October

IIRC Pilot Programme Investor Network recommendations for preparers of integrated reports

23 Oct, 2013

The Pilot Programme Investor Network (“the Investor Network”) of the International Integrated Reporting Council (IIRC) has identified a number of recommendations to assist preparers of integrated reports (“The 2013 Investor Critique”). The recommendations stem from a recent review of “selected reports” from the Pilot Programme Business Network (“the Business Network”).

The aim of the review was to “understand the strengths and shortfalls of today’s reporting from the perspective of providers of financial capital”.  In total the reports of 21 pilot businesses were analysed by 14 institutional organisations. 

The Investor Network recommended that report preparers should: 

  • Disclose the materiality assessment process used to determine the level of disclosures made in the report.
  • Ensure that all information within the report is connected.  The 2013 Investor Critique provides examples such as “grouping related themes” and “drawing explicit links between strategy and other content elements such as the external environment, performance, future outlook and business model”.
  • Be concise by using, for example “plain language over wordy explanations” and limiting repetition.
  • Provide information that allows investors to assess long-term value creation.  The 2013 Investor Critique provides examples such as “providing a clear overview of the business model”, “indicating the timeframe associated with key strategies, milestones and targets” and ensuring that there is alignment between the report and other key disclosures such as the financial statements and management commentary.
  • Be credible.  The 2013 Investor Critique suggests that this can be achieved, for example, by making the report “balanced and unbiased” and providing insights “as opposed to a simple restatement of information found elsewhere”.  The reports would also be credible where the information can be substantiated “by credible third party” sources. 

Aside from these recommendations, the 2013 Investor Critique provides insights that the investors involved in the critique particularly value reports which convey “a more holistic picture of performance that goes beyond financial statement performance alone” and that, for their investment analysis, the most useful parts of the reports would be those providing information on strategy, risk, governance, operations and future targets. 

The full “2013 Investor Critique” can be found here (link to the IIRC website).    

ICAEW releases TECH 09/13 AAF on assurance review engagements

23 Oct, 2013

The Institute of Chartered Accountants in England and Wales (ICAEW) has today issued TECH 09/13 AAF, which provides guidance to assist with compliance with ISRE 2400 (Revised) Engagements to Review Financial Statements, issued by the International Auditing and Assurance Standards Board (IAASB) in September 2012.

With the growth in the number of audit exempt companies over the last few years, there is a growing demand from companies which are not required to have their financial statements audited but nevertheless want some assurance over the information contained in them.  The revised version of ISRE 2400 was developed by the IAASB to provide a set of international standards for this type of engagement, which come into force for periods ending on or after 31 December 2013.

In response to the release of this standard, ICAEW has developed TECH 09/13 AAF, which provides guidance to assist with compliance with the revised standard, as well as illustrative letters and reports to support these engagements.  This new technical release supersedes TECH 03/06 AAF for periods ending on or after 31 December 2013.

Click here for a copy of TECH 09/13 AAF and here for general guidance on assurance review engagements (both links to ICAEW website).

 

EFRAG comment letter highlights concerns over IASB leasing proposals

21 Oct, 2013

The European Financial Reporting Advisory Group (EFRAG) has published their final response to the International Accounting Standard Board’s (IASB’s) Exposure Draft ED/2013/6 Leases (“the ED”). Whilst EFRAG remains “supportive” for the project they have expressed a number of concerns over the proposals and “does not recommend finalising the standard based upon the Exposure Draft”.

For lessees, the Exposure Draft ED/2013/6 Leases proposes the recognition of a liability and a right-of-use asset for all leases with a profit or loss impact dependent on the classification of a lease. The lessor model in the ED is similar to current lease accounting with some nuances for the recognition of revenue and discounting of the residual asset. The proposals are only applicable for leases with a lease term of more than 12 months.   

EFRAG still supports the view that more leases should appear on the balance sheet as they are of the view that “more leases than today’s finance leases are in substance purchase of assets”.  They also comment that the ED “reflects significant improvements in the accounting for leases”.  However they are concerned with some of the proposals including the right of use model. 

EFRAG's concerns around the application of the right-of-use model are expressed as follows:

In its communications, the IASB has emphasised in its communications that the project was intended to recognise financial liabilities that are currently left off balance sheet. Focusing on this objective seems to have been the primary driver behind the development of the right-of-use model. This model is based on a notion that an asset is a bundle of rights, one of them being the right-of-use.  This is a new approach, which has never been debated on a conceptual level and we are not convinced that the focus on liability recognition has led to capturing the right population to which the right-of-use model should be applied.  EFRAG is concerned that without proper debate on the underlying concepts and the related transactions, the right-of-use model will not be understandable for constituents and this will add to the perception that this proposed IFRS is unduly complex.

EFRAG believes there is a need to need to fully explain the project from a conceptual perspective.  EFRAG recommends that the IASB refines the definition of 'right-of-use' (and how this right is distinguished from other rights bundled in an asset) as part of its conceptual framework project.  Among other things, EFRAG would also like the IASB to “refine” guidance to identify what activities convey the ability to direct the use of an asset and how this links with the business models of lessors.

As well as expressing the view that there is a “lack of clarity in the conceptual model”, EFRAG are also of the view that:

  • The proposed dual measurement approach should be abandoned.
  • There are a number of unanswered questions regarding the receivable and residual model which need to be answered “before lessor accounting is finalised”.
  • The benefits of the proposals do not outweigh the costs.  EFRAG comments that “significant simplifications are needed” such as excluding “small ticket” lease arrangements from the requirements of the standard and “strengthening the application of materiality when accounting for leases”.

The comments of EFRAG are consistent with those of the Financial Reporting Council (FRC) and The European Securities and Markets Authority (ESMA) who have also expressed concerns over the proposals.  The Association of Chartered Certified Accountants (ACCA) favour keeping the existing IAS 17 model with certain amendments.

The press release and full EFRAG response to the questions raised in the IASB Exposure Draft can be found on the EFRAG website.

Agenda for the October 2013 IASB meeting

18 Oct, 2013

The IASB has released the initial agenda for its meeting to be held at its offices in London on 28 October–1 November 2013. Discussions will include joint sessions with the FASB on classification and measurement (education session) and revenue recognition, and IASB-only sessions on revenue recognition (education session), the limited scope projects on IFRS 10/IAS 28, IAS 16/IAS 38, IAS 27 and IAS 19, annual improvements 2012-2014 (IFRS 7/IFRS 5/IAS 19), rate-regulated activities, an update from the IFRS Interpretations Committee, issues in connection with IFRS 2, macro hedge accounting, impairment, and proposed amendments to IAS 1.

The full agenda for the main meeting, dated 18 October 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.

Public Conference of the EFRAG technical group (EFRAG TEG)

18 Oct, 2013

On October 29, 2013, the Technical Expert Group (TEG) of the European Financial Reporting Advisory Group, (EFRAG) will hold a public conference call.

The meeting will be a public educational session on the topic of re-insurance.

Interested listeners have the ability to dial into the conference call.  Please click link for details of the registration on the EFRAG website.  The agenda can be accessed here. 

 

FRC publishes new quarterly newsletter on financial reporting

18 Oct, 2013

The Accounting and Reporting Policy team of the Financial Reporting Council (FRC) has today published the first of a new quarterly newsletter on financial reporting. The first newsletter covers the period June to September 2013. The newsletter details the activities of the FRC over the last three months.

The newsletter “Setting the Standard” covers the following areas: 

Reminders are also given of: 

Upcoming FRC meetings

  • 22 October – Narrative Reporting
  • 26 November – Conceptual Framework joint event with the Institute of Chartered Accountants in England and Wales (ICAEW).
  • 27 November - Conceptual Framework joint event with The Confederation of British Industry (CBI).

Recent FRC responses to the IASB: 

Comment deadlines for a number of FRC and IASB proposals. 

Please click here for the full newsletter on the FRC website.

EFRAG Update detailing September and October EFRAG developments

18 Oct, 2013

The European Financial Reporting Advisory Group (EFRAG) has released a new issue of its EFRAG Update newsletter, summarising the discussions held at the 9–11 October EFRAG TEG meeting and the EFRAG TEG conference call held on 17 September and 30 September 2013.

Highlights were the publication of:

Additional topics discussed in the newsletter are:

Click for the EFRAG Update (link to EFRAG website).

Council of the European Union approves transparency requirements for issuers of securities

18 Oct, 2013

The Council of the European Union has adopted a directive updating transparency requirements for issuers of securities on regulated markets which are set out in the so-called Transparency Directive.

The changes are aimed at

  • simplifying certain obligations so as to make regulated markets more attractive for raising capital for small and medium-sized issuers, e.g. through abolishing the requirement to publish quarterly financial information),
  • improving legal clarity and effectiveness, notably with respect to the disclosure of corporate ownership (by requiring disclosure of major holdings of all financial instruments that could be used to acquire economic interest in listed companies), and
  • providing for sanctions that are sufficiently dissuasive in the event of transparency requirements being breached.

The draft directive also includes a requirement for listed companies operating in the oil, gas and mineral extractive as well as the forestry industry, to disclose payments to governments in countries where they operate (country-by-country reporting). Issuers will have to prepare on an annual basis a report on payments made to governments which has to be made public at the latest six months after the end of each financial year and must remain publicly available for at least ten years.

The directive was already approved by the European Parliament in June 2013 together with the new Accounting Directive. The directive will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Please click for more information on the Council's website:

FEE comments on ESMA's enforcement consultation paper

18 Oct, 2013

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has commented on the European Securities and Markets Authority (ESMA) consultation on guidelines on the enforcement of financial information published by listed entities in the European Union. FEE generally supports promoting a common European enforcement approach but highlights several points where the ESMA proposals seem to be going too far.

The proposed guidelines are the result of a review of Standards No. 1 and 2 on the enforcement of financial information developed by the Committee of European Securities Regulators (CESR), ESMA's predecessor, and were published in July 2013. FEE believes that some of the proposals seem to suggest that ESMA is assuming responsibilities that lie with other parties.

FEE points out that although a common approach to enforcement is to be supported, the European Transparency Directive states that the final responsibility for supervising compliance with the provisions of the Transparency Directive remains with the designated central competent authorities of the relevant Member State. ESMA has no legislative powers regarding the enforcement of financial information. In this context FEE also comments that the guidelines should not pose any additional requirements to those stated in the Transparency Directive and ESMA should be careful not to overstep the boundaries of the Transparency Directive. Also, common enforcement priorities should leave sufficient flexibility for the national competent enforcement authorities to add domestic priorities, taking into account their specific circumstances.

FEE also highlights that ESMA should not try to become a standard-setter. In connection with the discussion of materiality, FEE supports ESMA's view that improvement is needed in this area but warns that the responsibility for determining this should remain with the IASB. FEE welcomes the announcement of the IASB to start a project on materiality in the context of revising IAS 1 Presentation of Financial Statements. FEE also sees the danger of ESMA assuming unintentionally a standard-setting role in connection with issuing reports that contain statements on specific accounting treatments, especially the ESMA enforcement decision reports.

FEE also believes that ESMA should also not assume an interpretative role. ESMA can use statements and/or opinions to explain the concepts underpinning their enforcement and the methods they use in their operation, however, ESMA should stay away from anything that can be interpreted as IFRS application guidance, as the IFRS Interpretations Committee remains the sole source of interpretation of IFRSs. As ESMA itself had proposed in the guidelines that "ESMA and enforcers do not issue any general IFRS application guidance to issuers", FEE's point in this case is simply to strongly support this statement.

Please click for access to the full comment letter on the FEE website.

Notes from October IFRS Foundation Trustees meeting

18 Oct, 2013

We've published Deloitte observer notes from the IFRS Foundation Trustees meeting held in Frankfurt, Germany on Thursday 17 October 2013. During the public sessions, the Trustees reviewed the discussions that had taken place during their private sessions, and received reports from the IASB Chair, senior technical directors of the IASB, and Due Process Oversight Committee (DPOC).

A full listing of the topics discussed at the meeting follows (click through to access detailed Deloitte observer notes for each topic):

Thursday 17 October 2013 (11:30-13:15)

Correction list for hyphenation

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