November

FCA sets out a package of measures to strengthen minority shareholder influence in premium listed companies

06 Nov, 2013

The Financial Conduct Authority (FCA) has issued a consultation paper which sets out a package of measures designed to protect minority shareholders in premium listed companies by giving them additional voting rights and greater influence over key decisions. These measures have arisen as a result of concerns from the investment community about the governance of premium listed companies with a controlling shareholder and protecting the interests of minority shareholders. Much of the concern was whether the minority shareholders could participate effectively in the governance of the company where the interests of the controlling shareholder conflict with those of the minority.

The Consultation Paper; ‘CP13/15: Feedback on CP12/25 – Enhancing the effectiveness of the Listing Regime and further consultation' provides feedback on an earlier consultation in 2012 (CP12/25) on enhancing the effectiveness of the Listing Regime and “includes a set of near-final rules” based upon the original proposals and feedback received.  CP 13/15 also acts as a consultation paper on some revised proposals from CP12/25 such as an amended definition of a “controlling shareholder” an “associate” and an “independent shareholder”.  Comments are requested by 5 February 2014 on the revised proposals. 

The FCA measures enhance minority shareholder protection in three areas:

  • The proposed measures “recognise the importance of ensuring that the voice of the minority shareholders is heard when the behaviour of a controlling shareholder is not appropriate”.
  • Additional voting power is provided to independent shareholders when electing independent directors “recognising the critical role independent directors play in promoting effective governance”.
  • Minority shareholder protection has been strengthened “where a premium listed company with a controlling shareholder wishes to cancel its premium listing, and so remove the shareholder protection offered by the Premium Listing Regime”. 

There are a number of changes and proposals affecting premium listed companies with a controlling shareholder: 

Relationship between a premium listed company and a controlling shareholder:

  • Where a company premium listed company has a controlling shareholder, there must be a documented ‘agreement’ between the company and the controlling shareholder, to ensure that the company can operate independently of that shareholder. The independent directors will be required to comment on the appropriateness of the agreement. The FCA is consulting as to whether existing premium listed companies with a controlling shareholder (or those without which acquire such a shareholder post listing) should be given a six month period to come to such an agreement to allow premium listed companies time to bring themselves into compliance. 

Independent directors:

  • Where a premium listed company has a controlling shareholder, there will need to be a dual voting structure so that independent directors must be approved both by the shareholders as a whole and by the minority shareholders as a separate class.  The FCA is also proposing enhanced disclosures to be made when independent directors are nominated “so that shareholders can be fully informed in making their voting decisions” including disclosure of the nature of any relationship those directors may have had with a controlling shareholder. 

Cancellation:

  • If a controlling shareholder seeks to cancel a premium listing, the FCA is proposing that minority shareholders will get additional voting power – preventing the controlling shareholder from circumventing the other protections by stepping down to a standard listing. 

Shares in public hands “free float”:

  • The FCA is not increasing the current requirement for 25% of shares to be distributed to the public.  However the FCA is providing additional guidance on the circumstances in which a ‘free float’ of less than 25% will be allowed. 

Structural requirements to prevent avoidance:

  • Votes on matters required by the Listing Rules can only be voted on by holders of premium listed shares. This is to avoid a company structuring different classes of shares to get around the above protections. The FCA is consulting on a two year implementation period.  In addition, premium listed shares must all have equal voting rights. 

Enhanced transparency to support shareholder engagement

  • The FCA is proposing that the current regime for small related party transactions (those which do not require pre-approval) should be changed so that the market must be informed as soon as possible, rather than including this within the next annual report. 

There are also a handful of changes that will affect all premium listed companies, whether or not they have a controlling shareholder:

  • All disclosures required by the Listing Rules will either need to be presented in one section of the annual report, or else an index to where those disclosures are must be presented.
  • Guidance is being provided to clarify whether or not a business is “independent”; supporting the requirement that a premium listed company must control an independent business.
  • Premium listed companies must notify the FCA as soon as is practicable of any breach of the eligibility requirements for a premium listing. 

Additionally, one change affects standard listed companies, who must now have appropriate systems and controls and deal with the FCA in an open and co-operative fashion. These requirements previously only applied to premium listed companies. 

Click for (all links to FCA website):

Recording of a seminar on the IASB's Conceptual Framework discussion paper

06 Nov, 2013

The New Zealand Accounting Standards Board (NZASB) has recently hosted seminars on the IASB Discussion Paper DP/2013/1 'A Review of the Conceptual Framework for Financial Reporting' and has made the recording of one of the seminars freely available online.

The seminar featured a presentation by IASB member Patricia McConnell supported by the IASB's Research Director Peter Clark outlining the proposals in the Discussion Paper, comments from the NZASB's Deputy Chair Kimberley Crook, outlining some possible implications of the IASB's proposals, and a concluding question and answer session. The recording is slightly longer than 90 minutes.

The video recording and the slide deck for the IASB's presentation are available on the XRB website.

IASB work plan updated

05 Nov, 2013

Following its recent meeting, the International Accounting Standards Board (IASB) has updated its work plan. The work plan formalises plans to defer to the first quarter of 2014 the discussion paper on macro hedge accounting and the finalised standards on rate-regulated activities (interim IFRS) and revenue recognition. Deferrals have also been announced on a number of narrow scope projects.

Current status

The revised time table for the major projects is now as follows:

Project

Current status

Next project step

Expected timing

Conceptual Framework — Comprehensive IASB project

Discussion paper

Redeliberations

Q1/Q2 2014*

Financial instruments — Impairment

Redeliberations

Finalised IFRS

Q1/Q2 2014

Financial instruments — General hedge accounting

Redeliberations

Finalised IFRS

Q4 2013

Financial instruments — Macro hedge accounting

Research/deliberations

Discussion paper

Q1 2014*

Financial instruments — Limited reconsideration of IFRS 9 (classification and measurement)

Redeliberations

Finalised IFRS

Q1/Q2 2014

Insurance contracts

Re-exposure

Redeliberations

Q4 2013

Leases

Re-exposure

Redeliberations

Q4 2013

Rate-regulated activities — interim IFRS

Exposure draft

Finalised IFRS

Q1 2014*

Rate-regulated activities — Comprehensive project

Research/deliberations

Discussion paper

Q1 2014

Revenue recognition

Redeliberations

Finalised IFRS

Q1 2014*

* Indicates a change since the prior work plan update.

There have also been changes to the timing of a number of narrow scope projects:


In addition, the publication of a request for information arising from the post-implementation review of IFRS 3 is now expected in the first quarter of 2014.

Click for IASB work plan dated 5 November 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

Agenda for November 2013 IFRS Interpretations Committee meeting

05 Nov, 2013

The IFRS Interpretations Committee will meet at the IASB's offices in London on 12-13 November 2013. The agenda for the meeting is now available.

The Committee will:

  • Continue discussion on various topics (IAS 19 and IFRS 2)
  • Consider finalising three tentative agenda decisions (IAS 19, IFRS 10, IFRS 11)
  • Consider a number of new topics (IAS 39, IFRIC 21, IAS 8, IFRS 11, IAS 17, IFRS 10, IAS 12)

The full agenda for the meeting, as of 5 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.

We comment on new draft SORP for charity accounting and reporting.

04 Nov, 2013

We have published our comment letter on the Charity Commission for England and Wales and the Office of the Scottish Charity Regulator Exposure Draft on a new Statement of Recommended Practice for charity accounting and reporting (“the Charity SORP”). We support the proposed revisions contained within the Charity SORP but also highlight a number of ways in which it can be improved.

Our key comments include: 

  • We believe that there are a number of ways in which the SORP could be made more useful to smaller charities.  One suggestion is to identify clearly the source of each requirement in the SORP so that it is clear whether the requirement applies to entities that apply the Financial Reporting Standard for Smaller Entities (FRSSE).
  • We make a number of suggestions to improve the SORP microsite including the possibility of generating a version of the SORP which contains material only relevant for FRSSE or Companies Act entities and there be an option to obtain only the disclosure requirements of the SORP.
  • Consideration should be given as to how the structure and content of the trustees’ annual report will interact with the new strategic report that will be required for large and medium-sized charitable companies for periods ending on or after 30 September 2013.
  • We believe that more guidance is required in the areas of:
    • preparation of a parent charity Statement of Financial Activities where group financial statements are prepared;
    • donated goods and the retail Gift Aid Scheme; and
    • requirements of FRS 102 not covered by the SORP.
  • We believe that there is no need to expand the disclosure requirements to require larger charities to disclose the job title and remuneration of their highest paid employee as this will already be dealt with in the bandings of staff salaries.
  • We believe that charities should be able to take advantage of the disclosure exemptions permitted for parent and subsidiary charities by Financial Reporting Standard (FRS) 102, in particular the exemption from preparing multiple cash flow statements. 

A number of further improvements are highlighted in our comment letter such as aligning the terminology used within the SORP to that used within FRS 102, recommending an explicit reference to the FRC guidance on going concern within the SORP and clarifying that the definition of related parties for charities is wider than that contained within FRS 102. 

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter.

We comment on new draft SORP for UK Authorised Funds

04 Nov, 2013

We have published our comment letter on the revised Statement of Recommended Practice (SORP) for UK Authorised Funds ("the IMA SORP”) issued by the Investment Management Association (IMA). We support the proposed revisions to the IMA SORP, commenting that these are “broadly consistent with changes in the regulatory and accounting framework” but also highlight cases where there are deviations from the requirements of Financial Reporting Standards 100 – 103 for consideration by the IMA.

We have the following specific comments: 

  • FRS 102 allows entities and accounting policy choice over the recognition and measurement requirements to apply for financial instruments.  However the SORP is not explicit as to whether all entities within the scope of the SORP should apply the provisions in Sections 11 and 12 of FRS 102 in full (one of the options) or allow entities a free choice.  If the latter, then we comment that “some of the guidance in the SORP may need to be amended including that related to fair value”.
  • The proposed SORP requires that debt instruments are designated as at fair value through profit or loss but there is no explicit requirement in the SORP in respect of debt instruments that are liabilities.
  • The proposed SORP does not explain how, on the asset side, investments are to be valued at their fair value and should have an explicit requirement in relation to designation.
  • Compliance with the disclosure requirements in the IMA SORP “will generally result in full compliance with the disclosure requirements of Sections 11, 12 and 34 but will not do so in all cases”. 

On other aspects of the proposals we also comment that “funds may find it challenging in practice to obtain the proposed further breakdown of dealing costs into execution and research components”.  We note that, in order to capture information at this level, Fund Administrators will need to implement new systems and we propose that additional guidance “on how to attribute dealing costs between the two components may be helpful to preparers”.  We also comment that, although removing guidance relating to the separation of embedded derivatives is consistent with the requirements of Sections 11 and 12 of FRS 102, this “will make the revenue recognition on such instruments both more volatile and more complex than it is today” and “on balance” should be retained.  

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter.

We comment on FRED 49: Draft FRS 103 Insurance Contracts

04 Nov, 2013

We have published our comment letter on the Financial Reporting Council’s Financial Reporting Exposure Draft (FRED) 49: ‘Draft FRS 103 Insurance Contracts’. We support the introduction of FRS 103 as a single standard for accounting for insurance contracts under UK GAAP.

In general we welcome the fact that draft FRS 103 is based on IFRS 4 Insurance Contracts and comment that “the incorporation of many of the requirements of FRS 27 Life Assurance and elements from the existing Association of British Insurers Statement of Recommended Practice on Accounting for Insurance Business (ABI SORP) will help to ensure that existing practices are largely preserved under the new regime pending the completion of the IASB’s project on insurance accounting”.

However, we have raised a number of comments in relation to paragraphs 2.2-2.11 of draft FRS 103 which, in line with IFRS 4, “provide a more flexible regime for voluntary changes of accounting policy relating to insurance contracts”.  We believe that the improvement options from IFRS 4 “should not form part of the final FRS 103”. 

We comment: 

Whilst this flexibility is helpful in jurisdictions without a comprehensive basis of accounting for insurance contracts, this is not the case in the UK where the law, the ABI SORP and FRS 27 provide such a comprehensive basis.  Furthermore, allowing greater latitude in the selection of insurance contract accounting policies would reduce comparability between UK entities.  Given that there are already constraints on this flexibility arising from UK law, we believe that the benefits of comparability to both shareholders and regulators outweigh the limited benefits this change would bring.

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter.

Compliance checklists for 2013 issued

04 Nov, 2013

Deloitte's IFRS Global Office has issued updated versions of the IFRS compliance, presentation and disclosure checklist and the IAS 34 compliance checklist for 2013. These checklists are "pure" IFRS checklists and do not contain the additional legal and regulatory requirements which UK IFRS reporters will also need to comply with.

The IFRS compliance, presentation and disclosure checklist 2013 summarises the recognition, measurement, presentation and disclosure requirements set out in IFRSs in issue as of 30 April 2013. IFRSs include Standards as issued by the International Accounting Standards Board (IASB) and the former International Accounting Standards Committee and Interpretations as issued by the IFRS Interpretations Committee and the former Standing Interpretations Committee. It may be used as a guide to assist in considering compliance with the requirements of the IFRSs. It is not a substitute for understanding such pronouncements.  This is a "pure" IFRS compliance, presentation and disclosure checklist.  UK IFRS reporters should additionally refer to 'iGAAP 2013 Annual report disclosures for UK listed groups' for the legal and regulatory requirements which UK IFRS reporters will also need to comply with.

The IAS 34 compliance checklist 2013 summarises the requirements of IAS 34 Interim Financial Reporting, formatted to allow the recording of a review of interim financial statements, with a place to indicate yes/no/not-applicable for each item. The checklist addresses the requirements of IAS 34 as of 30 April 2013.  This is a "pure" IFRS compliance checklist.  UK IFRS reporters should additionally refer to '2013 update on half-yearly financial reporting' for the legal and regulatory requirements which UK IFRS reporters will also need to comply with.

Click for:

ICAEW publishes two new Technical Releases

04 Nov, 2013

The Institute of Chartered Accountants in England and Wales has issued two new Technical Releases - Tech 11/13BL and Tech 12/2013BL.

Tech 11/13BL ‘Accountants’ reports on Commercial property service charge accounts’ sets out “best practice in the conduct of the independent accountants review” of annual statements of service charge expenditure which must be reviewed by an independent accountant under the Royal Institute of Chartered Surveyors (RICS) Code of Practice, ‘Service Charges in Commercial Property’.  The Technical Release provides guidance on the form of the report to be given and the procedures to be undertaken in making the report.  The Technical Release does not apply to “engagements relating to properties containing residential accommodation (dwellings)”. 

Tech 12/2013BL ’Audit reporting on financial statements of pension schemes prepared for segregation under the Pension Protection Fund Multi-Employer Regulations’ provides “guidance to Institute members when issuing audit reports to Trustees on the segregation of pension schemes, under Multi-Employer Regulations”.  The guidance is not an auditing standard and “professional judgement should be used in its application”. 

Click for (all links to the ICAEW website):

October 2013 IASB meeting notes — Part 3 (concluded)

04 Nov, 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 the final Deloitte observer notes from the meeting, covering the discussions on Macro hedge accounting and impairment.

Click through for direct access to the notes:

Thursday, 31 October 2013

IASB meeting

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Correction list for hyphenation

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