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HLEG questionnaire on interim report

Jul 19, 2017

On July 18, 2017, the High-Level Expert Group (HLEG) on Sustainable Finance, established by the European Commission, published a first report setting out concrete steps to create a financial system that supports sustainable investments. The HLEG has now launched a questionnaire aimed at gathering targeted feedback on the analysis and reflections in the interim report and informing the preparation of the final report.

This questionnaire is open from July 18, 2017 through September 20, 2017. A copy of the report can be accessed here.

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House Democrats Call on FASB to Require Country-by-Country Reporting

Jul 19, 2017

On July 19, 2017, Accounting Today published an article where they discuss how a group of 16 House Democrats sent a letter to the Financial Accounting Standards Board (FASB) asking it to require multinational companies to disclose more country-by-country reporting information in their public financial statements about where they pay taxes and book profits.

The move comes amid the rollout of country-by-country reporting requirements by the Internal Revenue Service that the U.S. is carrying out in conjunction with the Organization for Economic Cooperation and Development’s plan for combating base erosion and profit shifting, known as OECD BEPS.

Review the article, the House Democrats' letter to the FASB and the SEC's Investor Advisory Committee's letter to the FASB.

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EFRAG’s Summary Report of the joint investor outreach event on the Discussion Paper: Disclosure Initiative—Principles of Disclosure

Jul 19, 2017

On July 19, 2017, the European Financial Reporting Advisory Group (EFRAG) published a summary report of an outreach event for investors held on July 3, 2017 in Brussels on the Discussion Paper: Disclosure Initiative—Principles of Disclosure

The event was organized by the International Accounting Standards Board, in conjunction with EFRAG, the European Federation of Financial Analysts Societies (EFFAS), and the Association Belge des Analystes Financiers (ABAF/BVFA).

It introduced the main elements of the Discussion Paper, the preliminary positions held, focused on the information needs of investors, and sought input on the following issues included in the Discussion Paper: (i) Can principles make communication more effective? (ii) What do investors think are useful examples of disclosures in the financial statements? (iii) Alternative (non-IFRS) performance measures in the financial statements: misleading or useful? (iv) Should unusual or infrequently occurring items be separately reported and if so how? and (v) How important is the application of materiality when deciding what and how to disclose information?

Re­view the Summary Report on the IASB’s website.

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President Trump nominates new SEC commissioner

Jul 18, 2017

On July 18, 2017, Pres­i­dent Donald Trump an­nounced the nom­i­na­tion of Hester Maria Peirce as SEC com­mis­sioner for the remainder of a five-year term expiring June 5, 2020.

Ms. Peirce is cur­rently a senior re­search fellow and di­rec­tor of the fi­nan­cial markets working group at the Mer­ca­tus Center at George Mason Uni­ver­sity. Pres­i­dent Barack Obama nom­i­nated Ms. Peirce for the po­si­tion last year; however, the Senate did not have a hearing on her nom­i­na­tion.

For more in­for­ma­tion, see the press release on the White House’s Web site.

 

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The Bruce Column — Ensuring Climate-related financial disclosure goes mainstream

Jul 18, 2017

The final Report of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures has been published in June 2017. Our regular columnist Robert Bruce reports on its recommendations and how it is likely to move this issue into the mainstream.

The focus on climate-related concerns has changed. It has moved away from simple worries about global resources to a much more tangible concern about risks and opportunities. The final report from the Financial Stability Board’s Task Force on Climate-related Financial Disclosure is expected to change attitudes to the quality of and responsibility for climate-related corporate reporting fundamentally. The old idea that such issues can be downplayed as simply high-minded concerns rather than being seen as the arena for serious risk assessment and resulting action will then, in turn, change. The report focuses on the information that investors need.

It starts from the position that climate-change risks are one of ‘the most significant, and perhaps most misunderstood, risks that organisations face today’. Its recommendations and disclosures aim to ensure that investors, lenders and insurance underwriters are provided with a full understanding of those risks. And while the disclosure recommendations may be voluntary the clear expectation is that momentum and the market will demand their implementation.

There are four fundamental areas of disclosure. First an organisation’s governance around climate-related risks and opportunities, then the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. Thirdly the processes used by the organisation to identify, assess, and manage climate-related risks; and finally the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

Support has been swift from the asset owners and asset managers’ community. And it is clear they intend driving a swift and widespread adoption of the framework. For example, Stuart Gulliver, CEO at HSBC, said that: ‘These recommendations are very welcome. The impact of climate change and the transition to a lower-carbon economy deserve board-level scrutiny and governance. Independent research commissioned by HSBC shows that less than a quarter of companies currently disclose their environmental impact. This makes it very difficult for analysts and investors to assess and compare how sustainable these companies are. These recommendations are a practical and pragmatic response to the need for consistent and comparable climate-related financial disclosure’.

More than a hundred firms around the world with a total market cap of some $3.3 trillion have agreed to actively support implementation and encourage others to do so. The task force will remain in place until at least September 2018 to promote and monitor adoption and to evaluate ‘the extent to which the recommended disclosures are meeting the interests of users’. With the backing it has, the move mainstream of climate-related financial disclosure is well under way.

Read the en­tire col­umn on our Global IAS Plus web­site.

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ESRB publishes a report on the financial stability implications of IFRS 9

Jul 17, 2017

On July 17, 2017, the European Systemic Risk Board (ESRB) published a report on the financial stability im­pli­ca­tions of IFRS 9 'Financial In­stru­ments'. The ESRB’s work on this topic was requested by the European Par­lia­ment in January 2016.

The analysis in the report entitled, Financial stability im­pli­ca­tions of IFRS 9, focuses on two aspects: (i) IFRS 9 and fair value accounting for the mea­sure­ment of financial assets; (ii) the new expected credit loss paradigm

The report notes that the ESRB concludes that IFRS 9 rep­re­sents a major im­prove­ment in com­par­i­son with IAS 39 and is expected to bring sub­stan­tial benefits from a financial stability per­spec­tive. Together with the greater clarity and certainty as­so­ci­ated with its prin­ci­ples-based approach to the clas­si­fi­ca­tion and mea­sure­ment of financial in­stru­ments, the earlier and fuller recog­ni­tion of im­pair­ment losses under the new expected credit losses model is expected to have positive effects on financial stability.

The ESRB report is ac­com­pa­nied by an oc­ca­sional paper entitled, Assessing the cyclical im­pli­ca­tions of IFRS 9 – a recursive model. This paper describes a model for assessing different ap­proaches to the accounting of credit im­pair­ment losses. In par­tic­u­lar, it compares the impact of a crisis on banks assuming four such different ap­proaches, including the current approach in IAS 39 (incurred losses) and the solutions adopted under IFRS 9 and in the United States re­spec­tively.

For further information, refer to the press release on the ESRB’s website.

 

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XBRL makes steady advances

Jul 14, 2017

On July 14, 2017, Accounting Today released an article discussing how Extensible Business Reporting Language (XBRL) is starting to become more widely used, thanks to the SEC’s rules requiring the use of XBRL in financial filings in recent years and a new rule requiring XBRL for foreign issuers.

XBRL technology uses a data-tagging format that is supposed to make it easier for investors and analysts to compare financial information across companies and industries. Problems with the technology and the inconsistency of the tags used by companies have limited XBRL’s usefulness to many investors, however.

Lou Rohman, vice president of XBRL services at Merrill Corporation, said “The group has issued three sets of rules now and approved them. Now our focus is going to go into topical areas of disclosures, such as the cash flow statement and stock-based compensation disclosures. We’re focusing on how we can get people to tag those consistently and do it error free. We’ll provide rules and guidance.” He believes the quality of the XBRL filings has been improving but still isn’t ideal.

The SEC’s proposal for Inline XBRL could potentially expand the usability of XBRL for auditors and investors. “It’s not a final rule,” Rohman cautioned. “It’s still being discussed. The interesting part about that is the audit requirement. The paper-based financial statements and the XBRL-based ones were separate, so the auditors audited the traditional HTML paper-based financials and they would say we have not touched the XBRL. Now the two are combined into one document, so the auditors in some respect have to say, ‘I audited this piece but not that piece of the same financial statement document,’ which is kind of odd to see. We’re watching that to see if there will ever be an audit requirement for XBRL tagging. Technically the legal liability for XBRL is the same as the legal liability for traditional paper-based financial statements that are issued.”

Review the article on Accounting Today's website.

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AcSB Exposure Draft – Property, Plant and Equipment – Proceeds before Intended Use (Proposed amendments to IAS 16)

Jul 13, 2017

On July 13, 2017, the Ac­count­ing Stan­dards Board (AcSB) is­sued an Ex­po­sure Draft that cor­re­sponds to the IASB’s Ex­po­sure Draft on this topic. Stake­hold­ers are en­cour­aged to sub­mit their com­ments by October 19, 2017.

The proposed amendments would prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced before the asset is available for use. Instead, an entity would recognize the proceeds from selling such items, and the related production costs, in profit or loss.

Re­view the Ex­po­sure Draft on the AcSB's web­site.

 

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EU High-Level Expert Group on Sustainable Finance delivers early recommendations

Jul 13, 2017

On July 13, 2017, the High-Level Expert Group (HLEG) on Sus­tain­able Finance, es­tab­lished by the European Com­mis­sion, has published its first report setting out concrete steps to create a financial system that supports sus­tain­able in­vest­ments. Special sig­nif­i­cance is placed on the in­te­gra­tion of in­for­ma­tion for investors and in­te­grated reporting is cited as key to the ultimate ambition of con­ver­gence to low-car­bon growth.

The report argues that sus­tain­abil­ity needs to be put at the heart of the financial system and that to deliver systemic change, ESG factors and long-term sus­tain­abil­ity risks and op­por­tu­ni­ties will be needed in corporate gov­er­nance, core indices, accounting standards and credit ratings.

On accounting frame­works, the authors note: “While there are numerous ini­tia­tives on sus­tain­abil­ity reporting, the ultimate ambition has to be the con­ver­gence of financial and sus­tain­abil­ity in­for­ma­tion, supported by a more com­pre­hen­sive set of accounting standards. In­te­grated reporting supports this con­ver­gence qual­i­ta­tively through reporting that links sus­tain­abil­ity factors with firms’ strategy. Accounting standards can help advance the quan­ti­ta­tive element.”

The report is aimed at readers in Europe and beyond, who are concerned about issues of sus­tain­abil­ity, financial markets and the wider chal­lenges for society. It is intended to provide the basis for fruitful and con­struc­tive con­sul­ta­tions as the HLEG engages in the next phase of its work. The HLEG welcomes comments, questions and dis­cus­sions during the process of preparing its final report for pub­li­ca­tion in December 2017.

For further information, refer to the press release and the full report on the European Com­mis­sion website.

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EBA reports on results of the second impact assessment of IFRS 9

Jul 13, 2017

On July 13, 2017, the European Banking Authority (EBA) published a report on the results of its second impact as­sess­ment of IFRS 9 'Financial In­stru­ments'. For the report, EBA looked at a sample of ap­prox­i­mately 50 in­sti­tu­tions across the European Union.

The exercise, which follows up on the first impact as­sess­ment published in November 2016, has confirmed the EBA's initial ob­ser­va­tions on the stage of prepa­ra­tion for the im­ple­men­ta­tion of IFRS 9 and the estimated impact of IFRS 9 on reg­u­la­tory own funds.

On the qual­i­ta­tive side, the report high­lights that banks have made further progress on the im­ple­men­ta­tion of IFRS 9 since the previous exercise, but smaller banks are still lagging behind in their prepa­ra­tion compared with larger banks. On the quan­ti­ta­tive side, the responses received show that the estimated impact of IFRS 9 is mainly driven by IFRS 9 im­pair­ment re­quire­ments. The estimated increase of pro­vi­sions is on average 13% compared to the current levels of pro­vi­sions under IAS 39.

The full report can be accessed on the EBA website.

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