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News

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February 2017 IASB meeting notes posted

24 Feb 2017

The IASB met at its offices in London on 22 and 23 February 2017. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The staff brought the Insurance Contracts project back to the Board to discuss the findings from the external editorial review of a draft of IFRS 17 Insurance Contracts. The staff proposed some drafting changes to address matters identified in the review. The most significant changes proposed relate to changes to the carrying amount of the contractual service margin and introducing a narrow exemption to the requirements to group insurance contracts when a regulation or law constrains an entity from fully pricing the insurance risks transferred based on the characteristics of each policy holder.  The IASB supported all of the proposed changes and will continue to finalise the new Standard. It is expected to be published in the first half of this year. 

In January 2017 the Board decided to develop an exposure draft to amend IFRS 9 Financial Instruments in relation to symmetric prepayment options, to allow instruments with a prepayment options to qualify for amortised cost measurement. Having discussed the urgency of the amendment with the Due Process Oversight Committee the IASB approved a 30 day comment period with the goal of finalising the amendment so that it can have an effective date of 1 January 2018. The ED is expected to be published at the end of April.

The discussions on the Conceptual Framework project are entering the final stages. The papers for this meeting relate mostly to housekeeping matters: whether the appendix on ‘cash-flow-based measurement techniques’ should be retained; a review of existing Standards for potential inconsistencies with the revised CF, the effects of the revised CF; and minor comments on concepts supporting asset and liability definitions and due process.  The IASB unanimously supported the finalisation of the revised Framework.

The paper on financial instruments with the characteristics of equity explore whether rights and obligations arising from non-contractual terms (e.g. those arising from law) should be taken into account when classifying a financial instrument as equity. The Board discussed mandatory tender offers and bonds that are contingently convertible to ordinary shares as a result of regulatory requirements.

The IASB discussed an analysis of the proposed new accounting model for rate-regulated activities that was discussed in the December 2016 Board meeting. The papers look at the general approach of the model, the scope and the recognition of regulatory assets and regulatory liabilities.

The Board discussed two issues relating to IFRS 9 Financial Instruments that have come from the Interpretations Committee and the Transitional Resource Group for Impairment of Financial Instruments. In both cases the IASB decided not to amend or interpret IFRS 9.

The staff updated the Board on the project to amend the definition of a business in IFRS 3 Business Combinations. They also formalised the steps for publishing a request for views as part of the post-implementation review of IFRS 13 Fair Value. And there was a brief update on the Research Programme.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

IASB (International Accounting Standards Board) (blue) Image

Trustees reappoint four IASB members

21 Feb 2017

The IFRS Foundation trustees have announced the reappointment of Martin Edelmann, Gary Kabureck, Chungwoo Suh, and Mary Tokar to serve a second term as IASB board members beginning on July 1, 2017.

In addition, Darrel Scott’s term has been extended by two more years and will end on September 30, 2020.

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

EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG issues draft endorsement advice on amendments to IAS 40

21 Feb 2017

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of 'Transfers of Investment Property (Amendments to IAS 40)' in the European Union (EU).

In December 2016, the IASB issued the amendments to IAS 40 to clarify transfers of property to, or from, investment property. 

The EFRAG has performed a preliminary assessment of the amendments to IAS 40 and believes the amendments meet the tech­nical re­quire­ments of the Reg­u­la­tion (EC) No 1606/2002 of the European Par­lia­ment and of the Council on the ap­plic­a­tion of in­ter­na­tional ac­count­ing stand­ards.   

In addition, the EFRAG has updated its endorsement status report and is requesting comments on its preliminary conclusions by 20 March 2017. 

For more information, see the press release, draft endorsement advice and the invitation to comment on the EFRAG’s website.

EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG issues draft endorsement advice on IFRIC 22

20 Feb 2017

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of IFRIC Interpretation 22 'Foreign Currency Transactions and Advance Consideration' in the European Union (EU).

IFRIC Interpretation 22 was published by the International Accounting Standards Board (IASB) in December 2016.  The objective of IFRIC 22 is to clarify how the date of the transaction should be assessed for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from advance consideration in a foreign currency. 

EFRAG supports the adoption of the amendments and recommends their endorsement.  EFRAG’s initial assessment is that the amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.   

EFRAG also considers that the overall benefits of the amendments are likely to outweigh the associated costs to implement them. 

Comments are requested by 17 March 2017. 

EFRAG has also updated its endorsement status report to reflect the issuance of the draft endorsement advice. 

The EFRAG press release regarding this, including draft endorsement advice and the invitation to comment, are available on the EFRAG website.

Public Sector Accounting Image

HM Treasury publishes sustainability reporting guidance for public sector annual reports

17 Feb 2017

HM Treasury has published guidance to assist those in the public sector in meeting sustainability reporting requirements.

The guidance sets out minimum requirements that must be met, provides some best practice guidance and also indicates the underlying principles that should be adopted in preparing the information. 

The guidance is applicable to all central government bodies that fall within the scope of the Greening Government Commitments (i.e. departments, non-ministerial departments, agencies and Non departmental public bodies) that produce annual reports and accounts in accordance with HM Treasury’s Government Financial Reporting Manual (FReM) who must report on sustainability (unless exempt from doing so). 

The guidance is not applicable to the devolved governments of Northern Ireland, Scotland and Wales and local government entities. 

The press release and guidance is available on the HM Treasury website.

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Corporate Governance  Image

FRC to perform “fundamental review” of UK Corporate Governance Code

17 Feb 2017

The Financial Reporting Council (FRC) has announced that it is planning a “fundamental review” of the UK Corporate Governance Code and will consult on its proposals later in 2017.

This review will consider the issues raised in the Government’s Green Paper on Corporate Governance Reform and the Government’s response to the Green Paper. This is likely to include proposals to help boards take better account of stakeholder views and better link executive remuneration with performance. The FRC is also going to consider issues raised in the House of Commons Business, Innovation, and Skills (BIS) Select Committee inquiry.

The review will encompass other recent areas of FRC focus, notably:

  • succession planning – our news item on the FRC’s feedback statement issued in May 2016 is available here; and
  • culture – our news item on the FRC’s report Corporate Culture and the Role of Boards was issued in July 2016 and is available here.

The FRC has previously indicated that it looks forward to working with the Hampton/Alexander report’s review team to improve reporting on executive diversity as part of its next update to the Code.

Click for:

Leaf - sustainability (green) Image

Recent sustainability and integrated reporting developments

16 Feb 2017

A summary of recent developments at the CDSB, LSEG and Deloitte.

The Climate Disclosure Standards Board (CDSB) has responded to the consultation document of the Task Force on Climate-related Financial Disclosures (TCFD) with recommendations on climate-related disclosures. The CDSB calls on the TCFD to explore how the concept of materiality should be applied to climate-related financial disclosure, to work with relevant standard-setters (including IASB & FASB) to explore how the existing mainstream model could allow for the integration of climate-related financial disclosures, to review the suggested illustrative metrics so that they incorporate more financial metrics, and to rationalise and coordinate the recommendations. More information is available through the press release on the CDSB's website as well as the response itself.

The London Stock Exchange Group (LSEG) has issued guidance setting out recommendations for good practice in environmental, social and governance reporting (ESG). 

Deloitte has released a new publication in it Thinking allowed series that looks at climate-related disclosures and some of the issues involved and how companies and audit committees might respond to the challenges. The publication builds on the TCFD recommendations.

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FRC Chairman speaks about the future of governance

16 Feb 2017

The Chairman of the Financial Reporting Council (FRC), Sir Win Bischoff, had delivered a speech on the future of governance.

Sir Win Bischoff highlighted that the framework for corporate governance should “create an environment that not only fosters investment in the UK economy but promotes trust in business to benefit all of society” and that the demands on the framework were “growing”. 

Sir Win Bischoff cited a recent annual Trust Barometer, released by Edelman, which shows that there is a continuing decline in trust in business.  He highlighted the actions that the FRC had taken to “improve confidence in the ways companies are governed” including longer-term viability statements, improved risk reporting and greater focus on boardroom diversity.  

He also discussed corporate culture; highlighting that “reporting on culture, while currently limited, is clearly an area of increasing importance”.  He pointed to a recent report by the FRC on corporate culture which highlighted the important roles of boards in “shaping, embedding and assessing corporate behaviours and culture” and identified that there was still more to do.  

Sir Win Bischoff indicated that the FRC will conduct a review of the UK Corporate Governance Code prior to a public consultation later in 2017.  He indicated that the review would consider “as appropriate balance between the Code’s principles, provisions and guidance”.  Sir Win Bischoff also mentioned that whilst pursuing changes, “the current strengths of UK governance, the unitary board, strong shareholder rights, the role of stewardship and the “comply of explain” approach must be preserved”.  

He mentioned that any changes would be “done carefully” and “through full consultation with a range of stakeholders” and that the Stakeholder Advisory Panel would be used to inform decisions.  

Closing, Sir Win Bischoff commented: 

Values, behaviours and corporate culture are central to the way an organisation achieves its objectives and embeds an effective governance structure. By weaving these attributes into a business model, companies are not just contributing to the overall success of their business but, creating an environment on which all stakeholders can depend. And in that way they create sustained growth for the long-term. 

The speech was made at an event to launch the first in a series of thought leadership papers, prepared by the Institute of Chartered Secretaries and Administrators (ISCA), to look at corporate governance in the UK.  The first paper considers the continuing suitability of the UK's governance framework focusing on the current UK corporate governance model, its strengths and weaknesses and whether it achieves what it is intended to achieve.

The full speech is available on the FRC website.  The ISCA press release and paper are available on the ISCA website.

IASB meeting (blue) Image

Pre-meeting summaries for the February IASB meeting

15 Feb 2017

The International Accounting Standards Board (IASB) will meet at its offices in London on 22–23 February 2017. 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.

On Wednesday 22 February, the staff is bringing the Insurance Contracts project back to the Board to discuss the findings from the external editorial review of a draft of IFRS 17 Insurance Contracts. The staff is proposing some drafting changes to address matters identified in the review. The most significant changes proposed relate to changes to the carrying amount of the contractual service margin and introducing a narrow exemption to the requirements to group insurance contracts when a regulation or law constrains an entity from fully pricing the insurance risks transferred based on the characteristics of each policy holder.

For the project on financial instruments with the characteristics of equity, the papers explore whether rights and obligations arising from non-contractual terms (e.g. those arising from law) should be taken into account when classifying a financial instrument as equity. The Board will be looking at mandatory tender offers and bonds that are contingently convertible to ordinary shares as a result of regulatory requirements.

In January 2017 the Board decided to develop an exposure draft to amend IFRS 9 Financial Instruments in relation to symmetric prepayment options, to allow instruments with a prepayment options to qualify for amortised cost measurement. Having discussed the urgency of the amendment with the Due Process Oversight Committee the staff is proposing a 30 day comment period with the goal of finalising the amendment so that it can have an effective date of 1 January 2018.  

The staff will update the Board on the project to amend the definition of a business in IFRS 3 Business Combinations. The staff will also formalise the steps for publishing a request for views as part of the post-implementation review of IFRS 13 Fair Value. And there will be a brief update on the Research Programme.

On Thursday 23 February, the staff will present an analysis of the proposed new accounting model for rate-regulated activities that was discussed in the December 2016 Board meeting. The papers look at the general approach of the model, the scope and the recognition of regulatory assets and regulatory liabilities.

The discussions on the Conceptual Framework project are entering the final stages. The papers for this meeting relate mostly to housekeeping matters: whether the appendix on ‘cash-flow-based measurement techniques’ should be retained; a review of existing Standards for potential inconsistencies with the revised CF, the effects of the revised CF; and minor comments on concepts supporting asset and liability definitions and due process.

The Board will discuss two issues relating to IFRS 9 Financial Instruments that have come from the Interpretations Committee and the Transitional Resource Group for Impairment of Financial Instruments.

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

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FRC provides an update on developments in audit

15 Feb 2017

The Financial Reporting Council (FRC) has published an update on developments in audit (“the updated report”) since its July 2016 report which assessed “justifiable confidence in UK audit”.

The FRC highlighted in its July 2016 report that there was an improved level of confidence in UK audit but did indicate that “more needs to be done in terms of market competition and improving good practice in the profession”. 

The updated report provides a summary of developments since July 2016 against the FRC’s plan for 2016/17.  The updated report provides updates on:

  • Standards and Guidance on Audit – the updated report indicates that:
    • Progress has been made in the implementation of the new Auditing and Ethical Standards introduced in June 2016. The FRC has set up a consultative group, including auditors, audit committee members, investors and the professional bodies for audit and have been active members in the new European body to facilitate consistent implementation of the new requirements.
    • Investors are concerned that not all audit firms are serving investors’ interests when dealing with conflicts of interest.
    • In 2017/18 the FRC will review the effectiveness of governance and the culture of the eight audit firms adopting the Audit Firm Governance Code. 
  • Audit Committees– the updated report indicates that:
    • The FRC has undertaken a third audit committee chair survey on audit quality and results show that audit committees “remain overwhelmingly positive as to tendering developments and audit quality”. The results also indicate that of those entities that had carried out an audit tender, 70% changed auditors and 18% of those indicated that audit quality improved as a result. 
  • The FRC’s monitoring of audit quality – the updated report indicates that:
    • An emerging theme of the FRC’s reviews is that there continue to be examples of insufficient auditor scepticism in identified areas of significant risk such as the assessment of potential impairments and judgements concerning material accounting treatments.
    • For the first time, the FRS will publish a list of those entities whose audits they have reviewed and will offer further lists periodically. As a result of this increased transparency the FRC expects to see increased reporting by audit committees on its findings and increased investor scrutiny of audit quality.    

Updates are also provided on

  • the FRC’s oversight of the professional bodies for audit; and
  • audit enforcement. 

The updated report indicates that during the remainder of 2016/17 and into 2017/18 the FRC will continue to promote justifiable confidence in audit with a particular focus:

  • on enhancing the speed and effectiveness of its audit enforcement; and
  • a targeted improvement in audit quality of FTSE 350 audits. 

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

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