EU Update. Hilde Blomme Deputy CEO, Accountancy Europe. EGIAN Meeting Brussels, 20 November 2018

Transcription

1 EU Update Hilde Blomme Deputy CEO, Accountancy Europe EGIAN Meeting Brussels, 20 November 2018

2 Close to 1 million professionals 28 EU Member States 51 institutes 37 countries

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4 Our mission Influence decision makers Help the profession shape its future Facilitate cooperation amongst Members 4 4

5 Today s presentation Changes in reporting: Financing Sustainable Growth Fitness check on company s public reporting Changes in auditing: 2014 Audit Reform GDPR and its implications for statutory auditors Update on the CEAOB Monitoring Group review Brexit, and beyond NFI reporting, assurance & other assurance initiatives European initiatives on direct tax Some other matters: technology, fighting financial crime, SMEs 5 5

6 Financing Sustainable Growth

7 Financing Sustainable Growth March 2018: EC Action Plan on Sustainable Finance 10 actions for the transition to a low-carbon economy Objectives: Reorient capital towards sustainable investment Mainstream financial risks originating from climate change Foster transparency and long-termism in financial and economic activity All re: Measurement -> Disclosure -> Certification 7 7

8 Sustainable Finance package May 2018 EC s Sustainable Finance package 3 proposals: disclosures relating to sustainable investments and sustainability risks framework to facilitate sustainable investments - taxonomy benchmarks November - EP adopted its position re disclosures relating to sustainable investments Next inter-institutional negotiations Other two proposals still discussed at the EP 8 8

9 Technical Expert Group on SF June selected members 4 sub-groups: taxonomy EU Green Bond Standard positive and low carbon benchmarks climate-related disclosures So far 3 meetings Announced Outreach plans to gather: Expert input through targeted consultations Broader views on the progress via open consultations 9 9

10 Accountancy Europe: Sustainable Finance Expert Group Call for candidates to Sustainable Finance Expert Group Focus: Respond to EU proposals Proactive agenda First conference call December 10 10

11 EC Consultation: Fitness Check on the EU Framework for Public Reporting by Companies

12 Our main responses (1) Remove MS options in EU accounting legislation Difficult to converge national GAAP to IFRS, if purpose of local GAAP is tax, dividend, driven + Proportionate IFRS regime with reduced disclosures EU: IFRS for consolidated financial statement of listed entities + IFRS for listed companies with no subsidiaries + Allow all other companies to opt for IFRS 12 12

13 Our main responses (2) Sustainability & long-term investment objectives: Purpose IFRS not to incentivize or disincentive Global concerns meriting global solution (IASB) No allowance of carve-ins No change to EU IFRS endorsement criteria EU to move to more i(i)ntegrated r(r)eporting One digital reporting tool (ixbrl/esef) is too restrictive EU to provide a principles-based framework for electronic reporting 13 13

14 Next steps 18 October 2018: EC stakeholder discussion re NFI disclosures (see below) 16 November 2018: publication summary of responses to the (fitness check) 30 November 2018: EC conference re the Future of Corporate Reporting in a digital & sustainable economy EFRAG Corporate Reporting Lab Steering Group: 15 members (LINK) 2 from profession: Nancy Kamp-Roelands, EY NL & HBL 4 from companies, 3 civil society, 3 users, 1 academic, 1 financial services, 1 other First meeting: 27 November

15 Member States implementation of the 2014 Audit Reform As of November 2018

16 Implementation status November 2018 Update Implemented Not implemented Note: Slovenia has not yet fully implemented the new EU audit rules. In Iceland and Norway, the new audit rules become applicable later (date to be set). Therefore, information on these countries in the following slides might only indicate expectations and it is subject to change

17 EP Study on the audit reform and impact on audit market (concentration)

18 EP Study Commissioned in August 2018 by Kay Swinburne (UK MEP) Performed by Marleen Willekens, KULeuven By March/April 2019 Based on a survey and interviews We were asked for help Names & s of Lead Audit Partners in your audit firms by end of this week Names & s of CFOs of financial institutions 18 18

19 GDPR and its implications for statutory auditors

20 GDPR and its implications for statutory auditors Will be published in the following days 20 20

21 Overview of main points (1/2) GDPR, new EU rules on processing personal data Apply in the EEA as from 25 May 2018 Concept of data controller and data processor Data controller determines why the data is used (the purposes) and how the data is processed (the means) Data processor processes personal data on behalf of data controller Responsibilities of data controller and data processor differ important for practitioners to determine their role Sanctions in case of non-compliance 21 21

22 Overview of main points (2/2) Statement on the role of the auditors: auditors are data controllers Statutory audit legislation obliges auditors to be independent of their audit clients auditors decide how to use, store, etc. the data used to perform audit Practitioners, for non-statutory audit work, may act as data processors Need to determine whether they will be considered data controllers or data processors on a case-by-case basis 22 22

23 Update on the CEAOB

24 CEAOB work programme 2019 CEAOB to move on from the establishment phase to an intensified exchange of information and experience among its members as well as towards more external output 2019 work programme built on 4 pillar objectives: Cooperation Communication Interconnectivity Monitoring 24 24

25 Beyond 2019: Longer term outlook These topics and work streams are expected to have a growing impact on audit quality and may therefore become more prominent aspects in the work of the CEAOB: Further exploration of developments in the audit market and the environment in which auditors operate, including potential influences on audit quality Intensification of stakeholder engagement to explore and understand better their expectations and concerns and increase cooperation within the auditor oversight sphere Further improvements in external communication Exploration of new areas of cooperation (for example educational qualifications, strategies on oversight of professional bodies) Analysis of the impact of new audit tools and technologies on audit quality and auditor oversight as well as cyber security risks 25 25

26 Review of the CEAOB by the EC The EC will work on this for June 2019 reporting We highlighted to the EC: that professional bodies or their representatives (us) find it hard to engage with the CEAOB our concern regarding some unintended consequences of the changes in delegation of tasks EC continues to say that no other actions re the audit reform are under way 26 26

27 Monitoring Group (MG) review of audit-related standard setting

28 Progress in MG review? Various stakeholder meetings, 1 facilitated in September 2018 by Accountancy Europe for European professional bodies MG meeting mid September 2018 in A dam: first time all MG members saw each other in the eye MG meeting mid October 2018 in Toronto: still (significant) differences; + IFAC & GPPC meetings MG meeting early December 2018 in Washington DC: MG + IFAC + GPPC: hope for agreement, maybe not realistic Gerben Everts IOSCO Chair up to April 2019: will he be able to finalise the MG review white paper? 28 28

29 Accountancy Europe Brexit Statement (June 2018)

30 Brexit Statement Accountancy Europe Brexit Statement 30 30

31 Non-financial reporting information (NFI) reporting & assurance & other assurance initiatives

32 NFI Directive - Basics Disclose: Business model Relevant KPIs Board diversity policy (affects all PIEs) Information on 4 key matters Link NFI report to amounts reported in the Financial Statements Limited assurance requirements 32 32

33 Assurance France Also applies to nonlisted co s where Iceland turnover or BS total exceeds 100 million with >500 employees Ireland Portugal United Kingdom Spain Netherlands France Belgium Norway Denmark Luxembourg Germany Italy Sweden Poland Czech Rep Slovakia Austria Hungary Slovenia Croatia Malta Denmark Regulators to select % of reports at random for full scope enforcement Finland Estonia Latvia Lithuania Romania Greece Germany If a separate report has been Bulgaria verified, Cyprus the assurance report must be published Assurance requirement - existence check that info is provided. MS option to extend scope Existence check only Existence & consistency check External verification of content

34 NFI Directive the future Fully transposed by all MSs Commission assessment incorporated in Fitness Check Preliminary results: Too soon to fully determine effectiveness Main concerns were about scope & consistency of information Non-binding guidelines to be updated with climate related metrics (TCFD recommendations) Unlikely to see a revision to Directive soon will use Non-Binding Guidelines instead 34 34

35 Auditor role in assurance on non financial information Markets and stakeholders call for more information and its reliability A lot of opportunities for the audit profession NFI assurance: on KPIs, sustainability report, on systems and controls etc. Well placed to provide these services, but we need to: Get to grips with it Start conversations with clients on these issues 35 35

36 Assurance needs on NFI Why consider?: NFI reporting gains importance for investors & stakeholders BUT quality not yet as robust and reliable NFI assurance practice is disperse Objective: To streamline NFI assurance practices Stimulate a stakeholder dialogue on technical matters (with IAASB) 36 36

37 IAASB: Shape the future of EER assurance 8 Nov discussion event on EER assurance Evolving practice Standard mostly used : ISAE 3000 Standard needs to be supported by guidance Work in progress Consultation will start early 2019 Final guidance expected end of

38 Integrated Assurance in practice Generali Annual Integrated Report Full Annual Integrated Report Includes assurance report on the disclosure of NFI Report type: ISAE 3000 (negative assurance) Reporting Framework: GRI Standards Includes independent auditor s report on the consolidated financial statements, with reference to a separate report being issued on NFI 38 38

39 Integrated Assurance in practice ABN AMRO ( Continued) The Annual Review Report for 2017 includes an assurance report providing extensive negative assurance on the preparation of the report Report type: ISAE 3000 (negative assurance) Reporting Framework: International Integrated Reporting <IR> Framework 39 39

40 Auditors reporting of KAMs in the European banking sector 40

41 Introduction and Scope of Survey Introduction: Survey on auditor s reporting of KAMs in the European banking sector, following the first year of KAM reporting in EU Scope of our survey: Insights and conclusions on auditor s reporting on KAMs for 62 European banks, selected from the list of significant financial institutions supervised by the ECB under the Single Supervisory Mechanism (SSM) 41

42 What and Why of KAMs Introduction: Before analysing the conclusions of the survey, our paper: Introduces what KAMs are and why auditors report on them Outlines the value and challenges in communicating KAMs Benefits (value) Insight and value added Enhanced transparency Address public concerns Increased accountability Monitoring & Benchmarking Stakeholders recognition Challenges Fresh perspective: Clarity of language Understandability Tailoring & contextualisation Discusses how the KAMs are selected, and Highlights some of the issues encountered in reporting on KAMs (Appendix 3) 42

43 Analysis of the KAMs in the European banking sector: Average Number of KAMs With an average number of 4 KAMs/report (on average, 4.4 KAMs/report), the average number of KAMs in the European banking sector is higher than the general industry average, by reference to other cross-industries studies Average number of KAMs Number of KAMs per report Average Maximum Minimum KAM 2 KAMs 3 KAMs 4 KAMs 5 KAMs 6 KAMs 7 KAMs 8 KAMs 43

44 Main KAM Categories The top-three KAM categories represent 49% of the total number of KAMs KAMs related to IT systems represent the 2 nd main category Moving further, we explore main KAM sub-categories, if noted 100% 90% 80% 98% Main KAM Categories (top % represents the % of the total number of audit reports Lower % represents the % of the total population of KAMs) 70% 60% 61% 58% 50% 40% 45% 40% 35% 42% 30% 20% 10% 22% 14% 13% 10% 9% 8% 19% 16% 15% 4% 4% 3% 2% 8% 10% 0% Impairment of loans & receivables IT systems Financial instruments - Classification & Measurement Litigation, regulatory matters and conduct (excluding taxation) Income taxes Other IFRS 9 - impairments disclosure of the impact of IFRS 9 Insurance Pensions Hedge accounting Other 44

45 Main KAM Sub-categories Where the case, we identified the main sub-categories of KAMs, as presented below: Financial instruments Classification & Measurement Other 6% Tax provision and tax contingencies, 20% Income taxes Deferred taxes, 32% Pensions Other, 11% IT systems Valuation of financial instruments held at fair value, 94% Recoverability of deferred tax assets, 48% Other impairments Measurement of pensions obligations, 22% Valuation of defined benefit obligations 67% Other, 19% User access management, 26% Internal IT controls, 55% Repossessed real estate assets 14% Impairment of investments 13% Other 14% Goodwill impairment 59% Other, 10% Insurance Actuarial assumption, 90% 45

46 Comparison of main KAM categories across main EU Jurisdiction We note similarities and specifics of reporting patterns for the main KAM categories across jurisdictions, opening the way for deeper analysis on this: 30% 25% 20% Comparison of main KAM categories across main EU Jurisdictions 15% 10% 5% 0% Impairment of loans & receivables IT systems Financial instruments - Classification & Measurement Litigation, regulatory matters and conduct (excluding taxation) Income taxes Other impairments IFRS 9 - disclosure of the impact of IFRS 9 Insurance Pensions Hedge accounting Sum of France Sum of Germany Sum of Italy Sum of Netherlands Sum of Spain Sum of UK Note: The percentages shown in the chart above represent how much each main KAM category represents from the total population of KAMs per country Other 46

47 KAM Clarity: Clear cross-referencing with financial statements disclosures The majority of KAMs were clearly linked to the financial statements notes Referencing of KAMs to financial statements disclosures 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 98% 2% 94% 6% 26% 21% 53% 100% 100% 100% 92% 90% 8% 10% 100% 80% 20% 96% 4% Cross-referenced to Notes Not referenced Reference not applicable 47

48 Other Extended Reporting Aspects Materiality and scoping disclosures A quarter of the banks in our sample had materiality and/or scoping reporting in their auditor s report, some having voluntary disclosures of these aspects Other Extended Reporting Aspects Scoping only 2% Materiality only 3% Materiality & Scoping 20% No additional extended reporting 75% 48

49 Main Findings: With an average number of 4.4 KAMs per audit report, our survey shows a higher average number of KAMs reported for European banks, by reference to other cross-industries studies Our survey reveals a concentration of the KAMs in the European banking sector, as the top-three most recurring KAM topics represent 49% of the total number of KAMs, namely: Impairment of loan and receivables: 22% of the total number KAMs (98% of the number of audit reports) Classification and measurement of financial instruments: 14% (61%) IT Systems: 13% (58%) Our comparison of the main KAM categories for the top-six EU jurisdictions (more than 1/2 of the analysed sample), outlines similarities and specifics in KAM reporting patterns, paving the way for further analysis Generally, KAMs are presented in a clear manner, most of the KAMs are clearly cross-referenced to financial statements disclosures We note voluntary extended reporting aspects (materiality/scoping) 49

50 European Initiatives on Direct Tax

51 Intermediaries Directive National transposition by 31/12/19 Many countries consulting - we expect some gold-plating Sweden may also include domestic arrangements Main provisions effective from 1/7/2020 BUT any cross-border planning that includes any of the hallmarks & the first stage takes place from 25 June 2018 must also be reported - by 31/8/

52 Intermediaries Directive - basics All intermediaries must report within 30 days Any cross-border transaction that contains one or more hallmarks To the relevant national tax authority Who then exchanges it within a month of each QE And has an obligation to introduce penalties Taxpayer obliged to report in certain circumstances 52 52

53 Intermediaries Directive Record Now, Report Later Reporting requirements currently unknown! But, minimum information to be kept: The relevant taxpayer(s) & associates involved The hallmarks contained The tax planning arrangements Date of first step Value of the arrangement Identification of the MSs of the taxpayers involved and of any others persons involved 53 53

54 Other EU direct tax initiatives Digitalisation and tax two measures Short term - Digital Services Tax politically 3% turnover tax on companies with global TO > 750 million Advertising, digital platforms income, user data Hot topic politically Denmark, Ireland, Cyprus & Sweden opposed Germany equivocal Long-term - based on Virtual Permanent Establishment waiting for OECD 54 54

55 Other EU direct tax initiatives Still being discussed but not prioritised: C(C)CTB Public CbCR of tax information Financial Transaction taxes Other initiatives regarding tax transparency Draft GRI standard on tax disclosures soon CSRe toolkit to assist with tax transparency Q

56 Some other matters: technology, fighting financial crime, SMEs

57 Technology 2 nd Digital Day on 19 June 2018 and follow up initiatives Technology Barometer II Technology Updates (with GDPR special) Website Tech Hub with all relevant MB initiatives 57 57

58 Fighting financial crime EU developments: Publication of the 5 th AML Directive (June) EP draft report on whistleblower protection Directive (vote expected 20 Nov) EP proposal to enhance EBA AML prudential supervision (Sept) Our joint event: Governance role in fighting fraud and financial crime in the Digital Era on 27 November 2018 from

59 Fighting financial crime our work Accountancy Europe work: Paper: Clarifying EU rules for SME accountants Paper: 5th AML Directive general changes for the accountancy sector 59 59

60 SMEs European Commission consultation on the review of the SME definition SME newsletters & interview with IFAC Webinar How to get your SME accountants GDPR ready? New webpage to highlight work for SMEs 60 60

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