November

Recent GRI developments

11 Nov, 2013

The Global Reporting Initiative (GRI) has announced several new developments on the “G4 Online” tool, monitoring program, G4 XBRL taxonomy, and sustainability.

The GRI has announced the launch of “G4 Online”, an Internet- based tool that aims to help companies create sustainability reports which follow the G4 guidelines. On the free-access website, the GRI guidelines are comprehensively presented in a dynamic and easy-to-navigate structure. The tool is tailored for users who are directly involved in a G4 reporting process.

Also, the GRI has launched a monitoring program which aims to gather feedback on the implementation of the G4 guidelines as companies transition from G3/G3.1 to G4. The G4 Monitoring Program has many ways for organisations to provide their feedback, in particular, a general feedback questionnaire.

In addition, the GRI has announced the launch of a fully developed XBRL taxonomy for the G4 guidelines. The G4 Taxonomy 2013 provides more reliability and consistency of information in sustainability reporting. It also increases the rate of data collection, aggregation, and analysis.

Further, the GRI has created a publication on unique sustainability issues for various sectors. It provides a list of topics for 52 business activities groups. Organisations can use the information gathered by the publication to analyse what information may be included in their reports.

For additional information, please see the following press releases (links to GRI website):

FSB discusses accounting and convergence

11 Nov, 2013

The Financial Stability Board (FSB) met on 8 November in Moscow. At the meeting, the FSB discussed vulnerabilities in the global financial system and reviewed work plans for completing core financial reforms.

On accounting, the FSB heard updates from the Chairs of the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) on their continuing work to improve and converge accounting standards. Two areas were considered to be especially important for financial stability: loan loss provisioning and insurance contracts. Members of the FSB stressed that they are expecting finalisation of these projects soon and urged the standard-setters to make further efforts to coordinate in that regard in the interest of convergence.

The FSB also discussed proposals from the International Valuation Standards Council (IVSC) to develop valuation standards for financial instruments that could help to augment the valuation rules within accounting standards.

Please click for access to the press release on the results of the meeting on the FSB website.

ESMA announces enforcement priorities for 2013 financial statements

11 Nov, 2013

The European Securities and Markets Authority (ESMA) has announced the priority issues that the assessment of listed companies' 2013 financial statements will focus on.

ESMA considers the following financial reporting topics to be of particular importance for European listed companies in light of the current economic situation:

  • impairment of non-financial assets;
  • measurement and disclosure of post-employment benefit obligations;
  • fair value measurement and disclosure;
  • disclosures related to significant accounting policies, judgements and estimates; and
  • measurement of financial instruments and disclosure of related risks.

ESMA and the national competent authorities will monitor the application of the IFRS requirements outlined in the priorities, with national authorities incorporating them into their reviews and taking corrective actions where appropriate. National authorities may also focus on other locally relevant areas as part of their review and are not be limited to the specific issues identified by ESMA.

ESMA will collect data on how European listed entities have applied the priorities and will publish its findings in early 2015. ESMA expects to publish its findings on the 2012 priorities in early 2014

Please click for (links to ESMA website):

In July 2013, ESMA launched a consultation on guidelines on the enforcement of financial information published by listed entities in the European Union. The proposed guidelines also called for a greater coordination of enforcement activities through the means of common enforcement priorities.

Outcomes from the thirtieth ISAR session

11 Nov, 2013

The thirtieth session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) has held in Geneva on 6-8 November 2013. The meeting focused on the role sound corporate reporting infrastructure plays in promoting investment, financial stability and development. The main agenda items were country feedback on the 'Accounting Development Tool' being developed by ISAR, human resources development challenges in achieving high quality corporate reporting, and a review of good practices in sustainability reporting.

Over the past four years, ISAR has been developing and refining the 'Accounting Development Tool' (ADT), which allows member States to conduct assessments of their accounting infrastructures to identify gaps and determine priorities. The ADT is built on four pillars: a legal and regulatory pillar, an institutional pillar, a human capacity pillar and a capacity-building process pillar. At this meeting, a number of countries provided feedback on their experience with the ADT, including Russia, Ukraine, Ecuador and the Netherlands. The papers available on the UNCTAD website provide a good background on the process of developing corporate reporting in these countries.

A paper prepared by the UNCTAD secretariat provides a summary of the human resource development challenges that arise in high-quality corporate reporting. The paper notes trends such as adoption and implementation of international standards and codes, increasing regional and international cooperation among regulators, and the emergence of education initiatives before outlining some of the key challenges, including:

  • Meeting the need for qualified human resources. Highly qualified human resources are a key component towards a successful implementation of international standards and codes, requiring a high level of human capacity that can be developed through education, training and experience. There is a shortage of accountants in developing countries which do not have full capacity to train qualified professional accountants, and not enough incentives for qualified accountants to remain in their country of origin
  • Strengthening professional accounting organisations (PAOs). Whilst the International Federation of Accountants (IFAC) supports capacity building and monitoring the development of PAOs through its various initiatives, in many countries PAOs are not operating at full capacity due to a lack of financial and/or human resources. Furthermore, some PAOs suffer from low sustainability and fail to operate as independent entities, and in some regions PAOs are fractured, disorganised and underfunded
  • Improving education and training. Although the International Accounting Education Standards Board (IAESB) has been developing International Education Standards (IESs), they are restricted to areas of education that fall under the responsibility of the accountancy profession, and so exclude universities. The path for becoming a professional accountant or auditor differs depending upon the system in place in each country, and there are several players participating in the education and training of professional accountants. Other issues including the ageing of the general academic population, difficulties in filling vacancies in universities, a lack of English language proficiency among academics and students, and a lack of sufficient coverage of ethics in accounting education programmes were also noted.
  • Promoting continuing professional development (CPD). CPD is identified as one of the least developed areas and PAOs in developing countries often do not have operating capacity or the legal force to ensure their members fulfil requirements. Further challenges including around costs and location were also noted.
  • Improving public-sector accounting and education. Only a few PAOs have created committees that issue recommendations and interact with the government to improve accountability, for example by implementing International Public Sector Accounting Standards (IPSAS). A key issue is a lack of training, and a shortage of professional accountants.

Discussion at the ISAR session noted that developing countries often lack sufficiently robust accounting infrastructures to enable them to apply international standards, but that such standards are frequently necessary to ensure confidence from potential foreign investors. Jurisdictions reported an immediate effect on comparability and transparency from the adoption of International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISAs). The importance of reliable financial reporting to public sector governance was also noted.

A further background paper prepared for the meeting focused on best practice guidance for policy makers and stock exchanges on sustainability reporting initiatives. This paper outlines a number of elements to consider when developing or improving sustainability reporting initiatives, such as which institution (e.g. a regulator or stock exchange) is best positioned to introduce such an initiative, scoping issues (both which entities and the subject matter to be covered), whether the disclosure model should be voluntary or mandatory, and design and implementation issues.

The ISAR session noted that the implementation of sustainability reporting initiatives is closely linked to the Sustainable Development Goals which will be adopted after 2015, and will require substantial contributions from entities to make them a reality. The session received presentations from the Global Reporting Initiative (GRI), Johannesburg Stock Exchange (South Africa) and BM&F Bovespa (Brazil), among others.

A number of other topics were also discussed, including on corporate governance issues and updates on international auditing and assurance standards. 

On the day before the start of the ISAR sessions, an 'Accounting for SMEs Forum', jointly organised by UNCTAD and the IFRS Foundation, was also held, and saw discussion on lessons learned in implementing the IFRS for SMEs, possible changes to the IFRS for SMEs, and related capacity-building needs for small and medium-sized entities.

Click to access the following on the UNCTAD website:

Agenda for November 2013 IASB meeting

10 Nov, 2013

The International Accounting Standards Board (IASB) is meeting at its offices in London on 20-22 November 2013. Part of the meeting with be held jointly with the Financial Accounting Standards Board (FASB) to discuss the classification and measurement of financial instruments and leases. The IASB will consider rate regulated activities (both the interim standard and research project), possible amendments to IAS 1 (disclosure initiative and going concern disclosures), annual improvements 2010-2012 cycle, revenue recognition, financial instruments impairment, the due process followed and possible finalisation of the next due process steps in a number of narrow scope projects (annual improvements 2012-2014 cycle, amendments to IFRS 10/IAS 28, IAS 16/IAS 38 and IFRS 11), and the post-implementation review of IFRS 3.

The full agenda for the meeting, dated 8 November 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.

ABI calls for “fundamental improvements” to IASB insurance contracts standard

08 Nov, 2013

The Association of British Insurers (ABI) has issued their response on the International Accounting Standard Board’s (IASB’s) revised Exposure Draft (ED) ED/2013/7 “Insurance Contracts”. The revised ED was published on 20 June 2013 and originally issued in July 2010. The ABI note that the revised exposure draft “reflects some significant improvements compared with the previous ED” but requires “fundamental improvements” to be made.

The revised ED retains key features of the insurance contracts accounting model that was exposed by the IASB in 2010.  However, to address constituent’s concerns, a large number of modifications were made to the 2010 ED which the IASB sought feedback on in June 2013.   

The ABI proposed improvements include: 

  • Removal of the mandatory requirement to use other comprehensive income (OCI).  The ABI comment that “this change would enable the profit and loss account to reflect all related movements in assets and liabilities, and avoid significant accounting mismatches”.
  • Removal of the “mirroring” approach which treats participating contracts separately from other contracts and is “difficult to understand and complex to apply”.
  • Recognising participation in asset returns “as a form of service provision”.  The ABI say that “this should be reflected in adjustments to the contractual service margin that is fully unlocked to reflect changes in future estimates concerning the provision of service, as for other insurance contracts”.
  • Removing a mandatory requirement to take changes in all options and guarantees to profit or loss and “expanding the unlocking of the contractual service margin to include changes in the risk adjustment for future cash flows relating to future services”.
  • Removing the requirement to present earned premium revenue. 

The ABI has also expressed concerns over “over-burdensome and potentially misleading disclosure requirements” and comment that before the standard is finalised, “a form of due process is needed”.  This could take the form of a staff or review draft being placed on the IASB’s website reflecting all the Board’s re-deliberations in the light of ED responses.  The ABI say that any comment received should then be considered “to ensure that the final IFRS is workable”. 

Please click for the final response, including full responses to the questions raised in the ED, on the ABI’s website

Government responds to Business, Innovation and Skills Select Committee report into implementing the recommendations of the Kay review

08 Nov, 2013

The government has provided their response to the Business, Innovation and Skills Select Committee (BISC) report which discussed the government’s approach to implementing each of the 17 recommendations outlined by Professor Kay in his review of the UK Equity market in 2012 (the “Kay Review”). Included within their response ‘The Kay Review of UK Equity Markets and long-term decision making: Government response to the Committee’s third report of session 2013-14’, is a commitment to remove mandatory quarterly reporting in the UK.

Professor Kay’s review ‘Kay Review of UK Equity markets and long-term decision making’ (link to BIS website), published in July 2012, sought to address the issue of short-termism in the equity market.  The aim of the report was to “set out principles that are designed to provide a foundation for a long-term perspective in UK equity markets and describe the directions in which regulatory policy and market practice should move”.  

The review concluded: 

Short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain.

The Kay review established 17 recommendations which were intended for the government, regulatory authorities and “key players in the investment chain” to provide “the first steps towards the re-establishment of equity markets that work well for their users”. 

The BISC report sought to take forward the recommendations in the Kay review and provide actions for the government to undertake in order that progress against the recommendations could be measured.  It called on the government to publish “clear, measureable and achievable targets” for implementation of each of the 17 recommendations outlined by Professor Kay in his review of the UK Equity market in 2012.

The government has provided support for a number of the recommendations including the removal of the requirement to publish interim management statements or quarterly reports.  These changes have been agreed at a European Union level with the amendments to the Transparency Directive.  The government has commented that it is “committed to removing mandatory quarterly reporting for UK companies, and following publication of the new Directive in the Official Journal, intends to implement the relevant sections of the revised directive in the UK as soon as is practical”. 

However, the government does not support the recommendation in relation to appointment of executives.  Professor Kay provided a recommendation, proposing that companies “consult with major investors over all board appointments”. The BIS Committee recommended that the “Government publishes a timetable for the implementation of this policy, clarifies which investors companies are to consult with and outlines how it intends to combat the issues surrounding insider trading and confidentiality which inevitably accompany such board appointments”.  The government commented that effective consultation on appointment was to be seen as “good practice” and so did not plan to “regulate such an approach”.

In response to the recommendation on narrative reporting, the government has commented that “over-regulation” of narrative reporting is “likely to result in boilerplate and compromise high quality reporting”.  They note that companies should be provided flexibility and highlight the non-mandatory guidance of the FRC to assist preparers of narrative reports.

Further responses are included in the full report, which also includes an appendix summarising progress to date and setting forward looking objectives.

The government has indicated that it will report on progress in implementing the recommendations in 2014.

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Latest progress report on women on boards published

07 Nov, 2013

Figures published today show that the proportion of women on UK boards continues to increase. The progress report ‘Women on Boards: Benchmarking adoption of the 2012 Corporate Governance Code in FTSE 350’, published by Cranfield School of Management also highlights that whilst progress has been made in adopting the diversity provisions in the 2012 UK Corporate Governance Code “it is a little disappointing that a greater proportion of the companies analysed have not fully responded to the new code stipulations in relation to reporting on diversity, in particular pertaining to gender”.

The progress report highlights that figures for women on boards and in senior management within FTSE 250 companies are “catching up” with those at FTSE 100 companies.  Findings also highlight that although further appointments are still required in order to achieve the 25 per-cent female representation by 2015 set by Lord Davies in his report in February 2011 (link to The Department for Business, Innovation and Skills website), the 25% target is “in sight”.

The key findings (compared against the April 2013 Cranfield School of Management report ‘The 2013 Female FTSE Report: False dawn of progress for women’) (link to Cranfield School of Management website) were:

  • The percentage of female-held directorships on FTSE 100 boards has increased to 18.9% in October 2013, up from 17.3% in March 2013 and 12.5 per-cent as of February 2011 when Lord Davies reported.
  • The percentage of female-held directorships on FTSE 250 boards has increased to 14.9% in October 2013, up from 13.3% in March 2013 and 7.8 per-cent as of February 2011 when Lord Davies reported.
  • Against these improvements, there has been a slight increase in the number of all-male boards in the FTSE 100 which has increased from seven in March 2013 to six in October 2013.  The number of all-male boards for FTSE 250 companies has decreased from 65 in March 2013 to 51 in October 2013.
  • The rate of new appointments to women in the FTSE 100 companies is currently at 27% and the progress report highlights that if this level is maintained “the headline figure (currently at 18.9%) is unlikely to hit Lord Davies’ target of 25%”.  The progress report identifies that the percentage of female-held directorships could hit 24% by 2015 if the rate of new female appointments increases to 35% and turnover remains at 13%.  The current rate of new appointments to women in FTSE 250 companies is higher in the FTSE 250 at 29.3%.

These findings are consistent with statistics released by the Professional Boards Forums’ BoardWatch in October 2013.

The annual reports of all FTSE 100 companies and “a subset of 50 organisations” within the FTSE 250 were analysed to determine compliance with the requirements of the 2012 UK Corporate Governance Code (“the Code”) on gender and diversity reporting. 

The amendments to the Code in 2012, which expanded the diversity provision require companies to set out clear disclosures on diversity, including gender, any measurable objectives that they have set for implementing the policy, and progress on achieving the objectives.  The Code was also amended so that boards would consider diversity when evaluating their effectiveness.

The progress report highlights that there was “little change from last year” for FTSE 100 companies but that, for those FTSE 250 companies sampled, “the picture appears to be worse”:

For FTSE 100 companies, 65% had stated a clear policy on boardroom diversity and 42% had set measurable objectives to increase the percentage of women on their board.  However, only 27% of companies addressed diversity in their board evaluation process and only 30% of companies demonstrated clear policies or measures aimed at increasing the number of women in senior management.  In contrast, only 18% of FTSE 250 companies sampled had stated a clear policy on boardroom diversity with just 14% of companies having set measurable objectives to increase the percentage of women on their board.  The progress report also identifies that just 2% of companies demonstrated clear policies or measures aimed at increasing the number of women in senior management and 24% of companies addressed diversity in their board evaluation process.

The FRC comment that they are “pleased to see in the report an upward trend in the rate at which female directors are being appointed and hopes to see similar progress in the quality of reporting next year”.

Along with the requirements of the Code, companies are facing additional pressures to address diversity and gender imbalance from areas such as the new UK 'Narrative Reporting' Regulations and the EU Capital Requirements Directive IV (CRD IV). 

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Report on the October IFRS Advisory Council meeting

07 Nov, 2013

A report on the IFRS Advisory Council meeting, held in London on 14-15 October 2013, has been made available by the IASB.

The main topics discussed include:

  • Updates on the IASB’s and Trustees’ activities.
  • Updates on the Monitoring Board.
  • Role and composition of the Council.
  • Implementation and maintenance activities.
  • Conceptual Framework project.
  • Interaction of International Valuation Standards and IFRS.
  • Effects Analysis.
  • Post-implementation Review of IFRS 3.
  • Use of IFRS around the world.
  • Leases project.

In particular, the report highlighted that the Council emphasised the importance of a converged solution regarding impairment, deferred the decision on how to proceed with the leases project to its February 2014 meeting, stressed the need to be cautious with the implementation and maintenance activities of IFRS, and continued support for the effect analysis initiative.

The full report on the IFRS Advisory Council meeting is available on the IASB Web site.

FRC consults on revised guidance for directors of listed companies

06 Nov, 2013

The Financial Reporting Council (FRC) has today published a consultation (‘Risk management, internal control and the going concern basis of accounting: Consultation on draft guidance to the directors of companies applying the UK Corporate Governance Code and associated changes to the code’) (“the draft guidance”). This will provide revised guidance for directors of companies that are required to, or choose to, apply the UK Corporate Governance Code.

The draft guidance seeks to integrate the FRC current guidance on going concern and risk management and internal control and also makes some consequential revisions to the UK Corporate Governance Code and auditing standards.  The draft guidance will replace ‘Internal Control: Guidance for Directors’ (2005) and ‘Going Concern and Liquidity Risk: Guidance for Directors’ (2009) (both links to FRC website) and it, along with changes to the UK Corporate Governance Code, will be applicable for periods commencing on or after 1 October 2014. 

The UK Financial Reporting Council (FRC) announced in June that it would develop guidance that supported the principles underlying the recommendations advocated by Lord Sharman in his report “Going Concern and Liquidity Risks: Lessons For Companies and Auditors” (link to FRC website).  The FRC identified that the guidance would need to:

  • 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 were referred to as "going concern".
  • 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.

The FRC has concluded that the best way to achieve the above would be to combine its current guidance on going concern and risk management and internal control (often referred to as the “Turnbull Guidance”) and make some consequential revisions to the UK Corporate Governance Code.  They highlight the inter-relationships between risk management and a number of financial statement disclosures including the description of principal risks and uncertainties and the going concern basis of accounting. 

The FRC has taken this approach “to encourage boards, as part of the same on-going process, to consider risk identification and management, including the assessment of solvency and liquidity risks, and to determine whether the company is able to adopt the going concern basis of accounting”.  

The key areas of the draft guidance are:

  • The draft guidance addresses the board’s responsibilities for managing the principal risks facing the company (including risks to its solvency and liquidity), the factors that boards should consider in order to exercise those responsibilities effectively, and how risks are assessed.  The draft guidance also addresses the design and process for reviewing the company’s risk management and internal control system which is largely unchanged from the current guidance.  Boards will still be required to provide a statement explaining their review of the effectiveness of the risk management and internal control systems and the FRC are recommending that the board explicitly explain “what actions have been or are being taken to remedy any significant failings of weaknesses identified from that review”.
  • Companies should make an “explicit link” between the information on principal risks and uncertainties reported in the Strategic Report and the going concern disclosures.
  • In the process to assess going concern, the “high level of confidence” threshold and the “foreseeable future” terms have been removed.  The assessment period is not necessarily fixed at 12 months.  The draft guidance requires “consideration of solvency and liquidity over longer periods having regard to the evolution of the company’s own business cycles and the economic cycle”. 
  • The FRC has issued separate supplementary guidance (‘Guidance for the directors of banks: Solvency and liquidity risks and the going concern basis of accounting’), particularly in the context of the going concern assessment and related disclosure, for banks.    
  • Auditors will need to report if they have anything material to add to what the directors’ have included in the annual report and accounts in relation to solvency and liquidity risks and going concern.  This change is reflected in the draft revisions to auditing standards (link to FRC website)published concurrently with the draft guidance.
  • The FRC is proposing that a new ‘comply or explain’ provision be added to section C.2 of the UK Corporate Governance Code, stating that “the board should carry out a robust assessment of the principal risks facing the company, including those that would threaten its solvency and liquidity”.  In the annual report the directors will need to “confirm that they have carried out this assessment and explain how the principal risks are being managed or mitigated”.  The directors will also need to indicate which principal risks, if any, “are material uncertainties in relation to the company’s ability to continue to adopt the going concern basis of accounting”.  This will replace the existing provision C.1.1 which requires listed companies to make a “going concern” statement.  

Along with draft guidance, the FRC has also published a feedback statement on their January 2013 proposals to implement the recommendations of Lord Sharman. 

The FRC has stated that it intends to later consult on guidance for those companies that do not apply the UK Corporate Governance Code.  

Comments are on the consultation are invited in writing until 24 January 2014.  

Click for (all links to the FRC website):

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