. It also outlines the

roles and responsibilities of AC members

Agenda - the scope of the AC, including its

interaction with the Board, its annual work

plan and periodic meetings, and its oversight

responsibility over interested person

transactions and the whistle-blowing policy

Risk Management and Internal

Controls – responsibilities of the Board for

the governance of risk (including where

delegated to the audit committee) outlining

common risk governance structures and the

various frameworks to ensure that the

company’s risk management and internal

control system is adequate and effective

Internal Audit - examines the

considerations when deciding whether the

internal audit function should be in-house or

outsourced, and other common issues

relating to AC’s oversight over the internal

audit function

Financial Reporting – setting out

guidance on the AC’s key duty to review the

significant financial reporting issues and

judgements so as to ensure the integrity of

the company’s financial statements. This

section also highlights factors indicative of

weaknesses in the financial reporting process

External Audit - describes the role of

external auditors, factors that the AC should

consider when evaluating the independence

of external auditors, as well as considerations

for the appointment of external auditors,

their remuneration and terms of engagement

PwC views

ACs play a central role in the governance and

oversight of companies. In an increasing complex

business environment the role and responsibilities

of the AC in overseeing the delivery of the statutory

audit and the performance of the auditor have been

even more critical.

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February 27, 2015 REGULATORY BRIEFING

The new Guidebook provides both timely and

practical assistance to AC members to fully

understand and undertake their responsibilities.

The inclusion of shared experiences, knowledge

and practices of AC members from elsewhere

provide valuable insights into issues faced,

approaches which could be considered, and

possible pitfalls that might be encountered. Its

nature as guidance rather than the introduction of

new rules or additional standards is beneficial,

underpinning the independence of the AC and

reinforcing its role in overseeing the quality and

performance of the audit.

South Africa

Revision of the Corporate Governance Code (King III)

Introduction

The King Committee recommended that the King

Report on Corporate Governance for South Africa

2009 (King III) be updated. For this purpose it

established a ‘Task Team’ which concluded that

whilst the basic content and philosophies of King

III would remain in place, there was “room for the

Report to be enhanced to assist with accessibility

and implementation, particularly for smaller

entities and non-profits”. The opportunity will also

be taken to consider the latest governance

developments since the publication of King III.

The Institute of Directors in South Africa (IoDSA)

indicated that the factors influencing the Team’s

recommendation for the update included:

The challenges faced by non-profit

organisations, private companies and entities

in the public sector in adapting King III to

their particular circumstances

Acknowledging that “greater succinctness

and streamlining would be invaluable in

positioning the Code’s requirements for the

digital and mobile ages”

The Task Team as a consequence indicated that:

Proposed enhancements will aim to make

the Code more accessible to all types of

entities and sectors

As workplaces become paperless and

boundary-less, the King framework needs to

be accessible on mobile and tablet devices

Potential changes

IoDSA has stated that the fundamental philosophy

and concepts that form the basis of King III will

not change but the focus of revisions will be on

achieving simplification and ease of interpretation

and access. It is understood that the revisions will

contain fewer principles and more succinct,

specific practice recommendations with an

emphasis on achieving the desired outcome

enshrined in the principle but with greater

flexibility in terms of application.

IoDSA also indicated that some of the additional

issues which the revision will consider will include

directors’ remuneration and integrated reporting,

along with better alignment with changing

international thinking on responsible investing and

with the Code for Responsible Investing in South

Africa (CRISA). The review will also consider

issues regarding the role of social and ethical

committees, audit firm rotation and tendering,

information and security protection, strategic risks

and dependencies, group governance, board

diversity and combined assurance.

Next steps

The timeline for finalisation of the revision is not

yet confirmed, is expected to include a broad

consultation process, and is not expected to be

completed until the second half of 2016.

IoDSA has indicated that the timeline will include a

2 year period in respect of the drafting of revisions

and a 1 year ‘grace period’ to allow organisations to

implement the new requirements, with full

effective implementation of ‘King IV’ from the

middle of 2017.

IoDSA has said that companies should continue to

use King III in its current form until then.

Thailand

Consultation on revision to the approval criteria for auditors in the capital markets

Introduction

In November 2014 the Thai Securities and

Exchange Commission (TSEC) sought public

comment on its proposed revisions of the approval

criteria for auditors in the capital market, with the

objective of making them more practical. The

proposals also included measures relating to the

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REGULATORY BRIEFING February 27, 2015

approval criteria for auditors of SMEs in response

to the growing number of SMEs with potential to

become listed on the Stock Exchange of Thailand.

Key proposals

The proposed revisions include:

Measures relating to auditor qualifications in

relation to the experience of auditors

Prescription of penalties through the

introduction of new measures and sanctions

applicable to relative degrees of mistakes and

misconduct ranging from moderate/minor to

a serious mistake or error

Regarding new criteria for SMEs, the

proposed principles remain in line with the

rules of general approval criteria for

approved auditors in the capital market but

include relaxations from certain

requirements, including: job title; audit

experience; and experience in the signing of,

and providing the opinion for, financial

statements and reports.

Next steps

It is expected that the TSCE will issue its

comments on the consultation and the final draft of

proposals before the summer 2015, along with the

timetable for further actions.

United States / China

Dispute over access to audit working papers by regulators

Introduction

In December 2012 the US SEC filed an

administrative enforcement order against the

China affiliates of the ‘Big Four’ and BDO. The key

issue was the conflict between restrictions under

Chinese law on the China firms providing working

documents to parties outside China and the SECs

requirements for such disclosure.

Current position

In January, 2014, the SEC’s Administrative Law

Judge banned the Chinese affiliates of the ‘Big 4’

from working for any US-listed Chinese companies

for six months. The ban would come into effect if

approved by the full SEC. This was extended in

June 2014 to allow further investigations

The Chinese affiliates of the Big Four accounting

firms reached a settlement with the SEC regarding

the release of working papers for their audits of

Chinese companies trading in the US. This

removed the threat of the temporary suspension of

their right to audit U.S.-traded firms — a potential

outcome of the dispute that would have

complicated life for many of the 170-plus US-

traded Chinese companies and many U.S.

multinationals with significant operations in

China. New procedures have been put in place to

enable the SEC to obtain audit documents from

them in the future via the China Securities

Regulatory Commission (SCRC).

The SEC had required access to these documents

as part of 25 enforcement cases against Chinese

firms and their executives following allegations of

embezzlement and inflated revenues to a lack of

proper disclosure to investors.

United States

ACCA commentary on need for improved company risk reporting

Introduction

The Association of Chartered Certified Accountants

(ACCA) undertook research into growing concerns

among users, preparers and advisers involved in

the production of financial reporting that risk

reporting needs to improve. All considered risk

reporting to be an integral component of enhanced

governance. The key issue is how to balance the

calls for more disclosures from investors and other

users with company’s concerns about commercially

sensitive material. All groups accepted that more

boilerplate or generic risk reporting is of little if

any value.

In 2014, ACCA conducted research to identify how

the quality and value of risk reporting could be

improved. The main messages that emerged from

the interviews undertaken as part of the research

with key stakeholder groups included:

Users – many believed that much existing

risk reporting was too generic and long-

winded, with too much positive bias and was

unspecific, particularly in terms of

quantitative data; many expressed an

interest in seeing more on identification of

the key risks the company faces, with

explanations as to why these risks are critical

and what is being done to address them, as

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February 27, 2015 REGULATORY BRIEFING

well as some ‘future-proofing’ looking at

future and emerging risks; many wanted a

short but informative description of on-going

risk assessment processes

Preparers – recognition of market factors

which encourage ‘positive reporting’;

concerns raised about ‘knee-jerk responses’

to the financial crisis resulting in process

driven reporting; acceptance of the need for

effective and robust risk assessment and

management and for ‘better’ disclosure of

processes, key issues and responses by

management; acceptance of the need for

some form of forward looking assessment;

raise importance of consideration of non-

financial risks, such as reputation and brand

The ACCA concluded that most stakeholders

believe there is “a growing momentum behind the

desire to improve risk reporting”. Equally it was

recognised that due to the sensitive nature of risk

preparers are still learning how best to approach

the subject.

To avoid risk reporting being too formulaic,

providing little information of any real use, and

becoming a compliance-based exercise, the ACCA

believed it was critical that investors and other

interested stakeholders get involved in the debate,

engaging with companies and taking an interest in

what they report on risk to encourage better

practice. Companies can also benefit as good risk

reporting gives investors’ confidence – about the

company, its business model and its management.

The ACCA was supportive of the argument that

“greater disclosure of risks is not a threat; it is a

chance to demonstrate the strength of the

company’s controls and management”.

PwC views

We are supportive of effective risk reporting

underpinned by robust, evidence based analysis of

risk, which is not simply a formulaic exercise in

compliance. We also recognise that using the

commercially sensitive argument can be over-

played. Equally, the financial crisis highlighted an

apparent weakness in risk assessment and

mitigation, however, any improvements in risk

reporting need to recognise that it is not a panacea

that would have prevented the crisis happening,

although effective risk analysis and reporting

might have served to mitigate some of the effects

and their scale.

There is a balance to be struck and we believe

companies and regulators should be involved in

the discussions and dialogue to achieve mutually

acceptable and effective enhancements to risk

reporting.

PCAOB – proposed amendments to auditing standards on disclosure of the auditor’s report of certain participants in the audit (PCAOB Rulemaking Docket Matter No 029)

Introduction

The Public Company Accounting Oversight Board

(‘PCAOB’) re-proposed amendments to its

standards in 2011 and again in 2013 that would

improve the transparency of public company

audits. Its latest consultation closed on 3

February, 2014.

Proposals

The proposed amendments would require

disclosure in the auditor's report of the:

Name of the engagement partner

Names, locations, and extent of participation

of other independent public accounting firms

in the audit and the locations and extent of

participation of other persons not employed

by the auditor that took part in the audit

Latest position

There continues to be discussion around the most

recent proposal from December 2013 which would

require disclosure of the name of the engagement

partner on the most recent period's audit and the

names, locations, and extent of participation of

other public accounting firms that took part in the

audit (above a certain hours threshold). There

continues to be debate, however, as to where the

disclosure of this information should be made – in

the audit report or in another public filing.

PCAOB Chairman, James Doty, recently indicated

that the PCAOB will soon seek comments on a

potential compromise that would allow companies

to disclose the information in a newly created form

that would be filed no more than 60 days after the

10-K is issued.

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Additional information

PwC Points of View

PwC’s views on a number of key proposals and

major areas of debate raised by commentators

and stakeholders, and possible alternative

proposals are available in more detail at:

www.pwc.com/regulatory-debate and include:

Independence: at the heart of who we are

Mandatory firm rotation – other

changes would be better for investors

(including new annexes addressing issues

specific to banks)

Auditor’s scope of services

Governance and transparency of the

audit: a critical role for the audit committee

Benefits of scale: the context and the

explanation

Competition and choice in the audit

market

Effective audit committee oversight of

the external auditor and audit: a

comprehensive periodic review

PwC EU audit legislation Fact Sheets

PwC has produced a series of ‘Fact Sheets’ on the

key measures included in the legislation which

are available at: www.pwc.com/regulatory-

debate and include:

Mandatory audit firm rotation for

PIEs

New requirements for audit

committees (or their equivalent)

relating to their oversight of the

performance of the audit

Additional restrictions on the

provision of non-audit services by the

statutory auditor to their PIE audit

clients

New requirements regarding reporting

by the statutory auditor

The definition of Public Interest

Entities (PIEs)

PwC EU audit legislation Briefings

PwC has also produced a new Briefing Note on

potential, unintended, extra-territorial impacts

of the EU audit legislation:

Consideration of potential unintended

extraterritorial impacts

How to participate in the debates?

The sites referred to in Appendix A provide

access to original documentation on the

proposals and initiatives highlighted in this

Briefing. Where appropriate they also indicate

how to register comment or participate in

consultations.

In respect of the EU audit legislation, the best

route to input to discussions on implementation

is to contact an appropriate official of a member

state government or your national audit

regulator.

Contacts

If you would like more information on any of the

initiatives described in this briefing, please

contact your PwC relationship partner.

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Appendix A: Links to regulatory

proposals, initiatives & actions

Key developments

In the EU

Audit legislation:

EU statutory audit regulatory

framework

http://ec.europa.eu/finance/auditing/reform/index_en.htm#mainconte

ntSec1

Directive: http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32014L0056&from=EN

Regulation: http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32014R0537&from=EN

Corrigendum: http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32014R0537R(01)&from=EN

Member State consultations of adoption of options:

Consultations:

Ireland: http://www.djei.ie/commerce/companylawlegislation/publications.htm

UK – BIS: https://www.gov.uk/government/consultations/auditor-regulation-

effects-of-the-eu-and-wider-reforms

UK – FRC: https://www.frc.org.uk/News-and-Events/FRC-

Press/Press/2014/December/FRC-consults-on-EU-Audit-Directive-and-

Regulation.aspx

European Commission:

Shareholders Rights Directive:

2007 Directive http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32007L0036&rid=1

2014 Proposals to amend http://eur-lex.europa.eu/legal-

content/EN/TXT/?qid=1398680488759&uri=COM:2014:213:FIN

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Maystadt review of IFRS in Europe:

Report http://www.efrag.org/Front/c1-344/Maystadt-Reform.aspx

EFRAG changes http://ec.europa.eu/internal_market/accounting/governance/reform/in

dex_en.htm

IAS Regulation http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32008R1126&from=EN

UK:

FRC – review of compliance with the

Corporate Governance Code

https://www.frc.org.uk/News-and-Events/FRC-

Press/Press/2015/January/FRC-reports-on-better-compliance-with-UK-

Corporate.aspx

2014 Report on Compliance with the

Code

https://www.frc.org.uk/Our-Work/Publications/Corporate-

Governance/Developments-in-Corporate-Governance-and-

Stewardsh.pdf

FRC – review of the audit firm

governance code

https://www.frc.org.uk/News-and-Events/FRC-

Press/Press/2014/April/FRCs-work-to-enhance-justifiable-confidence-

in-au.aspx

UKGov Survey Report https://www.frc.org.uk/Our-Work/Publications/Audit-and-Assurance-Team/Research-Report-Improving-Confidence-in-the-Value.pdf

Competition & Markets Authority:

Competition Commission – final

report and recommendations

https://www.gov.uk/cma-cases/statutory-audit-services-market-

investigation

CMA Final Order https://assets.digital.cabinet-

office.gov.uk/media/54252eae40f0b61342000bb4/The_Order.pdf

FRC - release of revisions to the

Corporate Governance Code (including

risk and going concern)

https://www.frc.org.uk/News-and-Events/FRC-

Press/Press/2014/April/Consultation-on-the-UK-Corporate-

Governance-Code-p.aspx

In other countries

Auditor reporting:

Global:

IAASB:

Enhancing the Value of Auditor

Reporting:

http://www.ifac.org/publications-resources/reporting-audited-financial-

statements-proposed-new-and-revised-international

Revision of ISA720 enhanced auditor’s

responsibilities for other information

in the annual report

http://www.ifac.org/auditing-assurance/projects/isa-720-revised-

auditor-s-responsibilities-relating-other-information

European Union:

Netherlands - NBA:

Guidelines on ‘new’ Long Form auditor

reporting requirements

https://www.nba.nl/Actueel/Nieuws/Nieuwsarchief/Engelse-versie-

Standaard-702N-beschikbaar/

Consultation: https://www.nba.nl/Documents/Wet-

%20en%20Regelgeving/Adviescollege%20voor%20Beroepsreglementeri

ng/naar%20een%20uitgebreide%20controleverklaring/NBA_Draft_Sta

ndaard_702N_in_English.pdf

UK – FRC: new corporate reporting https://www.frc.org.uk/getattachment/d24bb652-e319-46a4-add5-

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February 27, 2015 REGULATORY BRIEFING

requirements 793d518a035b/Consultation-Paper-Revision-to-ISA-(UK-and-

Ireland.aspx

Countries

US - PCAOB ED Auditors’ Reporting

Model (Docket 34)

http://pcaobus.org/rules/rulemaking/pages/docket034.aspx

Debate on international tax

European Union:

EP – Special Committee on tax

rulings

http://www.europarl.europa.eu/news/en/news-

room/content/20150206IPR21203/html/Parliament-sets-up-a-special-

committee-on-tax-rulings

EC - State Aid information enquiry on

tax rulings practice in all Member

States

http://europa.eu/rapid/press-release_IP-14-2742_en.htm

EC - State Aid investigation relating to

transfer pricing

http://europa.eu/rapid/press-release_IP-14-663_en.htm

UK – investigation into tax avoidance http://www.parliament.uk/business/committees/committees-a-

z/commons-select/public-accounts-committee/inquiries/parliament-

2010/tax-avoidance-role-large-tax-accountancy-firms-follow-up/

Global:

G8 Communique http://www.g20.org/documents/

OECD Base erosion and profit shifting http://www.oecd.org/ctp/BEPSActionPlan.pdf

OECD The Multilateral Convention on

Mutual Administrative Assistance in

Tax Matters

http://www.oecd-ilibrary.org/taxation/the-multilateral-convention-on-

mutual-administrative-assistance-in-tax-matters_9789264115606-en

G20 Final Communique https://g20.org/wp-content/uploads/2015/02/Communique-G20-

Finance-Ministers-and-Central-Bank-Governors-Istanbul.pdf

G20 High-Level Principles on Beneficial Ownership Transparency

https://g20.org/wp-content/uploads/2014/12/g20_high-

level_principles_beneficial_ownership_transparency.pdf

Banking

Basel Committee – new rules on

risks disclosures (revised Pillar III)

http://www.parliament.uk/business/committees/committees-a-

z/commons-select/public-accounts-committee/inquiries/parliament-

2010/tax-avoidance-role-large-tax-accountancy-firms-follow-up/

Corporate Governance:

Japan – Corporate Governance Code

revision

http://www.fsa.go.jp/en/refer/councils/corporategovernance/20141226-

1.html

Exposure Draft http://www.fsa.go.jp/en/refer/councils/corporategovernance/20141226-

1/01.pdf

IMF Japan 2014 Report https://www.imf.org/external/pubs/ft/scr/2014/cr14236.pdf

IMF Corporate Growth in Japan – Working Papers

http://www.imf.org/external/pubs/ft/wp/2014/wp14221.pdf

IMF Corporate Governance in Japan –

Working Papers

https://www.imf.org/external/pubs/ft/wp/2014/wp14140.pdf

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‘Watch-list’ of other developments

In the EU

European Commission:

Green Paper on proposals for Capital

Markets Union

http://ec.europa.eu/finance/consultations/2015/capital-markets-

union/docs/green-paper_en.pdf

Consultations:

‘High-quality' securitisation http://ec.europa.eu/finance/consultations/2015/securitisation/index_e

n.htm

The prospectus directive http://ec.europa.eu/finance/consultations/2015/prospectus-

directive/index_en.htm

Equivalence of third country regimes regarding country by country reporting

http://ec.europa.eu/internal_market/consultations/2014/extractive-

forestry/index_en.htm

Extractive Industries Transparency Initiative (EITI) Standard

https://eiti.org/files/English_EITI_STANDARD.pdf

Disclosure of non-financial and

diversity information

http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=E

N&reference=P7-TA-2014-0368#BKMD-69

Directive http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32014L0095&from=EN

Proposal on structural measures

improving the resilience of EU credit

institutions

http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2014:0043:FIN:EN:

PDF

UK:

FRC - Proposals for streamlining

financial reporting for entities within

groups

https://www.frc.org.uk/News-and-Events/FRC-

Press/Press/2014/December/FRC-consults-on-amendments-to-

FRS101.aspx

PRA - Governance and legal

arrangements for ring-fenced banks

http://www.bankofengland.co.uk/pra/Documents/publications/cp/2014

/cp1914.pdf

In other countries

Global

Corporate Governance:

OECD 2014-15 Review

Principles of Corporate Governance http://www.oecd.org/corporate/2014-review-oecd-corporate-

governance-principles.htm

Guidelines for State-Owned

Enterprises

http://www.oecd.org/daf/ca/revisionoftheoecdguidelinesoncorporategov

ernanceofstate-ownedenterprises.htm

IAASB:

Proposals for enhancements to

Auditing Standards Focused on

Financial Statement Disclosures

http://www.ifac.org/news-events/2014-05/iaasb-proposes-

enhancements-auditing-standards-focused-financial-statement-discl

Forward Looking Agenda:

2015-2019 Strategy http://www.ifac.org/publications-resources/iaasb-strategy-2015-2019

2015-2016 Work Plan http://www.ifac.org/publications-resources/iaasb-work-plan-2015-2016

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Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB):

Revenue Recognition http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=

FASB%2FFASBContent_C%2FNewsPage&cid=1176164075286

Standard http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blo

bwhere=1175828814244&blobheader=application%2Fpdf&blobheaderna

me2=Content-

IESBA: proposed revisions to the Code of Ethics:

Exposure Draft Code changes relating

to non-assurance services

http://www.ifac.org/publications-resources/proposed-changes-certain-

provisions-code-addressing-non-assurance-services-au

http://www.ifac.org/sites/default/files/publications/files/IESBA-Non-

Assurance-Services-Exposure-Draft.pdf

Consideration of long association and

rotation

http://www.ifac.org/ethics/projects/long-association-senior-personnel-

including-partner-rotation-audit-client

Exposure Draft – August 2014 https://www.ifac.org/sites/default/files/publications/files/IESBA-Long-

Association-Exposure-Draft.pdf

Non-compliance with laws and

regulations

http://www.ifac.org/ethics/projects/responding-non-compliance-laws-

and-regulations

http://www.ifac.org/ethics/projects/responding-suspected-illegal-act

Countries:

Abu Dhabi:

Introduction of audit firm rotation http://www.adaa.abudhabi.ae/En/MediaCenter/News/Pages/SAAR2014

.aspx

Brazil:

Introduction of audit firm rotation

Columbia:

Financial Superintendency – proposals

for mandatory firm rotation

https://www.superfinanciera.gov.co/jsp/loader.jsf?lServicio=Publicacio

nes&lTipo=publicaciones&lFuncion=loadContenidoPublicacion&id=100

82380#Proyectos%202014

Hong Kong:

Auditor Regulatory Framework

Financial Services & the Treasury

Bureau Consultation

http://www.fstb.gov.hk/fsb/ppr/consult/doc/consult_rpirrlea_e.pdf

Institute Consultation: http://www.hkicpa.org.hk/en/communications/regulatory-framework/

Legislative Council Paper http://www.legco.gov.hk/yr13-14/english/panels/fa/papers/fa0707cb1-

1668-1-e.pdf

India:

Plans for the economy and business

growth

http://www.ft.com/cms/s/0/bc33983c-efa7-11e3-bee7-

00144feabdc0.html#axzz36t4SBgLN

Companies Act 2013 http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

Implementation Rules http://www.prsindia.org/uploads/media/Company/Companies%20(A)

%20Bill,%202014.pdf

New accounting standards http://www.mca.gov.in/Ministry/pdf/Notification_20022015.pdf

Cost Audit Rules - amendments http://www.companiesact.in/Companies-Act-2013/News-

Details/20640/Amendment%20in%20Companies%20(Cost%20Records

%20and%20Audit)%20Rules,%202014

Page 51 of 52

REGULATORY BRIEFING February 27, 2015

Indonesia:

Withdrawal of audit firm rotation

Malaysia:

Proposals to enhance the accountancy profession

Committee Report and Consultation

document

http://www.sc.com.my/wp-

content/uploads/eng/html/aob/csap_141211.pdf

Nigeria:

Rejection of joint audit proposals

Guidelines/regulations for the

inspection and monitoring of reporting

entities

Singapore:

Revised guidance to audit committees http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financi

al%20Stability/Regulatory%20and%20Supervisory%20Framework/Corp

orate%20Governance%20of%20Listed%20Companies/Guidebook%20fo

r%20ACs%202nd%20edition.pdf

Russia:

Proposals for restrictions on audits of

state-owned enterprises

South Africa:

Revision of the Corporate Governance

Code (King III)

http://www.iodsa.co.za/news/175832/IoDSA-sets-wheels-in-motion-for-

update-of-King-III.htm

Q&A on process http://c.ymcdn.com/sites/www.iodsa.co.za/resource/collection/16f4503

d-86f9-43d5-aeb4-

c067b06eb59c/Guide_to_questions_and_answers_on_King_IV.pdf?hh

SearchTerms=%22King+and+IV%22

Timeline http://www.iodsa.co.za/?page=KingIV

Thailand:

Consultation of criteria for approval of

auditors in the capital markets

http://www.sec.or.th/en/Pages/News/Detail_News.aspx?tg=NEWS&lg=

en&news_no=140&news_yy=2014

China/US:

SEC action regarding disclosure of working papers:

Notice of agreement http://www.sec.gov/litigation/admin/2014/34-74217.pdf

Administrative Enforcement Notice http://www.sec.gov/litigation/admin/2012/34-68335.pdf

Extension Notice June 2014 http://www.sec.gov/litigation/admin/2014/34-72296.pdf

United States:

ACCA Company Risk Reporting http://www.accaglobal.com/content/dam/acca/global/PDF-

technical/financial-reporting/pol-afb-rr.pdf

PCAOB proposals to amend rules

regarding disclosure of participants in

the audit

http://pcaobus.org/News/Releases/Pages/12042013_Transparency.aspx

Chairman Doty remarks on next steps http://pcaobus.org/News/Speech/Pages/12032014_Doty.aspx

Page 52 of 52

February 27, 2015 REGULATORY BRIEFING

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