Aidan Clifford is advisory services manager, ACCA Ireland

GP income

Revenue has provided amended guidance on the correct tax treatment of income received by medical practitioners under a General Medical Services (GMS) contract, entered into with the Health Service Executive.

Where a GP operates in a partnership, GMS income from any one partner is treated as income for tax purposes of the whole partnership. Where the GP is an employee of a practice and has a personal GMS list, the GP will be chargeable to tax personally in respect of income arising from the GMS contract under the self-assessment system, and the GP’s employment income will be payable subject to deduction of PAYE.

Insurance accounting

The Financial Reporting Council (FRC) has published a thematic review of companies’ first-time application of IFRS 17, Insurance Contracts, which became effective on 1 January 2023. IFRS 17 represents a fundamental change in accounting for insurance contracts, introducing a comprehensive principles-based approach to replace the fragmented approach previously required under IFRS 4.

Financial statement disclosures

The Irish Auditing & Accounting Supervisory Authority (IAASA) has published a review  of its findings and recommendations related to the quality of audit evidence and audit procedures performed on financial statement disclosures.

This identified non-compliance with ISA 330, The Auditor’s Response to Assessed Risks, as the most common concern, cited in 62% of all cases. The majority of findings and recommendations relate to paragraph 18, with the requirement that ‘Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.’

There is insufficient evidencing of the key professional judgments made when determining sample sizes

It seems that the IAASA found that a potential disclosure matter is not being sufficiently audited because the auditor has deemed the balance to be not material, or the risk of material misstatement of the balance to be not material, but has failed to consider both the qualitative and quantitative impact of the non-disclosures. In the case of goodwill, for example, the balance itself may have been audited but there was insufficient assessment of the required disclosures in the financial statements related to goodwill.

Audit sampling

The requirements in ISA 530 are not particularly prescriptive in terms of the methodology to be used for audit sampling. The FRC has produced a thematic review, which provides useful guidance.

High-level findings include:

  • Audit firms are still testing controls even with the advent of data-analytic tools.
  • There is substantial variation in firms’ methodologies.
  • The different methodologies do not indicate that one method is better than another.
  • Professional judgment continues to be key.
  • Monitors are finding that there is insufficient evidencing of the key professional judgments made when determining sample sizes.

Overall, the report finds that there are ‘no significant deficiencies in meeting the objectives of ISA 530, Audit Sampling‘. It notes that most firms’ sampling methodologies are based on the American Institute of Certified Public Accountants’ Audit Sampling Guide, although it should be noted that ISA 530 does not require the use of this guide.

Audit materiality

The IAASA has published a report on materiality in the context of an audit, with recommendations for auditors to consider in performing their materiality assessment.

Page 8 sets out the benchmarks for materiality calculation used by auditors in the larger firms in Ireland.

The vast majority of auditors determined that 5% of materiality was their ‘clearly trivial threshold’

The report identified that performance materiality was generally a percentage of overall materiality, with nearly 60% of audits using 75% of overall materiality to determine performance materiality.

To determine the performance materiality level, firms used the history of error, the likelihood and effects of misstatements, understanding of, and effectiveness of the internal control environment, and consideration of any changes in circumstances for the entity, including turnover of senior management or key financial reporting personnel on the entity’s operations.

The vast majority of auditors determined that 5% of materiality was their ‘clearly trivial threshold’. About half of all auditors revised materiality during the course of their audit.