Financial instruments and controls assurance

Looking back

Deloitte’s service audit team responded to an increasing investor demand for greater operational transparency and accountability throughout last year. Alex Armstrong talks more about these challenges:

As service organisations continue to appreciate the increasing demand for, and therefore the need to engage in, a critical assessment of internal controls processes and activities, we have seen a surge of interest from clients seeking guidance on external controls assurance-reporting requirements.

One of the greatest challenges continues to be the translation of internal process documents and commonly accepted practices into a format which satisfies both the needs of external stakeholders and the standard setting bodies. This is an area in which Deloitte has been specifically called upon to provide critical assessment of process documentation, control objectives and activities, as well as industry benchmarking.

Service organisations that have taken the first step in engaging Deloitte as their service auditor are truly appreciating the benefits. These benefits include internal risk assessment/management and external stakeholder confidence and understanding where existing controls procedures and documentation are potentially lacking. We are also able to advise where additional attention is best placed in order to appropriately manage those risks and, in doing so, improve their corporate governance practices.

Nerves continue to fray following the introduction of new package of UK Accounting Standards

Throughout 2015 our team provided clarity and guidance to clients over challenging issues such as financial instruments, employee benefits and consolidation. 

The replacement of the extant “old-UK GAAP” reporting regime by the Accounting Council (previously the UK Accounting Standards Board) with three new standards: FRS 100, FRS 101 and FRS 102, continues to prove challenging both conceptually and practically for clients across the Channel Islands financial services industry who are in the process of, or have recently, transitioned to the new package of Standards.

Having been published in November 2012 and approved for issue by the Financial Reporting Council on 5 March 2013, the new standards became effective for periods beginning on or after 1 January 2015, with comparatives required from 1 January 2014. The most significant changes and challenges currently being faced by our clients relate to the Sections of the new Standards relating specifically to the financial accounting and reporting requirements for financial instruments. The move towards fair value accounting, both from a recognition and measurement perspective, has forced a critical reassessment of risk exposures, potential sources of P&L volatility and potential hedging strategies within the confines of the new accounting framework.

2016 outlook…

UK GAAP transition continues to challenge

We will continue to see an increase in requests for assistance with complex UK GAAP transition considerations. Continuing uncertainty around the standards as they continue to evolve has meant that many of our financial services clients are keenly observing developments not only at the Financial Reporting Council but also at the International Financial Reporting Standards setting body, the International Accounting Standards Board, for potential signs of converging reporting requirements following the first three year review of FRS 102 in 2016/17.

Evidencing good governance and transparency becomes market standard across the Financial Services industry

As governance concerns drive increasing requirements for evidence of rigorous oversight of outsourcing, independent testing and certification of controls throughout the financial services industry will become market standard. This will include fund boards’ oversight of investment managers as well as, more traditionally, fund administrators, custodians and transfer agents. Investors will increasingly expect visibility and assurance over the front office processes generating wealth on their behalf.