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FRC publishes 'Key Facts and Trends in the Accountancy Profession'

11 Aug 2022

The Financial Reporting Council (FRC) has published the 20th edition of its annual ‘Key Facts and Trends in the Accountancy Profession’ publication.

The publication provides statistical information and trends on the members and students in the accountancy profession

The publication includes:

  • information related to members, students, income and staffing of the seven accountancy bodies;
  • information related to the supervision of statutory audit firms;
  • information on the registered audit firms with public interest entity clients and;
  • a focus on the profession's track record on diversity and inclusion.

A press release and the full publication is available on the FRC website.

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FRC Lab calls for participants for a new project on Stewardship reporting

11 Aug 2022

The Financial Reporting Council Lab (FRC Lab) is inviting asset owners (pension funds, insurers) and investment consultants to participate in a new project for the FRC’s Corporate Governance and Stewardship team looking at how they use the stewardship reports of asset managers.

The new UK Stewardship Code was published in October 2019 and took effect in January 2020. 

This research is intended to inform the FRC’s development of the Stewardship Code and any future consultation by better understanding how stewardship reporting is used by asset owners and those that advise them.  It will specifically cover:

  • Use and users of stewardship reporting.
  • Structure and format.
  • Content of stewardship reports.

Participants will be kept up to date on the progress of the project and will be given an opportunity to comment on draft findings. 

Interested parties are invited to communicate their interest by 16 September 2022.

Further information including the press release and the Call for Participants is available on the FRC website.

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CIPFA LASAAC consults on the 2023/24 Code of Practice on Local Authority Accounting in the United Kingdom

08 Aug 2022

The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) are seeking comments, via an ‘Invitation to Comment’, on the 2023/24 Code of Practice on Local Authority Accounting in the United Kingdom ('the Code') which would apply to accounting periods beginning on or after 1 April 2023.

Local authorities in the United Kingdom are required to keep their accounts in accordance with 'proper practices'. This includes, for the purposes of local government legislation, compliance with the terms of the Code of Practice on Local Authority Accounting in the United Kingdom prepared by the CIPFA LASAAC Local Authority Accounting Code Board (CIPFA/LASAAC).

The changes and feedback requested in the Invitation to Comment for the 2023/24 Code relate to the following:

  • A stable platform, including the voluntary adoption of IFRS 16 Leases. There is separate work underway on infrastructure assets reporting.
  • Changes to accounting standards for 2023/24.
  • Updates to the Code because of legislation changes.
  • Proposed approach to implementing IFRS 17 Insurance Contracts.
  • CIPFA LASAAC’s strategic plan including:
    • the communication of the key messages in the financial statements also featuring the work of CIPFA’s Financial Reporting Hub (FRHub).
    • sustainability reporting.
    • review of the structure and format of the Code.

Comments are requested by 14 October 2022.

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UKEB announces the establishment and membership of its first advisory group

04 Aug 2022

The UK Endorsement Board (UKEB) has announced the establishment and membership of its first advisory group - Accounting Firms & Institutes Advisory Group (AFIAG).

The Members of the AFIAG will: 

  • Provide specialist knowledge and technical advice on: 
    • International Accounting Standards Board (IASB) projects under consideration for endorsement by the Board, and influencing projects under development
    • UKEB research projects
    • Market developments and financial reporting issues. 
  • Provide relevant and timely context and evidence on UKEB projects to support the Board in its decision-making.
  • Contribute examples of best practice, practical experience, and expertise as well as potential solutions that can improve the quality of financial reporting.
  • Amplify messaging to the market and their stakeholder communities of key financial reporting changes that are being proposed or have been finalised.

More information on the AFIAG, its member biographies and details of how to register interest for the Rate Regulated Activities Technical Advisory Group and the Post-implementation Review of IFRS 9 working group are available on the UKEB website here.

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FRC publishes its recommendations to improve digital security disclosure

04 Aug 2022

The Financial Reporting Council Lab (FRC Lab) has published a report on digital security risk disclosure to help companies improve the disclosure of digital security strategies, risks and governance.

The report highlights a number of factors that are driving a greater focus on digital security risk and indicates that there is a need for better disclosures to meet the needs of investors. 

The FRC Lab found that whilst a 'significant proportion' of FTSE 350 companies reported at least one digital-related principal risk, disclosures are often 'boilerplate' and 'static'.  It highlights that corporate reporting teams and audit committees that want to enhance disclosures and better meet the needs of investors should focus on aspects of strategy, governance, risk and events, considering disclosures that:

  • explain how digital security and strategy are important to the company's current and future business model, strategy and environment;
  • detail the governance structures, culture and processes the company has in place to support digital security and strategy;
  • identify digital security and strategy risks and opportunities the company is facing both now and in the future; and
  • highlight the impact of internal and external events and the actions and activities that respond to these.

The report explores investor needs (i.e. those investors that were part of the project) across strategy, governance, risk and events, provides considerations for boards and audit committees and provides disclosure recommendations.  It is supported by a separate detailed example bank providing practical examples of current better practice to help companies improve their disclosures.  

The press release and the reports are available on the FRC website.

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UKEB publishes its final comment letter on ISSB Exposure Drafts IFRS S1 and IFRS S2

04 Aug 2022

The UK Endorsement Board (UKEB) has published its final comment letter relating to the International Sustainability Standards Board (ISSB) Exposure Drafts (EDs): S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and S2 Climate Related Disclosures (IFRS S2).

In March 2022, the ISSB issued two EDs, IFRS S1 (ED/2022/S1) and IFRS S2 (ED/2022/S2).  The UKEB welcomes the exposure drafts and supports the need for a general requirements framework for sustainability-related information.  It also highlights strong stakeholder support for the alignment of IFRS S2 exposure draft with the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations.

It acknowledges many areas of alignment with the International Accounting Standard Board’s (IASB's) Conceptual Framework for Financial Reporting, IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, and believes this will improve connectivity with the financial reports and help stakeholders to better understand the information presented.

The letter also makes several recommendations in relation to the proposed approach.

The final comment letter and a Feedback Statement are available on the UKEB website.

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EFRAG publishes July 2022 issue of EFRAG Update

04 Aug 2022

The European Financial Reporting Advisory Group (EFRAG) has published an ‘EFRAG Update’ summarising public technical discussions held and decisions made during July 2022.

The update reports on the EFRAG Financial Reporting Board webcast meetings on 6 and 14 July, the EFRAG Financial Reporting Technical Expert Group (FR TEG) webcast meeting on 13 July and a number of outreach events held to discuss the requirements of the Draft European Sustainability Reporting Standards exposure drafts. The update also covers EFRAG’s sustainability reporting and related activities as well as webinars and online outreaches.

The update also flags the issuance of EFRAG’s Feedback Statement related to its Comment Letter on the IASB's Third Agenda Consultation Request for Information and EFRAG's own Proactive Research Agenda.

Please click to download the July EFRAG Update from the EFRAG website.

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FRC and FCA publish reports on TCFD compliance by premium-listed companies

03 Aug 2022

The Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) have each published reports assessing the quality of Task Force on Climate-related Financial Disclosures (TCFD) by premium-listed companies which were required for periods commencing on or after 1 January 2021. The FRC also reviewed the extent of climate-related disclosures within the financial statements and provides better practice disclosures which it encourages companies to refer to when preparing or seeking to improve their own disclosures.

Whilst acknowledging the challenges companies have had with the first year of TCFD reporting, both reports indicate that companies have improved their reporting both in terms of completeness and consistency with the TCFD framework.  The FRC also reports a ‘significant improvement’ in the reference to climate-related risks in the financial statements with 22 of the 25 companies reviewed making reference to this.  The FRC’s sample was weighted towards sectors and industries that are perceived to face greater risks concerning climate change and towards FTSE 350 companies.

However, the FRC notes several areas where companies need to improve their TCFD disclosures and financial statement reporting in relation to climate change.  These include:

  • Granularity and specificity: Providing more granular and specific information about the effect of climate change on different businesses, sectors and geographies.
  • Balance: Ensuring the discussion of climate-related risks and opportunities is balanced and linking climate-related opportunities to technological dependencies.
  • Interlinkage with other narrative disclosures: Linking climate-related disclosures to other elements of narrative reporting, for example information about the business model and strategy or risk management and governance processes.
  • Materiality: Explaining how the company has decided which climate-related information should be disclosed. The FRC expects companies to articulate clearly how they have considered materiality in the context of their TCFD disclosures when preparing the TCFD ‘statement of compliance’ and how they have taken into account the TCFD all-sector guidance and, where appropriate, the supplemental guidance for the financial sector and for non-financial groups.
  • Connectivity between TCFD and financial statements disclosures: Providing better understanding of the relationship between climate-related risks and amounts in the financial statements. and providing explanations, where necessary, to address whether:
    • the degree of emphasis placed on climate change risks and uncertainties in the narrative reporting, including TCFD disclosures, is consistent with the extent of disclosure about how those uncertainties have been reflected in judgements and estimates applied in the financial statements;
    • the relationships between assumptions and sensitivities considered in TCFD scenarios, including any Paris-aligned scenarios, and those applied in the financial statements, require further elaboration;
    • emissions reduction commitments and strategies described in the narrative have been appropriately reflected in the financial statements;
    • the scale of growth of businesses and extent of progress against climate-related opportunities referred to in the narrative reporting is appropriately reflected in the segmental disclosures;
    • discussion of matters which may have an adverse effect on asset values or useful lives in the narrative reporting is consistent with positions taken in the financial statements; and
    • the effects of different global warming scenarios, and the company’s own net zero commitments may affect the valuation of the company’s assets and liabilities.

The FCA, who performed a review of 171 premium-listed companies with a more in-depth review of 31 of those, was equally encouraged by the improvement in reporting.  However, like the FRC it did identify some companies that had indicated that they had made disclosures in line with the TCFD’s recommended disclosures when it appeared that they had not.  The most common reporting gaps were in respect of more quantitative areas such as scenario analysis and metrics and targets.  The FCA reminds companies of a number of its reporting expectations when preparing climate-related disclosures including:

  • Listed companies would ordinarily be expected to comply and therefore should provide the recommended disclosures under the ‘Governance and Risk management’ pillars as well as recommended disclosures (a) and (b) under the ‘Strategy’ pillar.
  • The need to consider the ‘Guidance for all sectors’ and the list of other documents included in the Listing Rules when determining the consistency of disclosures to the TCFD framework. The FCA suggests that companies should consider the TCFD guidance on Metrics, Targets and Transition Plans with respect to disclosures about net zero commitments.

The FCA also indicates that there is an expectation for companies to retain records to support both the statement in the annual report and the detailed assessment of the company’s disclosures against the TCFD’s Recommendations and Recommended disclosures and highlights in its report the steps companies should take to prepare for making TCFD-aligned climate-related disclosures.

Although both reviews focused on the premium listed companies that were required to provide TCFD disclosures for the first time this year, the findings will be of interest to other companies for whom climate-related disclosures will be required in future, for example those with a standard listing.  The findings on climate in financial statements are relevant for all companies.

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FRC consults on funding the Audit, reporting and Governance Authority (ARGA)

01 Aug 2022

The Financial Reporting Council (FRC) has launched a consultation on draft proposals for how the new regulator, the Audit, reporting and Governance Authority (ARGA), should be funded.

This follows the Government Response to its consultation on Restoring Trust in Audit and Corporate Governance, which set out its intention to give ARGA statutory powers to raise a levy so that it has a sustainable and independent basis on which to carry out its regulatory activities.

The consultation document invites views on the high-level principles on which ARGA's funding model should be based.  Following this consultation, and subject to the Government’s legislative plans, the FRC expects to consult further on detailed aspects of the proposed arrangements, to be contained in a Rule Book.   

Comments are invited until 21 October 2022.

The press release and the consultation document are available on the FRC website. 

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GRI and the United Nations Global Compact release updated publication on business reporting on the Sustainable Development Goals

01 Aug 2022

The Global Reporting Initiative (GRI) and United Nations Global Compact have released an updated version of their 2017 publication “Business Reporting on the SDGs: An Analysis of the Goals and Targets”.

The guide, which was first published in 2017, offers a comprehensive portfolio of disclosures relating to each Sustainable Development Goals (SDG) target, drawing from a wide range of sources, including internationally recognised frameworks and standards. 

The updated version replaces the 2017 edition, adding further examples which incorporate new or updated sources of disclosures including new GRI Topic Standards, the GRI Universal Standards 2021 and the GRI Sector Standards.

The updated document provides:

  • A list of existing and established disclosures that companies can use to report in connection with the SDG targets.
  • An identification of existing gaps, where established disclosures are not yet available.
  • A table with the corresponding indicators for governments developed by the UN-backed Inter-agency Expert Group on SDG Indicators (IAEG-SDG).

The report is intended to be used alongside another GRI publication: “Integrating the SDGs into corporate reporting: A practical guide” which outlines a three-step approach to embed the SDGs into existing business and reporting processes.

A press release and the publication can be found on the GRI’s website.

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