June

European Parliament approves new Accounting and Transparency Directives

13 Jun, 2013

The European Parliament has voted to approve the new Accounting and Transparency Directives. The reform of these Directives was predominently aimed at reducing the administrative burden on small companies, enhancing the transparency of payments to governments by the extractive industry and loggers of primary forest, and creating a mandatory country-by-country reporting requirement.

 

Accounting Directive

The new Accounting Directive reduces unnecessary and disproportionate administrative costs on small companies by simplifying the preparation of financial statements and reducing the amount of information required by small companies in the notes to financial statements. Under the Directive, small companies are only required to prepare a balance sheet, a profit and loss account and notes to meet regulatory requirements.

When examining the various policy options available to replace the old Accounting Directives, the Commission examined and rejected the option to adopt the IFRS for SMEs at EU level as the Commission deemed that IFRS for SMEs did not meet the objective of reducing the administrative burden. Nevertheless, EU Member States are able to permit or require the IFRS for SMEs as their accounting standard for all or some of their unlisted companies provided that the Directive is fully implemented and the standard, which is partially in conflict with the Accounting Directive, is modified to comply with any accounting requirement of the Directive that departs from the IFRS for SMEs.

 

Transparency Directive

The revised Transparency Directive closes an existing gap in the notification requirements by requiring disclosure of major holdings of all financial instruments that could be used to acquire economic interest in listed companies. A second major change is the fact that the requirement to publish quarterly financial information was abolished. This aims at reducing the administrative burden and encouraging long term investment.

 

Country-by-Country reporting

Country-by-country reporting was introduced with the new Accounting Directive. In order to ensure a level playing field between companies, the same disclosure requirement has been incorporated in the proposal to revise the Transparency Directive.

The disclosure requirement will require listed and large non-listed companies with activities in the extractive industry and the logging of primary forests to report any payments made to governments on a country-by-country basis in an effort to improve the transparency. The Commission responded to international developments in this field, in particular the inclusion of a requirement to report payments to governments in the Dodd Frank Act in the United States, but the EU disclosure requirements are more comprehensive including also the logging industry and large unlisted companies.

 

Further Information

The EU Commissioner for Internal Market and Services, Michel Barnier, published a press release welcoming the European Parliament vote:

Financial reporting obligations have been modernised and costs reduced, in particular for SMEs. With the new rules on country by country reporting, we have created a framework where businesses and governments must disclose revenues from natural resources. This framework will also contribute to the fight against tax fraud and corruption.

Click for (links to European Commission website):

Long-awaited narrative reporting regulations laid before UK parliament

13 Jun, 2013

The long-awaited narrative reporting regulations issued by the United Kingdom Department for Business, Innovation and Skills (BIS) have now been finalised and laid before the UK parliament for approval. The regulations are the UK government’s response to a project that began in 2010 and are intended to make narrative reporting simpler, clearer and more focussed.

The Institute of Chartered Accountants in England and Wales (ICAEW) have welcomed the new regulations (link to draft regulations) but have also raised concerns that some companies may struggle to meet the adoption deadline.  Dr Nigel Sleigh-Johnson, Head of ICAEW’s Financial Reporting Faculty, said: 

Companies need time to implement changes of this magnitude; the timetable is likely to prove challenging for many businesses. This is not ideal; boards certainly need to turn their attention to this change sooner rather than later. 

The regulations: 

  • require all companies (except small companies) to prepare a strategic report which will be presented separately to the directors' report and will replace the current business review.  The aim of the strategic report is to pull together the company’s strategy, business model and risks facing the company and link this through to the financial statements and remuneration of company directors.  The regulations regarding directors’ remuneration, which include the requirement for quoted companies to disclose a single remuneration figure for each director, are expected to be laid before parliament shortly. Quoted companies will need to ensure they include specific information on the company’s strategy, business model, human rights and gender diversity; 
  • require quoted companies to include information on greenhouse gas emissions in their directors’ report.  This report will be required to contain an annual quantity of emissions, in tonnes of carbon dioxide equivalent, in respect of emissions produced by “activities for which that company is responsible”, including fuel usage and resulting from the purchase of “electricity, heat, steam or cooling” by the company.  Companies will be required to disclose the methodology used to calculate these figures including prior year comparative information for the second and subsequent year of reporting;
  • remove a handful of other currently required disclosures in the director’s report such as the principal activities of the company during the course of the year; and 
  • replace the option to prepare summary financial statements with an option to provide a ‘strategic report with supplementary material’.  The supplementary material consists of some administrative details, details of any qualifications made by the company’s auditor in its report on the full annual accounts and, for quoted companies, the “single total figure table” for directors’ remuneration.

The UK Department for Environment, Food & Rural Affairs (DEFRA) has published regulations governing how companies should report their greenhouse gas (GHG) emissions in their publication 'Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance' (link to DEFRA guidance).  This publication provides guidance for companies on how to measure and report greenhouse gas emissions and discusses the requirements for carbon reporting in more detail.  Further DEFRA guidance is on greenhouse gas emission factors is provided in their publication '2013 Government GHG Conversion Factors for Company Reporting: Methodology Paper for Emission Factors' (link to DEFRA guidance) and 'UK Greenhouse Gas conversion factors' (link to DEFRA website).  Should they be approved, the regulations will come into force for periods ending on or after 30 September 2013.  

Click for: 

BIS press release (link to BIS website)

Regulations laid before parliament (link to draft regulations)

DEFRA guidance on how to measure and report greenhouse gas emissions and '2013 Government GHG Conversion Factors for Company Reporting: Methodology Paper for Emission Factors' (link to DEFRA guidance)

Our previous story on the future of narrative reporting

Deloitte ‘Need to know’ on the New UK narrative reporting regulations

Notes from the IFRS Advisory Council meeting

12 Jun, 2013

The IFRS Advisory Council met in London on 10-11 June 2013. We have posted the Deloitte observer notes from the meeting. Topics discussed included the costs and benefits of IFRS adoption, project updates and discussion on various IASB projects, an evaluation of the post-implementation review process, the Accounting Standards Advisory Forum (ASAF), and the role and composition of the IFRS Advisory Council.

Click through for direct access to the notes:


Monday, 10 June 2013

Public sessions (09:15-17:30)


Tuesday, 11 June 2013

Public sessions (09:00-15:00)

 

Please click to access the preliminary and unofficial notes taken by Deloitte observers during the meeting.

The next council meeting is on 14-15 October 2013 in London.

IASB XBRL team seeks participants for its 2013 XBRL Industry Practice Project

10 Jun, 2013

In the last three years, the IASB XBRL team has been interacting with companies from various countries and industries to identify and develop extra concepts to the IFRS taxonomy reflecting common practices. The IASB XBRL team is re-establishing the project to examine and develop common industry practice concepts for the IFRS Taxonomy, and is looking to work directly with stakeholders across different industries and regions in order to increase comparability, reduce the number of XBRL extensions, and lower the burden on preparers. The process will be conducted by a joint programme of empirical analysis and interaction with industry representatives.

For 2013, the project will be focusing to the following industries:

  • pharmaceuticals,
  • real estate,
  • telecommunications; and
  • transport.

The IASB is looking for participation from the following groups:

  • Preparers,
  • Users (Investors and Analysts),
  • Industry groups,
  • Regulators and Supervisors.

Application from all geographical regions is encouraged.

Companies interested in participating in this project should express their interest by 28 June. The first meeting will take place on 8 July.

For further information please go to the press release on the IASB's website.

Agenda for the June 2013 IASB meeting

09 Jun, 2013

The IASB is meeting at its offices on 18 and 19 June 2013. Topics to be discussed by the IASB include the comprehensive review of the IFRS for SMEs and the annual improvements (cycles 2010-2012 and 2011-2013). The meeting also includes a joint meeting with the FASB to discuss the IASB's feedback on its proposals for limited scope amendments to IFRS 9 (classification and measurement).

The IASB has also cancelled the education sessions originally scheduled for the previous week.

The full agenda for the meeting, as of 8 June 2013, can be found here. We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

ACCA research shows that investors are concerned about corporate reporting but also think integrated reporting might help

08 Jun, 2013

The Association of Chartered Certified Accountants (ACCA) has issued two reports, ‘Understanding investors: directions for corporate reporting’ and ‘Understanding investors: the changing landscape’, which are part of a research series examining what investors want from corporate reporting. The reports reveal that investors have a lower level of confidence when it comes to corporate reports since the global financial crisis. However, they also show that integrated reporting might provide investors with information they are currently looking for elsewhere.

The reports, which surveyed 300 investors, shows that many investors feel too much discretion is given to managers over the financial numbers reported and would rather collect information elsewhere than from a traditional corporate report. Some investors even believe that annual reports do not provide much value. This is reflected in the following results of the report:

  • 69% respondents are more skeptical about company-provided information since the global financial crisis
  • 63% place greater value on information generated outside the company
  • 63% believe management has too much discretion in the numbers it reports

This led Ewan Willars, ACCA director of policy, to note that “[a]ccounting standard setters and regulators should be worried about the high percentage of investors who see no use to annual reports and the distrust of management discretion over company figures.” He also suggested that there might be a need to place more emphasis on external audits.

However, the findings of the reports also show that investors see a responsibility for selective reporting with the companies themselves: 93% of the respondents expressed support for the concept of integrated reporting and believed this could contribute to the usefulness of the information put out by the company. They would, among others, expect the following benefits from integrated reporting:

  • Better ability to understand the long-term outlook of a company
  • Greater information on how long-term risks, such as climate change, will affect the business model
  • Better understanding of all sources of capital, not just financial
  • Greater understanding of key risks and opportunities
  • More robust, less marketing-oriented approach to reporting on non-financial issues
  • More joined-up picture of a company’s prospects

While the reports show that investors are clearly interested in integrated reporting, they also remain wary of the complexity and the fact that sometimes integrated reporting seems to be a goal in itself. The reports state: “It will be important to ensure that developments such as integrated reporting help investors to access the information they need, rather than simply burden them with even more data.”

Please click for (links to ACCA website):

EFRAG issues feedback statement on the questionnaire on subsequent measurement of goodwill

07 Jun, 2013

In July 2012, the European Financial Reporting Advisory Group (EFRAG) and the Italian standard setter Organismo Italiano di Contabilita (OIC) issued a questionnaire on impairment requirements for goodwill. The results of the survey, which are intended as input to the IASB's post-implementation review of IFRS 3 'Business Combinations', were made available today in the form of a feedback statement.

EFRAG comes to the conclusion that the results of the study indicate that information on goodwill is used in many different manners and that there are many different views on how to measure goodwill after initial recognition.

These results are not surprising considering that respondents already had different opinions on what goodwill normally consisted of or thought the calculation of it unverifiable. This uncertainty led some respondents to claim that they did not use the information on goodwill presented in financial statements at all, some said they used the goodwill figure differently in their analysis depending on what they thought goodwill included, some use specific criteria for assessing the overall reliability of the financial information on goodwill, and some consider other information together with reported goodwill figures or correct the figures.

Therefore, the survey seems to suggest that not only the subsequent measurement of goodwill would need further discussion and several respondents suggested alternative methods for accounting for goodwill altogether.

Please click for access to the feedback statement on the EFRAG website.

'Towards implementing European Public Sector Accounting Standards'

07 Jun, 2013

On 29-30 May 2013 a conference bringing together high-level stakeholders and decision makers from public sector accounting, auditing and statistics was held in Brussels to discuss the future development of harmonised government accounting standards in Europe. Participants discussed the development and implementation of European Public Sector Accounting Standards (EPSAS) as a means of enabling economic governance in the context of the current economic situation based on transparent and comparable accruals accounting data.

The conference followed a report assessing the suitability of the International Public Sector Accounting Standards (IPSAS) for the Member States of the EU that was published in March 2013 and used information from the feedback received on the public consultation on the suitability of  IPSAS for application in the EU.

Overall, two conclusions were drawn in the report: (1) it seemed that IPSAS cannot easily be implemented in EU Member States as it stands currently and (2) the IPSAS standards represent a suitable framework for the future development of EPSAS.

The Brussel discussions of the findings and proposals of the report were structured into four sessions:

  • Session 1 'The political context – sovereign debt crisis, economic governance, transparency and trust in fiscal data' discussed the current economic and political context and the joint efforts that are needed to move forward and to reinstall the transparency and trust on fiscal data of the European Union as a whole and of each particular Member State in particular.
  • In Session 2 'Fiscal transparency and public accounting' technical and academic interventions highlighted the need for having strong and reliable harmonised accruals accounting systems providing improved international acceptance and legitimacy.
  • Session 3 -'Suitability of IPSAS and national experiences of reforms' saw interventions and sharing of views of experts from national administrations on reform experiences and successful implementation of accruals accounting in the public sector.
  • Session 4 'Accounting standards, governance, the way forward' was a roundtable on lessons learnt, best practices and suggestions concerning accounting standards, future governance for harmonised European public sector accounting standards and the next steps to be taken, including the development of a road map.
    The discussions in session four were based on two core proposals by the Statistical Office of the European Union (Eurostat): (1) The "two-legs" principle with strong EU governance, independent from the IPSASB, and the IPSAS as the starting point, but non-binding, for EPSAS and (2) a governance structure in the form of an organisation inspired by the EU legislative process, a core body composed of one representative from each member state, and two expert working groups (one on standards, one on interpretation).

The conference website offers a wealth of information around the conference and the opinions voiced, including speaker biographies, abstracts, full texts of speeches, videos of speeches, presentation slides, and background papers. Please click for access to the conference website (link to European Commission website).

FRC will draw 'lessons' from its consultation on implementing going concern guidance

06 Jun, 2013

The UK Financial Reporting Council (FRC) has published a press release saying it will "adopt lessons" from its consultation on the implementation of the findings in the Sharman Panel final report. The Sharman Panel of Inquiry was established in March 2011 at the invitation of the FRC to consider going concern and liquidity risks.

In January 2013, the FRC consulted on how best to implement Lord Sharman's proposals on going concern. The FRC was pleased that the majority of respondents supported the principles behind the recommendations advocated by Lord Sharman’s report, “Going Concern and Liquidity Risks: Lessons For Companies and Auditors”.

In terms of the development of guidance in support of the principles, the FRC has decided to take up a number of proposals and will:

  • Issue separate, simplified guidance for SMEs as the feed back showed that the recommendations for SMEs could be more proportionate
  • Distinguish more clearly between the specific assessment required when preparing the financial statements and the broader assessment of the risks affecting a company’s viability both of which where referred to as "going concern". The FRC will also consult on whether changes to the UK Corporate Governance Code are needed to make the distinction clearer
  • Link the assessment of business viability risks and the broader risk assessment that should form part of a company’s normal risk management and reporting processes more clearly.

Please click for the following information on the FRC website:

New issue of the European Conceptual Framework newsletter regarding the outcome of the ASAF meeting

05 Jun, 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), the Accounting Standards Committee of Germany (ASCG), the Organismo Italiano di Contabilità (OIC) and the UK Financial Reporting Council (FRC) have published the fourth issue of their newsletter series ‘Keep up with getting a better framework’ informing European constituents on the latest developments regarding the progress of the Conceptual Framework project with the IASB and other stakeholders.

The fourth issue of the newsletter takes a look at the discussions held during Accounting Standards Advisory Forum (ASAF) meeting in April 2013 and the impact certain discussions had in the IASB’s tentative decisions on the conceptual framework project.

Specifically, this newsletter considered the following issues:

  • measurement;
  • presentation in the statements of profit or loss and comprehensive income;
  • uncertainty;
  • the role of the business model;
  • the unit of account;
  • additional issues ASAF members wanted to be considered in the Conceptual Framework; and
  • the comment period for the IASB discussion paper.

Click for (links to EFRAG website):

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.