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FRC publishes Staff Education Notes for users of FRS 102

18 Dec 2013

The UK Financial Reporting Council (FRC) has today published fifteen Staff Education Notes (SEN), which illustrate certain requirements of FRS 102 for the convenience of its users.

The FRC has issued the SENs to assist entities using or thinking of using FRS 102 as a basis of preparation for their financial statements. These guidance notes aim to illustrate certain requirements of FRS 102, although they do not have any authoritative status.

The notes issued are as follows (all links to the FRC website):

*Update 28 April 2015.  The FRC published an updated version of SEN 13 (link to FRC website) largely updated to clarify the examples and revise the descriptions of the transitional exemptions to align with the requirements in the August 2014 edition of FRS 102.

* Update 27 October 2015.  The FRC published SEN 16 (link to FRC website) Financing Transactions.  This gives guidance on accounting for financing transactions within FRS 102.  The FRC also published an updated version of SEN 2 (link to FRC website) to reflect consequential amendments resulting from the issue of SEN 16.  Additionally the FRC has updated SEN 13 (link to FRC website) to reflect changes made to Section 35 of FRS 102 in July 2015.  The FRC website has also been updated to provide information on how SENs may be useful for entities that apply Section 1A Small Entities of FRS 102 or FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

Research paper by EFRAG, ANC and FRC on the role of the business model in financial statements

18 Dec 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), and the UK Financial Reporting Council (FRC) have published a research paper on 'The Role of the Business Model in Financial Statements'. The paper is the result of one of the projects on EFRAG's proactive agenda

The paper leads through the chapters

    1. Background
    2. The business model in IFRS
    3. Assumed meaning and examples of business models
    4. The conceptual discussion and
    5. Implications of the business model for financial statements

to the conclusions that the business model should continue to play a role in financial reporting, that it is time for a change to the current ad-hoc use and that the concept of the business model should be included in the Conceptual Framework with appropriate guidance for standard-setting.

A Conceptual Framework bulletin on the role of the business model in financial reporting published in July 2013 also considered whether financial reporting based on the business model notion provides useful information.

The following information is available on the EFRAG website:

The research paper is open for comment until 31 May 2014.

IESBA seeks input on its strategy

18 Dec 2013

The International Ethics Standards Board for Accountants (IESBA) has released a consultation paper on its strategy and work plan for the 2014-2018 period. The consultation paper shows the IESBA's plans in developing the 'Code of Ethics for Professional Accountants' (Code) to ensure it remains relevant and responds to global developments.

The Consultation Paper outlines four key strategic themes identified by the IESBA:

  • Maintaining a high-quality Code of Ethics for application by professional accountants globally - maintaining a focus on independence standards for audits of financial statements but also to more comprehensively address the particular ethical issues faced by professional accountants in business
  • Promoting and facilitating the adoption and effective implementation of the Code - responding to perceived barriers to the adoption of the Code by reviewing the current structure and draft convention of the Code so that it is written in a way that is easier to understand and adopt
  • Evolving the Code for continued relevance in a changing global environment - in relation to regulatory developments around the nature and extent of services auditors can provide to their clients and continuing globalisation of capital markets increasing complexity and opacity in some areas, particularly collective investment vehicles
  • Increasing engagement and cooperation with key stakeholders - forging closer working relationships with key stakeholder groups, including regulators and auditor oversight bodies, national standard setters, the profession, investors and International Federation of Accountants (IFAC) member bodies.

The paper also outlines the various projects the IESBA intends to undertake in responding to the above themes.

The Consultation Paper is open for comment until 28 February 2014. Click for IESBA announcement (link to IFAC website).

Memorandum of understanding between the FRC and the PRA

18 Dec 2013

The Financial Reporting Council (FRC) and the Prudential Regulation Authority (PRA) have entered into a memorandum of understanding (MoU) which seeks to formalise the principles for ongoing cooperation and coordination between the two organisations.

The MoU seeks to assist both organisations in carrying out their respective regulatory responsibilities.  It covers areas such as:

  • Information sharing;
  • Co-operation in the area of standard-setting;     
  • Co-operation on monitoring and enforcement; and
  • Co-operation in the area of the FRC’s oversight responsibilities.

Senior directors of the FRC and the PRA will be responsible for the co-ordination set out in the MoU and will meet twice yearly to assess the effectiveness and efficiency of the co-ordination and co-operation.

The MoU can be obtained from the Bank of England website.

JURI approves draft law on additional disclosure requirements for social and environmental concerns

18 Dec 2013

The Legal Affairs Committee of the European Parliament (JURI), which is the committee responsible for changes in the legal requirements around company reporting, approved new draft legislation on Tuesday which will require certain large companies to provide additional information on social and environmental issues in their annual reports. The members of the Committee also voted to recommend the European Commission to consider proposing legislation in 2018 for country-specific reporting of profits, taxes and subsidies.

The EU Commission proposed amendments in this area in April 2013, which were put before JURI in November 2013, where they were combined with the opinions of several other committees. JURI has now mandated the Rapporteur Raffaele Baldassarre to start negotiations with the Council.

Currently, it is expected that the first reading in the European Parliament will occur on 10 March 2014.

Click here for the European Parliament press release (link to European Parliament website).

FRC issues draft response to the IASB's proposed changes to the IFRS for SMEs

17 Dec 2013

The UK Financial Reporting Council (FRC) has issued for comment a draft response to the IASB's proposed changes to the IFRS for SMEs, issued in October 2013. The FRC has asked for comments on this proposed response by 24 January 2014.

In October 2013, the IASB issued an exposure draft proposing changes to the IFRS for SMEs. The FRC has drafted a response to the proposed changes. In its response, the FRC encourages the IASB to reconsider whether:

a) its interpretation of the scope of the IFRS for SMEs is appropriate for an international accounting standard that, if applied in economies with more advanced financial reporting and regulatory frameworks, such as the UK, would have within its scope some very large and complex entities; or

b) whether the stated scope of the IFRS for SMEs should be amended to reflect the IASB’s interpretation of that scope in developing a standard which is designed to be suitable for entities which typically have less complex transactions, limited resources to apply full IFRSs and operate in circumstances in which comparability with their listed peers is not an important consideration.

The FRC also does not agree that the list of principles developed by the IASB for dealing with new and revised IFRSs is appropriate, or that the principles are clear enough to indicate to constituents when amendments to the IFRS for SMEs could be expected as a result of changes to full IFRSs.

As well as responding to the IASB's detailed questions, the FRC also highlights some technical issues with the IFRS for SMEs that have come to their attention as part of the development of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

The draft response can be found here on the FRC website and the invitation to comment here.


FRC publishes draft updates to FRS 101 Reduced Disclosure Framework

17 Dec 2013

The UK Financial Reporting Council (FRC) has today published an exposure draft of its first set of annual amendments to FRS 101, the Reduced Disclosure Framework available to UK subsidiary companies that wish to apply the recognition and measurement requirements of IFRSs in their financial statements.

FRS 101 Reduced Disclosure Framework was originally published in November 2012 as part of the FRC's project to replace current UK GAAP with a new suite of standards, which also includes FRS 100 Application of Financial Reporting, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and, once finalised, FRS 103 Insurance Contracts (currently at the exposure draft stage).

FRS 101 was published in recognition of the fact that many UK groups prepare their consolidated financial statements in accordance with IFRSs rather than UK GAAP. For subsidiary entities, application of IFRSs is attractive because it would produce numbers consistent with those used to prepare the group accounts. However, many companies are put off using IFRSs for their subsidiaries by the extensive disclosure requirements.  In recognition of this, the FRC identified a number of disclosures that were, in their view, of limited usefulness in a set of subsidiary accounts. FRS 101 allows entities, in their entity only accounts, to apply the recognition and measurement requirements of IFRSs but take advantage of exemptions from these disclosures.

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups. FRED 53 Draft Amendments to FRS 101 Reduced Disclosure Framework (2013/14) is the first of these proposed annual updates.

The main changes proposed by the FRC are:

  • to simplify the new disclosure requirements of IAS 36 Impairment of Assets in relation to fair value measurements used in impairment reviews; and
  • to clarify how entities applying FRS 101 can adopt the new international accounting practice for investment entities (set out in IFRS 10 Investment Entities and its consequential amendments to IAS 27 Separate Financial Statements), whilst still complying with legal requirements.

It is proposed that these amendments would have the same effective date as the existing standard i.e. periods commencing on or after 1 January 2015.

The comment period for this exposure draft closes on 21 March 2014.

Click here for a link to the press release on the FRC website and here for a copy of the exposure draft itself.

IASB work plan updated

17 Dec 2013

Following its recent meeting, the International Accounting Standards Board (IASB) has updated its work plan. Some smaller adjustment were made but mainly the new work plan simply provides a consolidated view of the current status with finalised projects removed and redeliberation dates added for projects where exposure drafts have been published.

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


Q1/Q2 2014

Financial instruments — Impairment


Finalised IFRS

Q1/Q2 2014

Financial instruments — Macro hedge accounting


Discussion paper

Q1 2014

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


Finalised IFRS

Q1/Q2 2014

Insurance contracts



Q1 2014




Q1 2014*

Rate-regulated activities — interim IFRS

Exposure draft

Finalised IFRS

Q1 2014

Rate-regulated activities — Comprehensive project


Discussion paper

Q2 2014

Revenue recognition


Finalised IFRS

Q1 2014

* Indicates a change since the prior work plan update.

Changes concerning narrow scope projects are:

Click for the IASB work plan dated 17 December 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

ICAEW challenges whether comply or explain is always an effective approach

16 Dec 2013

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a paper questioning whether the comply or explain approach taken by the UK Corporate Governance Code is always effective and universal.

Comply or explain is the fundamental basis of the UK Corporate Governance Code (the Code), where companies and boards do not need to comply with the Code provisions if they can justify non-compliance, and has been adopted widely in Europe and beyond. In its paper, ICAEW argues that the comply or explain approach is in danger of being undermined.

Supporters of comply or explain need to explain its relative advantages if it is not to be replaced by regulatory interventions where corporate behaviour continues to disappoint. ICAEW argues that these advantages are:

  • Innovation - introducing aspirational new ideas and changes to company governance.
  • Proportionality - measured application of more demanding requirements, especially for smaller businesses.
  • Avoiding box-ticking - encouraging companies to think through overarching principles before complying with provisions because they have the option to “explain”.
  • Long-term learning - assisting cultural change in companies by encouraging them to think about how to meet the purpose and principles of corporate governance.

Click here to download the ICAEW press release from their website and here for the full report.

FRC publishes thematic review of auditors' materiality judgements

16 Dec 2013

The UK Financial Reporting Council (FRC) has today published the findings from its review of auditors' consideration and application of materiality. The report sets out a number of observations on the application of materiality by the six largest UK audit firms, as well as the reporting of identified errors to audit committees. It also sets out some key messages for audit firms and audit committees to consider.

In 2013, for the first time, the FRC's Audit Quality Review (AQR) team have begun conducting Audit Quality Thematic Reviews. From 2013 onwards, thematic reviews will supplement their annual programme of audit inspections of individual firms. Two reviews have been conducted in 2013:

  • A review of the auditor's consideration and application of materiality; and
  • A review of the auditor’s identification of and response to fraud risks and relevant laws and regulations.

The report on materiality considerations has been published today, with the report on fraud risks, laws and regulations expected in January 2014. The report is based on data from a cross-section of audits conducted by the six largest UK audit firms - BDO LLP, Deloitte LLP, Ernst & Young LLP, Grant Thornton UK LLP, KPMG LLP and KPMG Audit plc and PricewaterhouseCoopers LLP.

The report identifies a number of findings:

  • Several of the firms have recently made changes to their materiality guidance which may lead to higher materiality levels being set.
  • Some firms have significantly higher acceptable percentage ranges than others for determining materiality.
  • Auditors did not always appropriately explain and justify their judgments in completing templates for setting materiality.
  • In the majority of cases materiality levels set were the maximum permitted under the firm’s guidance, irrespective of the risks identified.
  • Auditors did not always appropriately consider revising materiality levels when actual performance was significantly worse than forecast.
  • In a number of instances, not all of those errors that should have been reported to the audit committee were communicated by the auditor.

The report also identifies some key messages for both audit firms and audit committees to address these findings. In particular, firms should ensure that appropriate judgement is exercised in setting materiality and that the judgements made are fully documented. Audit committees should seek to understand the materiality level set by their auditors and why it is considered to be appropriate, including the impact that it will have on the audit procedures.

The FRC's press release can be found on their website here and the report itself can be downloaded here.

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