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Financial Reporting Lab Image

FRC Lab report on reporting performance metrics

22 Jun 2018

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) includes a framework and set of questions for companies and their boards to consider when deciding on how they report their performance.

The report points out that investors are calling on companies to reassess how they report their performance metrics. The metrics chosen by companies to report their performance should be clearly aligned to the company’s strategic goals, be transparent on how they are calculated and provide sufficient information that allows comparisons to be made to previous years’ performance.

The questions companies and their boards should consider when deciding on how they report their performance focus on:

  • alignment to strategy,
  • transparency,
  • context,
  • reliability, and
  • consistency.

The report build on the guidance on alternative performance measures issued by the European Securities and Markets Authority (ESMA) in October 2015 but provides an investor perspective on the reporting of all types of metrics (including wider metrics that are not covered by ESMA’s guidelines).

Please click to access the report on the FRC website.

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Auditing Image

FRC publishes audit quality inspection reports for the eight largest audit firms

21 Jun 2018

The Financial Reporting Council (FRC) has published individual audit quality inspection reports for Deloitte LLP, Ernst & Young LLP, KPMG LLP, PricewaterhouseCoopers LLP, BDO LLP, Grant Thornton LLP, Mazars LLP and Moore Stephens LLP.

The FRC indicates that “the Big Four audit practices must act swiftly to reverse the decline in this year's audit inspection results if they are to achieve the targets for audit quality set by the Financial Reporting Council". It highlights that 73% (81% in 2016/17) of FTSE 350 audits reviewed in 2017/18 were categorised as requiring “no more than limited improvements”.  The FRC has set a target that “at least 90% of FTSE 350 audits reviewed should require no more than limited improvements by 2018/19”.

The reports set out the principal findings arising from the audit quality inspection work carried out by the FRC’s Audit Quality Review (AQR) team for 2017/18. 

The reports focus on the key findings from the reviews, why such findings are important and actions the individual firms are taking to address them in order to safeguard and enhance audit quality.  Key findings address both the FRC’s inspection of individual audits and also each firm’s policies and procedures to support and promote audit quality. 

The reports also identify some examples of good practice which contributed to audit quality at each firm. 

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

FRC Image
Financial Reporting Lab Image

FRC Lab publishes a report on blockchain

21 Jun 2018

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) concludes that “whilst cost, complexity and lack of standardisation of blockchains might be inhibiting factors, the growing use of blockchain means that those involved in corporate reporting processes need to consider its potential disruptive impact”.

The Lab considered how current developments and use-cases of blockchain technology might impact corporate reporting processes in the future. In the report, the Lab  identifies what it calls ‘challenges’ in corporate reporting and attempts to identify whether blockchain can solve some of these looking specifically at the areas of  production, distribution and consumption of corporate reporting. 

The report highlights that “blockchain has the potential to change some aspects of accounting, reporting and auditing, but this is unlikely to be imminent or all-encompassing.  Blockchain therefore merits consideration and experimentation by preparers, regulators and others involved in the corporate reporting ecosystem”.

The report recommends actions for various groups which would allow the idea of blockchain to be taken forward including:

  • Regulators, standard-setters and professional bodies who are encouraged to monitor blockchain developments and consider how they may impact corporate reporting. The creation of a forum where all those involved in corporate reporting can share and learn is recommended.
  • Preparers and users of corporate reporting who are encouraged to focus on gaining a greater level of understanding and consider experimentation and cautious innovation when costs and benefits are balanced.

Please click to access the press release and report on the FRC website.

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IFRS Foundation issues illustrative examples in XBRL for the IFRS Taxonomy 2018

20 Jun 2018

The IFRS Foundation has published the IFRS Taxonomy Illustrative Examples 2018.

The purpose of these examples is to il­lus­trate the use of the IFRS Taxonomy 2018 elements by tagging the illustrative examples that accompany IFRS Standards.

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

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'An introduction to accounting for cryptocurrencies'

20 Jun 2018

Chartered Professional Accountants of Canada (CPA Canada) has published an introduction to accounting for cryptocurrencies under IFRS.

The paper notes that concerns have been raised that the current application of IFRSs, particularly the application of IAS 38 Intangible Assets and the measurement of cryptocurrencies at cost, is not reflective of economic substance and does not provide relevant information to users of financial statements. It therefore analyses the problem in five sections:

  • a brief overview explaining what cryptocurrencies are;
  • a discussion of possible approaches to accounting for cryptocurrencies under existing IFRS;
  • an update on accounting standard-setting activity related to cryptocurrencies;
  • a brief summary of the tax implications of transactions involving cryptocurrencies; and
  • supplemental guidance on determining fair value for cryptocurrencies.

The authors of the guide encourage accounting standards-setters to undertake research in this area to better understand and evaluate the potential impacts of cryptocurrencies and to ensure the accounting for cryptocurrencies is relevant and useful.

Please click to access the publication on the CPA Canada website.

IFRS Foundation (blue) Image

IFRS Foundation Trustees propose tenure increases for Chair and Vice-Chair

19 Jun 2018

The Trustees of the IFRS Foundation have issued narrow-scope amendments to the IFRS Foundation Constitution that will increase the maximum tenure of the Trustees’ Chair and Vice-Chair.

Specifically, the proposed amendments would:

  • Increase the maximum tenure of the Trustee Chair and Vice-Chair to nine years.
  • Allow the option to appoint a Chair from either internally within the Trustees or externally.
  • Clarify the requirements for Trustee reappointments.

Comments on the proposal are due by 17 September 2018. For more information, see the press release on the IASB’s website.

IIRC (International Integrated Reporting Committee) (green) Image

IIRC launches the ‘Integrated Thinking & Strategy’ special interest group

18 Jun 2018

The International Integrated Reporting Council (IIRC) has launched the ‘Integrated Thinking & Strategy’ special interest group which “offers world-renowned and innovative organizations the opportunity to share thinking about developing strategy across multiple capitals, learn from world leaders and co-create a common world view of integrated thinking that is globally relevant to help build resilient, future-fit businesses”.

The group, a subset of the International <IR>network, is collecting case studies and examples of current thinking and practice in the area of integrated thinking. It aims to “co-creatively craft what we understand best practice to look like, and we will identify adoption pathways that help organizations employ integrated thinking in their own work”.

Information for those interested in joining the group is available on the IIRC website.

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FRC publishes a summary of the findings from its panel discussion on IFRS 17

18 Jun 2018

The Financial Reporting Council (FRC) has published a summary of the findings from its panel discussion on IFRS 17 'Insurance Contracts' held in 24 April 2018.

The event provided participants with an opportunity to hear from experts about their key issues and challenges with the standard and enabled them to provide their own views on the standard.

The summary covers:

  • Panel perspectives and observations on IFRS 17.
  • The cost of implementation.
  • Whether implementation should be delayed until the EU has endorsed the standard.
  • Whether Solvency II should be closer aligned with IFRS 17.
  • Whether financial statements prepared under IFRS 17 are comparable and understandable.
  • Whether there are plans to amend UK GAAP for IFRS 17.

The full summary is available on the FRC website.

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Pre-meeting summaries for the June IASB meeting

15 Jun 2018

On Tuesday 19 June the IASB and the US FASB are holding a joint education meeting. That is followed by a two-day meeting of the IASB on 20 and 21 June. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Joint IASB–FASB Education Meeting

The topics being discussed are mainly those related to Standards that the IASB and FASB developed together, or are largely converged, as well as new topics that both boards have on their work programmes.

Segment Reporting

The IASB’s and FASB’s Standards on segment reporting (IFRS 8 Segment Reporting and Accounting Standards Codification Topic 280, Segment Reporting) are largely converged. The IASB will provide a summary of its post-implementation review of IFRS 8 and explain why it decided not to finalise the amendments to IFRS 8 it had exposed. The FASB will outline the targeted changes related to the segment aggregation process that it is considering making to Topic 280.

Primary Financial Statements and Financial Performance Reporting

Both boards are working on projects related to the primary financial statements. The IASB will give an overview of its Primary Financial Statements project and the FASB will update IASB members on the background and scope of its Financial Performance Reporting. The FASB is focusing on two types of improvements: disaggregation of performance information; and the structure of the performance statement (subtotals).

Disclosure Initiative and the Disclosure Framework

Both boards are working on projects related to improving disclosures in the financial statements. The IASB will provide an update on its Disclosure Initiative—in particular the Principles of Disclosure and Targeted Standards-level Review of Disclosures projects. The FASB will give an update on its Disclosure Framework project.

Fair Value

The IASB’s and FASB’s Standards on measuring fair value (IFRS 13 Fair Value Measurement and Accounting Standards Codification Topic 820, Fair Value Measurement) are largely converged.

The FASB has developed amendments to the disclosure requirements for fair value measurements which it plans to finalise, by updating Topic 820, in the third quarter of 2018. The FASB will provide an overview of those changes. The IASB will set out the role of post-implementation reviews and provide some background on IFRS 13, including differences between Topic 820 and IFRS 13. The staff will then summarise the main messages received and how the IASB plans to consider the usefulness of disclosures as part of its work on ‘Better Communication in Financial Reporting’.

Goodwill and Impairment

The IASB and FASB requirements for business combinations were developed jointly. The requirements for the initial recognition and measurement of goodwill are therefore largely converged. The IASB and FASB requirements for the allocation of goodwill to cash-generating units and impairment are similar, but there are differences. Both boards have projects looking at goodwill. The boards will share information about those projects.


The boards will share information about their respective implementation support activities undertaken regarding revenue recognition and leases.

Update on all projects not otherwise covered

The boards will provide updates on their projects that will not otherwise be discussed during the Joint Education Session.

IASB Meeting

Disclosure Initiative

This session has three threads: Better Communication in Financial Reporting; Targeted Standards-level Review of Disclosures—Guidance for the Board; and Materiality.

The staff will provide the background to, and current status of, the projects in Better Communication in Financial Reporting (Primary Financial Statements, Principles of Disclosure, Targeted Standards-level Review of Disclosures, Definition of Material, Management Commentary and IFRS Taxonomy) and ask the Board whether it is satisfied with the current interaction and distinction between them.

The staff will present an analysis and recommendations to the Board about the development of ‘Guidance for the Board’ to use when developing and drafting disclosure objectives and requirements. One recommendation is that a member of the IFRS Taxonomy team should be assigned to each projects to assist with developing disclosure objectives and requirements. The staff have identified nine Standards as potential candidates for the targeted Standards-level review.

The IASB will continue to consider the feedback on its proposed amendments to the definition of material. At this session they will consider feedback on effective date, ‘immaterial’ vs. ‘not material’, the materiality practice statement, use of the term ‘material’ and the definition of material of the International Auditing and Assurance Standards Board (IAASB).

Dynamic Risk Management (DRM)

The staff are recommending that the IASB address as part of the first phase of DRM project the derivative financial instruments that may be used as the hedging instruments for DRM and their designation and de-designation. The staff will explain what performance means in the context of DRM and the information that about DRM activities that should be provided in the statement of profit or loss. 

Research programme

The staff will give a general update on the research programme.

IBOR reform

The staff are recommending that the IASB start a research project to consider the effects on financial reporting of potential discontinuation of IBORs (interest reference rates such as LIBOR, EURIBOR and TIBOR).

Primary Financial Statements

In developing the proposals for primary financial statements the staff have been focusing on non-financial entities. At this meeting the staff will present its preliminary analysis and observations about whether the tentative decisions made so far could apply, with little or no change, to financial entities.  Among the topics to be discussed are management performance areas; the principles of disaggregation in the financial statements, disaggregation of expenses by nature and by function; other comprehensive income; EBIT; income and expenses from investments; and the Statement of cash flows. The papers do not include any staff recommendations. The staff are seeking feedback on their preliminary analysis.

Insurance Contracts

The staff are recommending that the IASB propose, as part of its annual improvements cycle, a series of amendments to IFRS 17 Insurance Contracts. This is to address problems where the drafting of IFRS 17 does not achieve what the Board intended.


The staff are recommending that the IASB not finalise the amendments it proposed and exposed to IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

Islamic Finance Consultative Group Update

The staff will provide a summary of the March 2018 meeting of the Islamic Finance Consultative Group.

Business Combinations under Common Control 

The staff are seeking feedback on which approach, or approaches, they should pursue for BCUCC that affect non-controlling shareholders. The staff propose exploring the Ceiling approach further as well as assessing the acquisition method as set out in IFRS 3.

More information

Our pre-meeting summaries are available on our June meeting note page and will be supplemented with our popular meeting notes after the meeting.

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AcSB publishes draft framework for reporting performance measures

14 Jun 2018

In order to help enhance the relevance of financial information, the Canadian standard-setter Canadian Accounting Standards Board (AcSB) has developed a framework responding to the needs of stakeholders about the performance measures reported by entities. The framework is aimed at enhancing the usefulness and transparency of performance measures for users when management chooses to report them outside financial statements.

In introducing the framework, the AcSB notes concerns that are often mentioned in connection with performance measures: (1) the quality of performance measures being reported; (2) the lack of consistency, transparency and comparability of performance measures reported period to period; (3) the “expectation gap” about the governance practices of entities over how performance are developed and reported, and whether those measures are subject to assurance, and (4) the limited guidance available on how to develop and report performance measures not usually subject to assurance. Consequently, the framework is intended to be a tool to guide:

  • management in developing and assessing how effectively they report financial and non-financial performance measures;
  • directors and others charged with governance in fulfilling their responsibilities when assessing management’s processes and reporting of performance measures; and
  • investors, contributors, lenders and other resource providers in setting expectations and seeking compliance with the framework as part of obtaining the information they need.

The framework is intended for public companies, not-for-profit organisations, private companies and pension plans and can be applied to financial, non-financial or operational performance measures that are reported separately from and are not part of a set of financial statements (including note disclosures) prepared in accordance with an accounting framework. It is not intended for financial performance measures reported in accordance with GAAP or other accounting frameworks.

The framework notes that characteristics of a high-quality performance measure are that it is relevant and faithfully depicts the value realised or the ability to create value (including being complete, neutral and free from material error). Consistency, comparability, verifiability, timeliness and understandability further enhance the usefulness of a performance measure. A performance measure and information reported about it would be material if misstating it could influence decisions that users make based on that information about the entity. The framework also notes a cost benefit constraint.

The core of the framework is a model for developing and reporting a performance measure. It is visualised as a foundation with four pillars and a roof with the foundation being the entity looking to its strategies, goals and objectives to identify key activities it has undertaken and will undertake to generate value in the short and long term to decide what information an entity may want to report externally – in addition to information reported in financial statements. On this foundation, the pillars are established:

  • Pillar 1 – Selecting a relevant performance measure that can be faithfully depicted 
  • Pillar 2 – Applying materiality and the cost benefit constraint considering the type and size of the entity and the complexity of its activities
  • Pillar 3 – Establishing policies, controls and procedures to ensure consistency, comparability, verifyability, timeliness and understandability
  • Pillar 4 – Reinforcing with governance practices

The roof and final step in the process is effective communication. The framework notes that a performance measure is understandable when information about it is described and reported clearly and concisely and a transparent disclosure provides the information necessary for a user to understand the performance measure.

The draft framework, which also offers three appendices with references and resources, an overview of the framework, as well as disclosure considerations, is available on the AcSB website. Comments are requested by 17 September 2018.

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