Agenda for November 2013 Global Preparers Forum meeting

31 Oct, 2013

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) in London on Monday, 11 November 2013. The agenda for the meeting has been released, and includes an overview of the IASB and IFRS Interpretations Committee work plans, and discussion on specific projects including revenue recognition, leases, conceptual framework, post-implementation reviews and the disclosure initiative.

The full agenda for the meeting is summarised below:

Monday, 11 November 2013 (09:30-17:00)

  • IASB work plan update - including update on effects analysis
  • IFRS Interpretations Committee update
    • plans to support IFRS
    • recent projects
    • views on disclosures about going concern
  • Revenue recognition
  • Leases - high-level comment analysis
  • Conceptual framework
    • Liabilities - preliminary views on obligations conditional on an entity's future actions
    • Profit or loss, other comprehensive income (OCI) and recycling - distinction between profit or loss and OCI, recycling
  • Post-implementation review - IFRS 3 Business Combinations
  • Disclosure initiative: materiality - practical issues

Agenda papers from this meeting are available on the IASB's website.

October 2013 IASB meeting notes — Part 1

31 Oct, 2013

The IASB's meeting was held in London on 28 October through 1 November 2013, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from Wednesday's sessions on sales or contributions of assets between an investor and its associate/joint venture (IFRS 10/IAS 27), acquisition of an interest in a joint operation (IFRS 11), equity method: share of other net asset changes (IAS 28), employee contributions to defined benefit plans (IAS 19), 2012-2014 annual improvements cycle (IFRS 7), rate-regulated activities, and revenue recognition.

New edition of EFRAG Insider

31 Oct, 2013

The European Financial Reporting Advisory Group (EFRAG) has published a new edition of the publicly available newsletter 'EFRAG Insider'.

In this edition, the EFRAG provides information regarding the development of "Maystadt" review and the resulting consequences for EFRAG. It also addresses the exposure drafts on leases and insurance contracts, ongoing developments related to long-term investment business model requirements and the IASB conceptual framework project.

The October 2013 edition of EFRAG Insider is available on the EFRAG website

FRC notes of the discussion forum on Strategic Report Exposure Draft

31 Oct, 2013

The Financial Reporting Council (FRC) has today published the notes from a recent discussion forum held on their Exposure Draft: Guidance on the Strategic Report.

The non-mandatory guidance has been prepared to assist directors of listed companies to apply the Strategic Report requirements set out in The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the “narrative reporting regulations”).  The guidance has been developed in response to a request from the Department for Business, Innovation and Skills (BIS) and is intended “to encourage preparers to consider how the Strategic Report fits within the annual report as a whole and help enhance the quality of narrative reporting more generally”.  

The discussion forum was held on 22 October 2013 and included an overview of the regulations by a member of The Department for Business, Innovation and Skills (BIS) and an outline of the FRC’s draft guidance by a member of the FRC.  

The discussions, with participants, centred on a number of areas including: 

  • Materiality – how materiality could be applied to the Strategic Report.
  • Role of the Conduct Committee – The role of the Conduct Committee especially whether they would be scrutinising areas that were considered “material” and hence were included by companies in their strategic reports.
  • Business model, risks and strategy – reporting of business model, risks and strategy and risk reporting for dual listed companies.
  • ‘Core and supplementary’ approach – whether all areas of the strategic report are required to be disclosed in the same place or can be included by cross reference if included elsewhere (but there would still be a requirement to ensure that the strategic report is “fair, balanced and understandable”).
  • Summary financial statements – the option for a company to send its members, in certain circumstances, the strategic report with supplementary material rather than the annual report.  This replaces the option to provide summary financial statements which participants “considered to be a helpful method of communicating with shareholders”.

On the subject of materiality, it was discussed that “a possible rule of thumb for the application of materiality” could be whether the omission of the information would influence an investor’s decision to invest in the company.  It was also considered that companies would be able to “experiment” with disclosures as “the current framework does provide sufficient flexibility to permit creativity”. 

Click here for (all links to FRC website):

Monitoring Board publishes revised versions of its Charter and the Memorandum of Understanding with the IFRS Foundation

31 Oct, 2013

The Monitoring Board, responsible for oversight of the IFRS Foundation, has published revised versions of its Charter and the MoU that defines its relationship with the IFRS Foundation. Most importantly the membership criteria and a description of assessment processes and consequences regarding the periodic review of existing members were added to the Charter as Appendix A and Appendix B.

The Monitoring Board's Final Report on the Review of the IFRS Foundation's Governance published in February 2012 identified a number of enhancements to the governance framework including expanding the Monitoring Board’s membership and beginning periodic assessments of the members against membership criteria yet to be developed. The criteria and the assessment processes were finalised at the Monitoring Board’s 6 February 2013 meeting and communicated in a press release in March 2013.

The criteria for (continued) membership that have now been formally added to the Charter are:

  • The jurisdiction has made a clear commitment to IFRSs and promotes global acceptance of a single set of high quality international accounting standards. It mandates or permits the application of IFRSs to consolidated financial statements of companies raising capital in its relevant market.
  • The IFRSs to be applied are essentially aligned with IFRSs developed by the IASB.
  • The jurisdiction can be regarded a major market for capital-raising in the global context.
  • The jurisdiction makes financial contributions to the setting of IFRSs on a continuing basis.
  • The jurisdiction has in place and in operation a robust enforcement mechanism.
  • The relevant national or regional standard-setting body actively contributes to the development of IFRSs.

In addition, a note added to Appendix B (Assessment Processes and Consequences) clarifies:

The Monitoring Board will evaluate the mechanisms used in member jurisdictions to integrate IFRSs into the reporting regimes for domestic issuers and the extent to which they contribute to the prominence of IFRSs in the member’s capital market, beginning with the 2016 periodic review of members against the membership criteria.

Changes to the MoU mainly concern the selection of the IASB Chair. An additional duty "Provide input on the IASB Chair selection" has been included in the section describing the duties of the Monitoring Board and the following description of how the Board will discharge of this duty has been added:

  • The IFRSF Trustees have the ultimate responsibility for selecting the IASB Chair.
  • The IFRSF Monitoring Board will agree with the Trustees on a set of criteria for selecting potential candidates, which will be documented and made public.
  • The IFRSF Monitoring Board will submit to the Trustees its assessment of a short list of candidates against the criteria, for the Trustees’ reference.

Moreover, in cases where the IASB determines that consideration of issues identified by the IFRSF Monitoring Board is not advisable or cannot be resolved within a reasonable time frame, it is no longer enough that the IASB explains its position, it will now also be called upon to demonstrate to the Trustees and the Monitoring Board "that adding the matter to the IASB agenda would be inconsistent with the standard-setting responsibilities established in the IFRSF Constitution".

Please click for the press release on the IASB's website offering access to all relevant documents (including the superseded versions) or go to the revised Charter and revised MoU directly.

The Bruce Column — How Annual Reports and best practice are evolving

31 Oct, 2013

Our regular resident columnist, Robert Bruce, takes a look at the latest survey of annual reports and change in company reporting.

You win some. You lose some. But the latest survey of annual reports* shows that it is the upside of company reporting which is showing the most gains in terms of quality and quantity of information disclosed and story told. The downside is the traditional bellwether of reporting, the average number of pages in the report. This rose from 103 pages in 2012 to 107 this year. But even here there was a good reason behind the increase. Another feature of the survey is the sheer number of companies already covering the issues that the new strategic report will require for periods ending on or after 30 September 2013. This meant that the increase in pagination could be simply the result of companies going for early adoption of new directors’ remuneration disclosures and banks, unlike their European counterparts, complying with the recommendations of the Enhanced Disclosure Task Force. And, in any case, it is the balance within reports that now counts. Over half, (51%), is now devoted to narrative reporting. The story is increasingly being told.

Again it is the voluntary information which is burgeoning. There is no requirement for companies to provide a detailed narrative summary section at the start of their annual reports. But increasingly they do, up from 78% in 2012 to 89% in 2013. And, as there are no mandatory rules as to what such sections can contain, companies have the luxury of a blank canvas to explain and express themselves.

The scale of the early adoption of parts of the new strategic report also augurs well. It means that an idea of what is best practice will be out there in public early on for other companies to emulate. The transition will, hopefully, be all the smoother for it. And this will also help companies move in the direction of the idea of an integrated report, separate to the annual report, which will deal with environmental, social and governance information.

The survey also shows that the reporting of risks and uncertainties is also improving. The overall figure of companies which clearly identify their principal risks and uncertainties remains the same as last year, at 83%. But the percentage of companies offering only boilerplate, rather than an analysis of company-specific risks, fell from 11% last year to 5% this.

Where companies are still failing is in the linking up of different parts of their story. Only 28% of companies were deemed to be clearly linking all of the different components of their annual report together. This is better than last year when the figure was 14% but is still poor. For example 90% of companies disclosing their objectives provided a link to these and the strategy employed to achieve them but only 43% provided links to the measures used to assess the success of that strategy.

But overall the message is an optimistic and hopeful one. While there is much change coming up in the year ahead of us companies are increasingly showing signs of moving in the right direction. And this survey provides much guidance and description of best practice to ease future changes.

*A New Beginning: Annual Report Insights 2013

The 2013 Deloitte survey of annual reports 'A New Beginning: Annual Report Insights 2013' can be accessed here.

Joint FEE/ACCA roundtable on the Maystadt review

31 Oct, 2013

On 15 November 2013, the special advisor to EU Commissioner Michel Barnier, Mr Philippe Maystadt, is expected to present his final recommendations for enhancing the EU’s role in promoting high quality accounting standards at the Economic and Financial Affairs Council (ECOFIN) of the European Union. On 2 December 2013, the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) and the Association of Chartered Certified Accountants (ACCA) offer a joint roundtable to discuss the findings of the review with Mr Maystadt.

FEE and ACCA jointly organise the roundtable which will be hosted by MEP Mr Wolf Klinz at the European Parliament in Brussels. At the event Mr Maystadt will present his findings to EU stakeholders. A panel of experts and the audience will debate issues such as how European influence is best ensured and revising the European Financial Reporting Advisory Group (EFRAG) as the recommended option to ensure EU influence. Panellists will include representatives from EFRAG, national standard-setters, the preparers/businesses and investors communities and from the accounting profession.

Please click for more information on the roundtable on the FEE website.

Summary of the October 2013 DPOC meeting

30 Oct, 2013

The IASB has published a summary of the 16 October 2013 Due Process Oversight Committee (DPOC) meeting that was held in Frankfurt during the Trustees’ meeting.

Topics discussed during the DPOC meeting were:

Update on technical activities

Updates were given on the progress of the major projects on the IASB’s work plan.

Regarding hedge accounting, the DPOC noted that it had finished a lifecycle review at its April 2013 meeting and that the IASB is in the process of balloting the hedge accounting chapter into IFRS 9 Financial Instruments. In addition, DPOC members were informed of two changes: (1) removal of the mandatory effective date of IFRS 9 and (2) an amendment related to presentation of changes in the value of own credit risk on financial liabilities.

For the classification and measurement project, the DPOC was updated on the IASB and the FASB convergence efforts, but acknowledged that the Boards are at different stages of development. The DPOC’s next step is to conduct a lifecycle review of the project in the first half of 2014.

For the impairment project, DPOC members were informed that a converged standard between the IASB and FASB is unlikely because of differences in their expect credit losses models. The DPOC asked the IASB to continue to discuss with the FASB ways to bring their respective models closer.

Other major projects discussed were macro hedging (permission to ballot the discussion paper/timetable set for late 2013, early 2014), leases (feedback on the exposure draft), revenue recognition (fatal flaw process revealed three issues on collectibility, constraint and licences), insurance contracts (fieldwork showed increase complexity, including volatility and accounting mismatches), conceptual framework and rate-regulated activities.

In addition, the DPOC received updates on implementation and maintenance projects on the IASB’s work plan  in particular, the disclosure initiative (IAS 1), going concern (IAS 1) and the post-implementation review of IFRS 3.

Educational material

The DPOC reviewed a report on the development of educational material by the IASB. The main concern of members is that supportive educational material may be viewed as authoritative.

Effects analysis consultative group (EACG)

The DPOC was presented with a progress report on the EACG. The EACG advises the IASB on methods for field testing and effects analyses. The DPOC discussed the EACG work in (1) reviewing confidentiality while improving transparency and (2) communications aspects of effect analyses.

Review on consultative groups

The DPOC reviewed and were satisfied that the following consultative groups were operating effectively and should be retained:

  • Accounting Standards Advisory Forum (ASAF);
  • Capital Markets Advisory Committee (CMAC);
  • Education and Advisory Group (EAG);
  • Shariah-compliant Instruments and Transactions


The DPOC examined a report on the IASB’s plan to restructure staffing and consultative activities related to electronic reporting. In particular, they discussed three issues: (1) proposed update to the IFRS taxonomy, (2) review of the due process for XBRL and (3) proposals to replace the XBRL Advisory Council and XBRL Quality Review Team.

Review of correspondence

The DPOC discussed a complaint from Business Europe concerning the accuracy of staff reporting on comment letters on the proposed amendments to IAS 40 Investment Property as part of the 2011–2013 Annual Improvements cycle. The DPOC was satisfied with the IASB technical staff reply for the complaint and approved the response letter to Business Europe.


The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB website.

Fourteenth ESMA enforcement decisions report released

30 Oct, 2013

The European Securities and Markets Authority (ESMA) has published further extracts from its confidential database of enforcement decisions taken by European national enforcers. This batch deals with decisions in relation to IAS 39, IFRS 7, IAS 7, IAS 1, IAS 27, IFRS 3/IAS 38, IAS 32, IAS 12, IFRS 8, and IAS 8.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, fourteenth in the series and covering the period from July 2012 to March 2013, include:


IAS 39 Financial Instruments: Recognition and Measurement Derecognition of financial assets and liabilities – transaction set up with the intention of being a ‘pass-through’ arrangement
Classification of financial assets as loans and receivables – investment of the proceeds of bonds issued to third party investors in the parent company of the issuer through a ‘silent contribution’ arrangement
Hedge accounting for an embedded floor in a loan portfolio – separation of the embedded floors and their measurement at fair value subsequent to initial assessment of embedded derivatives outside the case of a business combination
IFRS 7 Financial Instruments: Disclosures Nature and extent of risks arising from financial instruments – relevant quantitative and qualitative disclosures related to risks arising from holding financial instruments with regards to credit risk, ‘other price risk’ and concentration risk
IAS 7 Statement of Cash Flows Cash flow classification of amounts paid to vary the notional amount of a commodity contract – whether a one off payment to a bank to reduce the notional amount of a forward contract is a financing or operating outflow
IAS 1 Presentation of Financial Statements Presentation of cost of inventories in cost of goods sold – treatment of the fair value step-up of inventories acquired in a business combination on subsequent sale of those inventories
IAS 27 Consolidated and Separate Financial Statements Scope of consolidation – whether particular national law should be considered in determining whether or not consolidated financial statements should be prepared
IFRS 3 Business Combinations / IAS 38 Intangible Assets Identification of intangible assets in a business combination – whether an amount of a 'deposit surplus' arising on the acquisition of a distressed bank should be subsumed into goodwill or considered to be a separately identifiable intangible asset with a finite useful life
IAS 32 Financial Instruments: Presentation Contingent payments to acquire a non-controlling interest – whether contingent payments based on future EBITDA of an acquired business are to be considered contingent liabilities or recognised as financial liabilities
IAS 12 Income Taxes Deferred tax asset arising from tax losses carried forward – nature of convincing evidence showing that there would be taxable profits available in the future in order to recognise a deferred tax asset where sufficient taxable temporary differences are not available
IFRS 8 Operating Segments Segment disclosures – exclusion of goodwill from the geographical analysis of non-current assets
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Disclosure of new standards that have been issued but are not yet effective – disclosures about new standards, interpretations and amendments to existing standards should not be limited to those pronouncements already endorsed for use in the European Union (EU)

Click for access to the full report.

The Bruce Column — Audit Committees move to centre stage

29 Oct, 2013

Recent developments are moving audit committees to a central position in the world of corporate governance. Our regular resident columnist, Robert Bruce, explains.

Audit committees, very gradually, have become the unsung success of the UK corporate governance system. They were first proposed by the Cadbury Report on corporate governance back in 1992 and became part of the Listing Rules, under the principle of ‘comply or explain’ in 1994.  A newly published book* by academics Laura Spira and Judy Slinn explains the context with delightful clarity.

And at the end of last week a report from the Financial Reporting Lab at the Financial Reporting Council suggested that, in the words of the Lab’s Director: ‘Audit committee reports should form part of the conversation between companies and investors building confidence in this important area of governance and showing how it contributes to good financial reporting’. That sentence alone shows how far the concept of the audit committee has come since it first appeared as an idea during the creation of the Cadbury Code back in the 1990s.

Then the idea was that such a committee could forge a channel of communication with the company’s auditor and enable the discussion of issues of concern on both sides. This would, it was thought, provide both the audit committee and the auditor, with enhanced independence. Now, as the recent report on audit services by the Competition Commission also shows, the concept of the audit committee has become ever more important. 

The Commission’s report said that, amongst other points: ‘Measures should be introduced to strengthen the accountability of the external auditor to the audit committee, including a stipulation that only the audit committee is permitted to negotiate and agree audit fees and the scope of audit work, initiate tender processes and make recommendations for appointment of auditors and authorize the external audit firm to carry out non-audit services. The audit committee may receive submissions from executive management regarding these matters. It may establish a materiality threshold below which executive management may instruct the audit firm to conduct non-audit services’. But that is as far as they should go. The Commission also aims to strengthen the audit committee’s importance by suggesting larger companies should be required to hold an advisory vote on the sufficiency of the disclosures in the audit committee’s report. 

And days later the FRC’s Financial Reporting Lab came up with its recommendations. Within its confidential environment some 19 companies and 25 investor and analyst organisations took part in a project which was intended to provide insight into how audit committee reporting could be made more effective. And it was intended to be timely. The FRC’s revisions to the UK Corporate Governance Code which require audit committees to provide more detail about the focus of their specific work during the year have now come into force. 

What the Lab’s findings show is that what investors and companies really want is more specific detail, insight and understanding from audit committees generally. ‘Investors’, they say, ‘are keen to gain an understanding of what issues have been the subject of the audit committee’s focus for the year’. They don’t want a standard report. In particular they want a report which provides details of the actions it has taken, rather than talk about the functions they serve. 

They want a report which has been tailored to their needs. ‘Investors  want audit committee reporting to move away from boilerplate disclosure’, says the report, ‘and to be bespoke and company specific’. Audit committee chairmen should demonstrate their ownership and accountability by personalising their report; they need to ensure that reports are specific to their company and the current year’s activities; they want an account of specific activities undertaken and why they took them, all couched in active and descriptive language, in short, narrative reporting. They want the reports to disclose the judgements made during the year and the source of assurance and other evidence which they used to satisfy themselves that what they had done had produced appropriate conclusions. ‘Many investors’, says the report, ‘believe that the audit committee should not place an undue level of reliance on the external auditors or management’. And they also needed to show that they had taken their audience into account throughout that process.  

What all this amounts to is a further, and very important, notch in the evolution of the audit committee from an idea to that of a serious player. As Spira and Slinn say in their book: ‘All the issues identified at the time of the Cadbury Report – directors’ pay and the role of responsibilities of institutional investors, as well as reporting on internal control and going concern – remain a focus of continuing concern and the guidance provided is subject to regular review by the FRC, as is the Code itself. None of the subsequent groups charged with considering these ongoing issues has provided conclusive answers: this reflects the need, which the Cadbury Committee had emphasised, for continual review of the issues in the light of the practical experience of company boards and investors and the current business environment. The arena for debate opened up by the Committee’s work has enabled discussions to continue, moving forward on the basis of the conclusions of each group and review, even though resolution of these problems remains elusive’.

Or, in the words of one anonymous investor quoted in the Financial Reporting Lab’s report: ‘Current audit committee reporting has a lot “in the letter”, not much “in the spirit”. The evolution of the role of the audit committee continues.

Click for:

  • Our news story on the Financial Reporting Lab project report on effective approaches to Audit Committee reporting  
  • Our news story on the Competition Commission final decision on remedies 

*‘The Cadbury Committee: A History’. By Laura F Spira and Judy Slinn. Published by Oxford University Press at £35

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.