The SEC issued new cybersecurity disclosure guidance earlier this year, and the regulator wants companies to align their current disclosure policies with that guidance. That means including in corporate filings discussions of board risk oversight, disclosure controls and procedures, and insider trading policies as they relate to cybersecurity.

Risks related to the U.K.’s exit from the European Union are another area in which the SEC is looking for additional detail in corporate filings. Negotiators for Britain and the EU reached a draft deal for the divorce on Tuesday, but British Prime Minister Theresa May must now rally her deeply divided cabinet behind this proposal.

The planned transition away from Libor, which financial regulators expect to complete by the end of 2021, is another topic corporate accountants should consider when preparing disclosures for compiling financial filings. There are significant uncertainties surrounding legacy financial instruments that rely on Libor and how the switch to another benchmark for these instruments may affect the reporting company’s hedge accounting.

Review the full article on the WSJ's website.

The first paper Non-GAAP Earnings and the Earnings Quality Trade-off used a large sample of earnings press releases by Australian firms and compared multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. The results, which other participants found to be "not surprising", were that, on average, non-GAAP earnings are more persistent, smoother, more value-relevant, and have higher predictive power than their closest GAAP equivalent. The tendency was also noted that they tend to be more positive than GAAP numbers. The question of what this research might contribute to the IASB's efforts quickly turned into the question of whether non-GAAP measures really are such a problem (opinions were divided) and whether it is at all possible to suppress them to a certain degree (by requiring more line items/subtotals/a defined management performance measure). Takeaways from the discussion seemed to be that there is no stopping of non-GAAP measures because even if all non-GAAP measures were declared GAAP, new non-GAAP measures would immediately be defined by companies. However, it was also acknowledge that there was simply not just one number that would satisfy all needs.

The second paper Disclosure Overload? An Empirical Analysis of IFRS Disclosure Requirements examined the disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of Australian listed companies. The discussion following the presentation seemed to be rather critical of the paper although it was acknowledged that it was important that the paper shows that there is substantial non-compliance with IFRS disclosure requirements in Australia. However, discussants continued to return to the point that while it is interesting to see that there is non-compliance it is more important to find out why. Also, the relevance of 2011 research checked against 2012 data in the year 2018 was questioned. The opinion was voiced that the disclosure overload problem has more or less gone away by itself thanks to technological development. The IASB is now focusing on the quality of disclosure, no longer on the amount of it.

The third paper Equity Financial Assets: A Tool for Earnings Management – A Case Study of Youngor Group was actually a case study illustrating how earnings were managed by a Chinese company by re-classifying its available-for-sale (AFS) assets as long-term equity investments to decrease the volatility of the company’s apparent profits. The paper claimed that China's adoption of IFRS converged standards in 2007 did not improve transparency about fair value. Among the reasons cited by the paper and by the discussants were an immature capital market, the cost of preparation, difficulties in level 3 estimates, generally unreliable numbers, cultural and legal differences (the term "Western standards" was used), and the "special treatment system" in China. Other participants added, however, that the same earnings management had been possible and had been done in other jurisdictions before IFRS 9 replaced IAS 39. Therefore, some of the earnings management might go away with an IFRS 9 equivalent that is being introduced in three stages in China and with the Chinese market maturing.

The fourth paper Accounting for Intangibles: Can Capitalization of R&D Reduce Real Effects and Improve Investment Efficiency?, which was later followed by a panel discussion on the same topic, investigated the potential for accounting rules to mitigate under-investment by requiring the capitalisation of some research and development costs or might such a capitalization lead to over-investment? Panel members noted that as regards research and development costs, consistency and transparency was more important than the question of expensing vs. capitalization. However, the investor representative noted, if asked directly, investors would probably prefer expensing. It was also noted that most industries move in unison on the question of whether and what to capitalize. The takeaway from the panel and the paper seemed to be that there is already a framework in place that if properly used and enforced can provide useful information. Participants even went as far as to say that there was no immediate pressing need for the IASB to take a project on intangibles onto its agenda.

The fifth paper Extractive Industries Reporting: A Research Review, again followed by a panel discussion, reviewed international diversity of accounting practices and the challenges facing information users and standard-setting processes and lobbying behavior to explain why the IASB (and other standard-setters) have so far not succeeded in developing a rigorous standard for extractive activities and ESG factors. It was especially noted that the important aspect of reserves is only dealt with by disclosure although reserve estimates are required to be used in applying other standards. The paper argued that the IASB needs to take a comprehensive approach that also considers current values. The panel was less sure even though it admitted that there was diversity in practice. Nevertheless, panel members stressed the importance of disclosures and also voluntary disclosures. Mining companies needed to be in strong communication with their investors: "The better you disclose, the more the market will reward you." The panel and audience could also not quite conclude that an industry specific standard is needed for extractive activities although there was consensus that IFRS 6 is not satisfactory and consistency and comparability is needed.

The last paper Independently-certified Industry-specific Disclosures to the Capital Market: The JORC Code in the Australian Mining Industry investigate the compliance with the Australian JORC Code for the mining industry, the quality of the disclosure and its impact on the Australian capital market. The paper was very comprehensive, looking at two research questions and a large amount of data from multiple firms with various analyses. While the relevance of the research and its encouraging results (standard-setting can have a positive impact) were noted it was therefore suggested to split the paper actually into two papers. The relevance for standard-setting was then drilled into by asking after the impact of the standard-setting and the reasons for it, after disclosure vs. recognition and measurement, after the presentation inside or outside the financial statements and the user responses. Concluding, the Chair of the Australian standard-setter encouraged all academics in the audience: "Be brave!" She stressed that standard-setters are eager to be in dialogue with the research community and would always welcome the communication of research results when the findings were clear (also clear about definitions, methodologies, and limitations) and also included clear recommendations.

All links to the papers above are to the IASB website. Final versions of the papers will be included in a special edition of ABACUS early next year.

The AMF announced that it will continue to fully assume its role as an integrated regulator and focus its efforts on oversight of Québec’s markets and the protection of Québec consumers. Although a new regulatory body may eventually be created that does not involve all the provinces and territories, the AMF advised that it stands ready to do what it is currently doing as a member of the Canadian Securities Administrators—work with its peer regulators across the country to ensure the stability and efficiency of Canada’s markets and maintain a level of cooperation critical to the development of harmonized regulation that is at least as effective as the existing structure.

The AMF also advised that it will closely follow developments in this matter and continue its work with the same determination and concern for quality that have always made it a strong regulator that has influence with its provincial and territorial peers.

Re­view the press re­lease on the AMF's web­site.

By way of background to the ruling:

Canada is the only G20 country that does not have a national securities regulator. The quest to create a national securities regulator goes back to 1935, and calls for such a regulatory body have been strong since the 1970s.

In 2011, the Supreme Court was unanimous in ruling a proposed national regulator unconstitutional, saying that, as drafted by the federal government, it would have been too closely involved in day-to-day regulation of capital markets – a provincial responsibility. Under Canada’s 1867 Constitution, the federal government is responsible for trade and commerce, and the provinces have authority over property and civil rights. The Supreme Court, however, left the door open to the creation of a pan-Canadian regulator involving a co-operative effort.

In 2013, the federal government rewrote its plan for a regulator, called the Capital Markets Regulatory Authority. Five provinces and one territory – Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and Yukon – have agreed to participate. Quebec and Alberta oppose the plan, structured as a co-operative agency run by those provinces and territories that choose to opt in. Overseen by a council of ministers from each participating jurisdiction, it was crafted to ensure that the provinces do not cede power to Ottawa.

The Quebec government referred this plan to the Quebec Court of Appeal, which ruled it unconstitutional in 2017.

The Attorney General of Canada then appealed the Quebec Court of Appeal’s opinion to the Supreme Court of Canada, which has now ruled, on November 9, 2018, in favor of the Attorney General of Canada’s appeal i.e. that the plan for a co-operative agency run by those provinces and territories that choose to opt in is not unconstitutional.

Re­view today’s article in the Globe & Mail and the ruling of the Supreme Court of Canada for further details.

Topics covered included:

• Essentials of the Ethics Code
• Global Positioning of the Code
• Public Expectations, Public Interest, Regulation 
• The Technological Revolution
• Global Ethical Practice: Integration or Fragmentation? 

Re­view the speech on the IESBA's web­site.

Performance metrics – Principles and practice includes examples of how companies can apply the principles outlined in the Lab’s earlier project report Performance metrics - an investor perspective published in June 2018. That report found that investors wanted performance metrics to be aligned to strategy, transparent, in context, reliable and consistent.

Review the guidance on the FRC's website.

The topics covered during the meeting were the following (numbers in brackets are ref­er­ences to the cor­re­spond­ing para­graphs of the summary):

• Financial in­stru­ments with char­ac­ter­is­tics of equity (1–18): The ASAF members discusses views and feedback on the Dis­cus­sion Paper Financial In­stru­ments with Char­ac­ter­is­tics of Equity issued in June 2018.
• IFRS 3 Business Combinations reference to the Conceptual Framework (19–27): ASAF members discussed problems that could arise if an existing reference in IFRS 3 to the Framework for the Preparation and Presentation of Financial Statements were replaced with a reference to the 2018 Conceptual Framework.
• Extended external reporting (28–36): ASAF members gave feedback on the New Zealand’s External Reporting Board’s research on preparers of corporate reports and users of EER information.
• Accounting policies and accounting estimates (37–50): ASAF members provided their views on the definition of accounting estimate and accounting policy and were updated on feedback received from the IFRS Interpretations Committee.
• Rate-regulated activities (51–58): ASAF members provided their views on disclosure objectives and requirements for defined rate regulation.
• Extractive activities (59–64): The ASAF members provided information on what significant changes since the issuance of the 2010 Discussion Paper Extractive Activities.
• Project updates and agenda planning (65–70): ASAF members discussed the proposed agenda for the December 2018 ASAF meeting, disclosure initiative, and goodwill and impairment.

A full summary of the meeting is available on the IASB's website.

The Corporate Reporting Dialogue was launched in June 2014 as a way to achieve dialogue and alignment between some of the key standard-setters and framework developers around the world. It includes the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Financial Accounting Standards Board (FASB, observer), the International Accounting Standards Board (IASB), the Global Reporting Initiative (GRI), the International Organization for Standardization (ISO), the Sustainability Accounting Standards Board (SASB), and is convened by the International Integrated Reporting Council (IIRC).

CRD participants hold regular meetings to share their views and provide further cooperation. They have already released a common map of the reporting landscape (May 2015) and a materiality statement (March 2016). Under the new project, participants will work on aligning their standards with the recommendations published by the Task Force on Climate-related Financial Disclosure (TCFD) in June 2017. They will map their respective sustainability standards and frameworks to identify the commonalities and differences between them, jointly refining and continuously improving overlapping disclosures and data points to achieve better alignment, taking into account the different focuses, audiences and governance procedures.

Importantly, participants will also identify how non-financial metrics relate to financial outcomes and how this can be integrated in mainstream reports. This work will be undertaken with the overview of financial standard-setters with the ultimate aim of integrating financial and non-financial reporting.

Review the participants' joint press release on the IIRC's website.

What makes the standards unique in the marketplace is their focus on industry specificity and financial materiality. By addressing the subset of sustainability factors most likely to have financially material impacts on the typical company in an industry, SASB’s industry-specific standards help investors and companies make more informed decisions. They are global in nature and contain concepts that are important for investors and businesses around the world.

The release marks a six-year effort by the SASB. Over the course of those six years, the SASB released several sets of provisional standards for different industries, which have already been used by companies around the world. The SASB standards can be used alongside other sustainability frameworks and are well-aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are complementary to the Global Reporting Initiative (GRI).

Review the press release and download the standards on the SASB's website.

Both Tuff and Goldbach have learned one sure thing after decades of working with different companies: Relying on best practices does not guarantee future success. Today’s accelerated speed of change means that business leaders need to ditch old habits and bring a fresh perspective to their operations if they want to get to the top and stay there.

Tuff emphasizes:

When change accelerates and we can no longer rely on the lessons of the past to do things well, that’s where best practices become really dangerous.

Review the transcript of the conversation and podcast on Wharton's website.