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FRC consults on annual review of FRS 101

01 Dec 2020

The Financial Reporting Council (FRC) has published Financial Reporting Exposure Draft 77 "Draft amendments to FRS 101 Reduced Disclosure Framework – 2020/21 cycle" (FRED 77) which proposes amendments to FRS 101 as a result of its latest annual review.

FRED 77 proposes limited amendments to FRS 101 to provide certain disclosure exemptions in relation to IAS 16 Property, Plant and Equipment and for consistency with IAS 1 Presentation of Financial Statements.

It also proposes an amendment to FRS 101 to remove a reference to paragraphs 39 and 40 of IAS 1. These paragraphs were deleted by "Annual Improvements to IFRSs 2009–2011 Cycle", and therefore were only applicable for accounting periods beginning before 1 January 2013.

The FRC is requesting comments on FRED 77 by 28 February 2021. Please click to access the press release and consultation paper on the FRC website.

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We comment on the Trustees' sustainability consultation

01 Dec 2020

Deloitte has commented on the IFRS Foundation Trustees’ consultation paper on sustainability reporting published in September 2020. In our comment letter, we stress that we support standard-setting at a global level because global issues need global solutions. Supply and value chains are global and, therefore, face global risks and require a global approach. Consequently, Deloitte supports the IFRS Foundation’s proposal to establish a global sustainability standard-setter (SSB) alongside the IASB and under the governance and oversight of the IFRS Foundation.

In our comments on the proposals in the consultation paper, we also note that the standards to be developed should build on the best of what we have and cite the work of CDP, CDSB, GRI, IIRC and SASB who in September 2020 released a statement of intent to work together towards comprehensive corporate reporting in a comprehensive corporate reporting system. We believe the vision in that statement could serve as a natural starting point for progress towards a more coherent, comprehensive corporate reporting system. For the reasons stated in the consultation paper, we believe that the IFRS Foundation should begin with sustainability reporting standards for climate-related information, however, whilst we believe these standards to be the first priority, we also note that the SSB should proceed without delay to other sustainability topics.

In addition, we point out that the IFRS Foundation’s proposal would lead to a significant step towards a comprehensive corporate reporting system that builds on the well-established efforts of the existing sustainability standards and frameworks to create a standard-setting solution for reporting focused on long-term value creation, connected to financial information. Further blocks can be added to address the wider impacts of companies on the economy, environment and people, and to reflect regional and local public policy priorities. We cite IFAC’s Enhancing Corporate Reporting: The Way Forward as a demonstration of how a ‘building block approach’ can both achieve a core set of global sustainability standards and respond to the local or regional public policy objectives.

Lastly, we stress that timely action is needed to avoid fragmentation, duplications or parallel reporting requirements on topics that are common across the system. In the absence of a single set of global sustainability reporting standards, some regions are moving ahead by themselves. This could result in multiple reporting frameworks and reporting standards existing for an extended (or indefinite) period. The primary objective needs to be a reduction in, and consolidation of, the plethora of different frameworks and standards that currently exist.

We sum up our position by stating:

The scale of the challenges and the increasing momentum from all stakeholders for a global solution for sustainability reporting standards make the undeniable case for immediate action. The actions proposed in the Consultation Paper should be taken without delay.

Download the full comment letter here.

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Report on the November 2020 IFRS Advisory Council meeting

01 Dec 2020

A summary report has been released of the meeting of the IFRS Advisory Council held by remote participation on 3–4 November 2020.

The participants discussed:

  • Updates on Trustees and Board’s Activities — The Advisory Council received an update on recent Trustee activities that focused on COVID-19, roles requiring succession, and sustainability. There was also an update on recent Board activities that focused on IFRS 17 amendments, IBOR Phase 2, COVID-19, and the post-implementation reviews of IFRS 9 and IFRS 15.
  • Feedback from previous Adisory Council meetings — Council members received an update on how the IFRS Foundation has incorporated past Advisory Council feedback into its strategic activities related to relevance, risk, process and the IFRS Standards, since the last Council meeting.
  • Sustainability — This was the main agenda item and focused on the consultation paper on sustainability reporting. Questions considered were:
    • Is there a need for a global set of internationally recognised sustainability reporting standards?
    • Is the development of a sustainability standards board (SSB) to operate under the governance structure of the IFRS Foundation an appropriate approach to achieving further consistency and global comparability in sustainability reporting?
    • Do Council members have any comment or suggested additions on the requirements for success (including on the requirements for achieving a sufficient level of funding and achieving the appropriate level of technical expertise)?
    • Could the IFRS Foundation use its relationships with stakeholders to aid the adoption and consistent application of SSB standards globally? If so, under what conditions?
    • How could the IFRS Foundation best build upon and work with the existing initiatives in sustainability reporting to achieve further global consistency?
    • How could the IFRS Foundation best build upon and work with the existing jurisdictional initiatives to find a global solution for consistent sustainability reporting?
    • If the IFRS Foundation were to establish an SSB, should it initially develop climate-related financial disclosures before potentially broadening its remit into other areas of sustainability reporting?
    • Should an SSB have a focused definition of climate-related risks or consider broader environmental factors?
    • Do Council members agree with the proposed approach to materiality that could be taken by the SSB?

The full meeting summary is available on the IASB's website. There are also recordings of the individual sessions.

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President of the EFRAG Board consults on his views on non-financial reporting standard-setting

01 Dec 2020

In October 2020, EFRAG Board President Jean-Paul Gauzès invited all interested stakeholders to contribute views related to his ad personam mandate from the European Commission to develop proposals for possible changes to the governance and funding of EFRAG in the context of non-financial reporting standard-setting.

He has now collected the input received in to one document, which again consults on. The document focuses on obtaining additional input on a number of matters that were not, or not fully addressed in the first public consultation conducted in October 2020.

Please click for more information in the press release on the EFRAG website.

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IVSC publishes perspectives paper on social value

01 Dec 2020

International Valuation Standards Council (IVSC) has published a perspectives paper 'Defining and Estimating ‘Social Value’'.

The concept of ‘Social Value’ is an area of growing government, public and commercial interest. However, its meaning is often clouded in uncertainty, with many definitions, and the lack of an internationally recognised measurement framework and standards of practice.

This new perspectives paper explores some of the concepts surrounding social value and seeks comments to determine whether standards or guidance material are required.

Please click to access the paper on the IVSC website.

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EFRAG outreach event on business combinations and the investor view – summary report

01 Dec 2020

On 12 November 2020, EFRAG, along with the IASB, hosted an outreach event to discuss business combinations and the subsequent accounting for goodwill. A summary report is now available.

The event focused on the views of European investment decision-makers as regards information about the objectives and targets for an acquisition and, in subsequent periods, information about how that acquisition is performing against those targets that they consider important.

High-level speakers and panellists considered the IASB’s preliminary views included in the Discussion Paper Business Combinations —  Disclosures, Goodwill and Impairment and the EFRAG’s Draft Comment Letter.

Please click for access to the summary report on the EFRAG website.

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IASB publishes discussion paper on business combinations under common control

30 Nov 2020

On 30 November 2020, the International Accounting Standards Board (IASB) published a discussion paper DP/2020/2 'Business Combinations under Common Control'. The IASB reactivated this topic as a research project in 2012 after the original research project was postponed in 2009 for the time being due to the financial crisis at that time. Comments on the discussion paper are requested by 1 September 2021.



Business combinations under common control are excluded from the application of the current IFRS requirements for business combinations. Under IFRSs, there are requirements for the parent consolidated financial statements and for the selling entity, but no rules for the acquiring entity. As a result, the preparers of the financial statements of the acquiring entity must develop an accounting policy to account for such transactions. There are accointing policy choices - both in choosing the method and in presenting the comparative information for the previous period.

In practice, the need to develop a suitable accounting method can lead to different presentations of comparable facts and circumstances. Especially since such transactions often occur during restructuring or the creation of new entities - possibly also for an IPO. For these reasons, the IASB has been pursuing a research project for a long time, which was suspended for a time, but which, after intensive consideration, has now culminated in a discussion paper, which, in terms of process, precedes the development of an exposure draft.


Summary of preliminary views

Scope. The proposed requirements would apply to all transactions under common control. There would therefore no longer be any differentiation as to whether or not these transactions have economic substance, i.e. whether they constitute pure capital reorganisations or not.

Accounting method dependent on the existence of non-controlling interests. Following its analysis, the Board came to the preliminary conclusion that not one single method for all transactions is in the best interests of all stakeholders. The objective criterion for determining when a transaction should be accounted for using the acquisition method is the existence of a non-controlling interest in the acquiring entity, or at higher levels in the case of sub-groups. Consequently, the book-value method should be applied to all acquiring entities in which there are no non-controlling interests. The only exception is for acquirers whose shares are not traded on a public market, provided that all non-controlling shareholders have been informed of and have not objected to the proposed use of the book-value method. If all non-controlling interests are held by related parties within the scope of IAS 24, application of the book-value method is mandatory.

Application of the acquisition method. Where the acquisition method is to be applied, it must be applied in accordance with IFRS 3. However, if the consideration given is less than the fair value of the assets and liabilities received, this amount is not recognised in profit or loss but in equity.

Application of the book-value method. The IASB proposes to apply the IFRS carrying amounts of the transferred entity prospectively, i.e. from the date of acquisition. The consideration in the form of assets is to be determined at the carrying amounts of the acquiring entity, liabilities incurred are to be determined using the standards applicable to initial measurement. Any difference between the carrying amounts of the assets and liabilities received and the consideration given should be recognised in equity. Transaction costs should be recognised in profit or loss in the period in which they are incurred. The only exception to this are costs for the issuance of additional equity or debt instruments, which must be recognised in accordance with the provisions of IAS 32.

Disclosures. When applying the acquisition method, the disclosure requirements resulting from IFRS 3 should be disclosed, taking into account the improvements proposed in discussion paper DP/2020/1 Business Combinations - Disclosures, Goodwill and Impairment. However, there are additional requirements with regard to IAS 24 that intended to assist preparers. For acquisitions that must be accounted for using the book-value method, adjusted reporting obligations are proposed based on the disclosures required by IFRS 3. This should enable users to assess the nature, financial impact and benefits of the acquisition. However, it is explicitly not required to disclose financial information for periods prior to the acquisition date. Similarly, no fair value of the consideration given is to be disclosed or additionally determined. However, the amount recognised in equity as the difference between the carrying amounts of the assets and liabilities received and the consideration given should be disclosed.

The deadline for comments on the discussion paper is 1 September 2021.


Additional information


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Pre-meeting summaries for the December 2020 IFRS Interpretations Committee meeting

30 Nov 2020

The Committee meets on Tuesday 1 and Wednesday 2 December 2020, via video conference. The committee will discuss the feedback on one tentative agenda decision and four new issues.

Agenda decision to finalise

Supply Chain Financing Arrangements — Reverse Factoring: In June 2020, the Committee published a tentative agenda decision which analyses the presentation of liabilities arising from reverse financing arrangement in the statement of financial position, statement of cash flows and the related disclosure. The staff recommend that the Committee finalise the tentative agenda decision with some editorial changes.

New issues

IAS 1 Presentation of Financial Statements — Classification of debt with covenants as current or non-current: How does an entity determine whether it has "the right to defer settlement" when a long-term liability is subject to a condition and its compliance with the condition is tested at dates after the reporting date, applying the amended IAS 1?

IAS 19 Employee Benefits — Attributing benefit to periods of service: To which periods of service should an entity attribute benefit for a defined benefit plan, in a scenario where the amount of the retirement benefit an employee is entitled to depends on the length of services before retirement?

IAS 38 Intangible Assets — Configuration or customisation of costs in a cloud computing arrangement: How should a customer account for the upfront costs of configuring and customising the suppliers' application software to which it receives access in future?

IFRS 9 Financial Instruments — Hedging variability in cash flows due to real interest rates: Could a hedge of the variability in cash flows arising from the changes in real interest rate based on inflation index be accounted for as a cash flows hedge?

For all of the new issues, the staff have concluded that the principles and requirements in the relevant Standards provide an adequate basis to determine the appropriate accounting for the issue and that the Committee should publish a tentative agenda decision saying that no further action is required.

Work in progress: The staff are analysing requests related to the accounting of warrants that are initially classified as liabilities, costs necessary to sell inventories and preparation of financial statements when an entity is no longer a going concern.

The full agenda for the meeting and our comprehensive pre-meeting summaries can be found here.

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FRC disappointed with the response to the 2018 UK Corporate Governance Code

27 Nov 2020

The Financial Reporting Council (FRC) has published its ‘Review of Corporate Governance Reporting’ which is based on a review of 100 companies across the whole premium listed market.

The report presents the findings from the review and sets out the FRC’s expectations for the future application of the Code and reporting. It indicates that the overall level of reporting is disappointing and not what the FRC expects.

In the foreword Sir Jon Thompson, CEO of the FRC, makes the following point:

Much of what we have analysed is formulaic. Too often the objective of reporting appears to be to claim strict compliance with the Code concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting. This approach is a disservice to the interests of shareholders and wider stakeholders, and ultimately is not in the public interest; it undermines trust.  Worryingly, while some companies have sought to claim full compliance, we found on closer inspection that this was not the case.

Sir Jon makes clear that as the FRC transitions to becoming a new regulator, it expects to receive further powers to engage with companies about the quality of their governance reporting. The intention is to do this constructively; by working together with companies to develop the quality of reporting so that it achieves the highest standard for which the UK is known. However, the FRC will call out poor behaviour, where appropriate.  This is in addition to the Financial Conduct Authority (FCA) which recently announced that, going forward, it will be considering governance disclosures to inform decisions about the deployment of future surveillance and monitoring efforts.

As a result of the review, the FRC expects improved reporting in the following ways:

Governance standards:

  • Companies should maintain the high standards of the Code by taking the good practice demonstrated within it, applying it to the company and reporting on the approach by use of clear and meaningful explanations.


  • Companies to have a well-defined purpose and to clearly show the progress towards achieving it.
  • Better assessment and monitoring of culture, including consideration of methods and metrics used.
  • Demonstrating commitment to diversity and inclusion through actions, such as improved succession planning, recruitment from diverse talent pools and responsiveness to board evaluation outcomes.

Stakeholder engagement

  • Companies should report on how the company has engaged with its key stakeholders, the steps it has taken to understand the views of stakeholders. In particular, there should be discussion of the issues raised, topics considered, and feedback received during engagement with shareholders and employees.
  • It should be clear how the board oversees stakeholder decisions, including how, and on what basis, stakeholder information is passed to the board, as well as on how the board has reached key decisions and the likely impact of those decisions.
  • Reporting should make clear the impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success. The FRC would like companies to provide more detail on their approach to measuring the performance of their engagement strategies.


  • Clearly show the impact of engagement with shareholders on remuneration policy and outcomes.
  • Clearly show the impact of the engagement within the workforce in relation to executive remuneration policy.

In conclusion the report provides the following message for boards to consider:

The strongest and most insightful reporting came from companies that described not only the initiatives that were introduced and processes that were followed, but also discussed their outcomes and what impact they had on the business. From risk review, through board evaluation to stakeholder engagement, measuring and reporting on impact means moving away from the boilerplate statements towards meaningful reporting. Giving more emphasis to the impact, while not disregarding thorough process, will also help companies better assess the effectiveness of their governance and generate better company performance and outcomes for shareholders and stakeholders.

A press release and the full report are available on the FRC website.

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FRC and BEIS letters on accounting and reporting from 1 January 2021

27 Nov 2020

The Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) have jointly published updated letters to audit firms and companies setting out changes to the UK’s corporate reporting framework after the end of the transition period on 31 December 2020. The changes are particularly relevant for UK incorporated companies, multinational groups with a UK and EEA presence and UK and EEA companies with cross-border listings.

There are many changes which can be complex to identify and apply. The letter addressed to the accounting sector splits out the changes applying to:

  • UK incorporated companies or groups; and
  • EEA incorporated companies and groups

UK incorporated companies or groups

Key changes to the corporate reporting regime are as follows:

  • For periods beginning on or after 1 January 2021, all UK incorporated companies that are currently required to use EU-adopted IFRS will need to apply UK-adopted international accounting standards (UK-adopted IFRS). On 1 January 2021, UK-adopted IFRS and EU-adopted IFRS will be identical. Companies with 31 December 2020 year-ends should use EU-adopted IFRS for that year and apply UK-adopted IFRS for the following year. There are some transitional provisions for companies with financial years straddling 31 December 2020 and for those companies whose year-end is before 31 December 2020 but which are not required to (and do not) file accounts until after the end of the transition period. The law permits such companies to apply any new IFRS adopted by the UK in addition to EU-adopted IFRS as they exist at the end of the transition period. Where this option is chosen, the company will need to disclose what standards they have used in the notes to their financial statements.
  • From 1 January 2021, UK incorporated companies or groups with securities admitted to trading on an EEA regulated market and UK incorporated groups that issue debt from a subsidiary incorporated in the EEA will need to comply with local regulatory provisions. Companies should check what reporting requirements apply with the relevant EEA competent authority. If UK-adopted IFRS is granted equivalence to EU-adopted IFRS by the EU, accounts prepared using UK-adopted IFRS will be acceptable for use by companies admitted to trading on an EEA regulated market.
  • For periods beginning on or after 1 January 2021, the exemption from audit for subsidiaries granted by parent guarantee (under s479A-C of the Companies Act 2006) will only be available where the guarantee is given by a UK parent undertaking; it may no longer be given by an EEA parent. This change also affects dormant subsidiaries which make use of the exemption by guarantee from preparing and filing accounts. The ICAEW has published TECH 06/20BL which addresses changes to the audit exemption.

The letter also cover changes relating to:

  • Use of the Companies Act exemptions from preparing group accounts: for periods commencing on or after 1 January 2021, companies wishing to claim exemption from preparing group accounts on the basis that they are included in a non-UK consolidation further up will need to use section 401 of the Companies Act 2006. To do so, the group accounts in which they are included must be equivalent to those required by UK law.
  • Preparation of non-financial information statements: in-scope UK subsidiaries with EEA parents will need to prepare a separate non-financial information statement rather than relying on the parent’s non-financial information statement for periods beginning on or after 1 January 2021.
  • New rules regarding extension of accounting reference dates for UK subsidiaries of EEA parents.

 EEA incorporated companies or groups

Key changes include:

  • EEA companies with transferable securities admitted to trading on a regulated market in the UK who use Member State GAAP (i.e. the national GAAP of a Member State) will need to prepare accounts in accordance with UK law for periods beginning on or after 1 January 2021.
  • An intermediate EEA parent company owned by a UK parent may need to produce consolidated group accounts for their EEA sub-group as well as individual accounts. Companies should check with the relevant EEA state to understand whether they can continue on relying on being exempt from the preparation of group accounts by virtue of being included within the consolidated financial statements of the UK parent.

The FRC is expected to issue updates to FRS 100-105 later this year or early in 2021 to reflect changes in the law as a result of the UK’s withdrawal from the EU.

BEIS has also issued a separate audit letter with information for auditors and audit firms regarding arrangements from 1 January 2021.  The FRC and BEIS will be hosting a webinar on 3 December.

A press release and the letters are available on the BEIS website. Our related Need to know publication is available here.

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