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IMA suggests actions to reap the benefits of integrated reporting

13 Dec 2013

In a reaction to the release of the International Integrated Reporting <IR> Framework last Monday, the Institute of Management Accountants (IMA) has outlined several actions to transform corporate reporting to better serve the public interest. IMA opines that the goals behind integrated reporting must be defined and that producing an integrated report should not be a goal in itself.

IMA believes that four issues must be addressed to reap the benefits of IR:

    1. The ultimate goal should not be to produce a single, integrated report. Rather, it should be to motivate disclosures that better inform investors and other stakeholders.
    2. Market evidence should be developed by shifting the assessment of the benefits of integrated reporting more towards to "actual value delivery participants" of the value chain among which IMA sees business owners, business managers, CFOs, preparers, investors, and analysts.
    3. A "learning and growth" approach should be taken with tangible step changes such as improving disclosures and motivating more concise and informative financial reports including reporting on intangibles. IMA believes mandatory reporting would have an adverse effect.
    4. Supporting technology such XBRL/structured data standards that could potentially improve the cost/benefit of integrated reporting should be developed.

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Report from recent IFASS meeting released

12 Dec 2013

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in Brussels on 19‐20 September 2013.

Highlights from the meeting included:

IASB and IFRS Foundation developments - general update and discussion

  • Participants discussed the strategies and governance of the work of the International Financial Reporting Standards Foundation Trustees, the IASB's efforts in developing and improving IFRSs and other noteworthy matters. General comments on the current projects of the IASB and the IFRS Foundation included concerns that the IASB and U.S. cultures regarding revenue recognition differ, the observation that the conceptual framework project is very challenging and that the issues need to be thoroughly thought through and a statement that participants are not necessarily aware where educational material is used.
  • It was also observed that although stakeholders have asked for a period of calm, IFRIC is dealing with a large number of issues, issuing negative agenda decisions and annual improvements. It was criticised that that many of the issues being dealt with through the annual improvements are not annual improvements as such but other minor amendments. Although IFRIC is very active, the output mainly consists of negative agenda decisions. Participants wondered how affected stakeholders should proceed when IFRIC issues are rejected by IFRIC because they are not widespread. They also noted that issues were not always addressed on a timely basis.

Topical Issues

Participants then discussed several topical issues:

  • Rate regulation: Potential basis for recognition,
  • Application issues related to IFRS 11 Joint Arrangements,
  • Integrated reporting – roles of NSS and views formed,
  • Disclosures required when partly owned subsidiaries are consolidated,
  • Report‐back regarding discount rate issues,
  • Presentation of exceptional items in the statement of profit or loss,
  • Post‐Implementation Review of IFRS 3 Business Combinations.

Conceptual Framework Issues

One focal point of the IFASS meeting was the conceptual framework project of the IASB, especially regarding the aspects of measurement and prudence. On measurement the key messages were that the IASB should not use a pragmatic approach as starting point and that the conceptual framework should be aspirational in nature. Prudence was discussed in three break‐out groups with one group coming to the conclusion that the conceptual framework should provide a clear definition or description of prudence, one opining that prudence should be discussed in the conceptual framework as an item to be considered in limited circumstances and one believing that an appropriate balance should be struck between all the qualitative characteristics.


Participants discussed the draft of the new Charter indented to replace the existing statement outlining relationship of IASB and NSSs and taking the creation of ASAF and other developments into account.

Reports from regional groups

Reports were received from the AOSSG, EFRAG, GLASS, and PAFA representatives.

Update on the IASB's work plan

Participants were informed about the status of major projects (leases, insurance, macro hedging, impairment, and general hedge accounting) as well as the progress regarding several (in part new) narrow-scope projects.


Click for the full report (link to UK Financial Reporting Council website). The next IFASS meeting will be held in New Delhi on 6‐7 March 2014.

FRC draft plan and budget highlights key areas of focus for 2014/2015

12 Dec 2013

The Financial Reporting Council (FRC) has today issued its draft plan and budget and levy proposals for 2014/2015. The FRC request comments by 28 February 2014.

The draft plan and budget and levy proposals identify a number of priority areas for the FRC to focus on in 2014/15.  An update on the progress that the FRC are making against their three year plan (2013-2016) is also given. 

Corporate Governance and stewardship.  

The FRC will “continue to promote a longer term approach to Corporate Governance and investor stewardship”.  

In the area of Corporate Governance and stewardship, key areas the FRC will focus on are: 

  • To consult on any further proposals for amending the UK Corporate Governance Code.  The FRC has recently consulted on “how the UK Corporate Governance Code should address risk management and reporting by listed companies so as to implement Lord Sharman’s proposals in relation to going concern” (link to FRC website).  The FRC will seek to update the UK Corporate Governance Code for these areas. 
  • To “undertake an assessment of the quality of board succession planning” where a number of board reviews identify that improvements can be made.  
  • To encourage “improvements in the quality of explanations where Boards choose not to comply with a Code provision”. 
  • To consider the impact of the revised UK Corporate Governance Code.  It is expected that the Financial Reporting Lab will carry out a project on risk management once the new guidance is finalised in 2014 and update its findings from its October 2013 report of audit committee reporting.
  • To focus on better implementation of the Stewardship Code and overall development of a “stewardship culture”.  To achieve this the FRC will “work with markets and investors in the UK and internationally to try to ensure that investors in the capital markets have the information they need to invest for the long-term”. 

Corporate reporting  

In seeking to “meet the needs of investors for trustworthy and relevant information”, the FRC will focus on key areas such as: 

Audit quality and value          

The FRC will “continue to focus on the quality and value of audit and what measures may be needed for audit to meet evolving public expectations”.  A particular focus will be on the quality of bank audits. 

In 2014/15, the FRC focus on key areas such as: 

  • The quality of auditing of banks.  The FRC has indicated that this review will begin in Q2 2014 with a “formal report expected to be published by the end of the year”.  In a separate press release (link to FRC website) the FRC comment that “the pace of improvements in the quality of auditing of banks and building societies has not been sufficient” and during their audit reviews, these audits are “below the average of all audits inspected”.  The need for improvements in the quality of auditing of financial institutions was highlighted as a key concern in the 2013 Audit Quality Inspection Report.  The FRC indicates that “the review will focus on the testing of loan loss provisions and general IT controls”.
  • Continue to monitor and report on the quality of approximately 125 audit engagements under the annual programme.  The FRC will use “new regulatory powers to impose sanctions where poor quality audit work is identified”. 
  • Continue to contribute to the work of the International Auditing and Assurance Standards Board (IAASB), the International Forum of Independent Audit Regulators (IFIAR) and the European Audit Inspection Group (EAIG). 

Oversight, monitoring and enforcement activities 

The FRC will continue to develop their monitoring and enforcement responsibilities. 

Key areas of focus will be: 

  • To implement the recommendations of the Competition Commission regarding additional responsibilities for the Audit Quality Review Team (AQR) of the FRC to “review every audit engagement in the FTSE 350 on average every five years”. 
  • To “prepare to implement the requirements of the new Audit Directive which the EU is expected to agree in early 2014” and “the implementation of local public sector audit inspection regimes”.  The first inspection of public sector audits is expected in 2016.
  • To inspect auditors of public interest entities as a result of “likely” EU requirements. 

The FRC recognise that these extra activities will result in a requirement for increased resource. 

The full ‘Draft plan and budget and levy proposals 2014/15” contains further areas of focus for 2014/15 in addition to the above areas.  The FRC also identify actions it will take to enhance actuarial regulation and standards and explain how these key activities for 2014/15 will be funded. 

Click for (all links to FRC website): 

EFRAG updates endorsement status report for annual improvements amendments

12 Dec 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its endorsement status report to reflect the release by the IASB of annual improvements to IFRSs for the 2010–2012 and 2011–2013 cycles.

The endorsement status report notes the issuance of Annual Improvements to IFRSs 2010-2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle, both on 12 December 2013. These collections of amendments are effective for annual periods beginning on or after 1 July 2014.  The report indicates that endorsement is currently expected in the third quarter of 2014.

The endorsement status report, dated 12 December 2013, is available here.

IASB appoints Executive Technical Director

12 Dec 2013

The International Accounting Standards Board (IASB) has appointed Hugh Shields as Executive Technical Director. Mr Shields will lead the IASB's technical staff and be responsible for the efficient delivery of all technical activities.

Mr Shields follows Sue Lloyd who is currently Senior Director of Technical Activities for the IASB and has been appointed as IASB member beginning 1 January 2014. The change in title to 'Executive Technical Director' suggests that Mr Shields' portfolio of tasks will differ slightly from Ms Lloyd's.

Mr Shields currently serves as a Managing Director for Credit Suisse in the Europe, Middle East and Africa region and is responsible for both financial and regulatory reporting across the bank. He will begin his work at the IASB in March 2014.

Please click for more information in the press release on the IASB website.

Following the appointment of Hugh Shields, IASB Chairman Hans Hoogervorst provided an overview of recent changes to the leadership of the IASB's technical staff which recognises the changing landscape within accounting standard-setting.

IASB concludes the 2011-2013 Annual Improvements cycle

12 Dec 2013

The IASB issued 'Annual Improvements to IFRSs 2011–2013 Cycle', a collection of amendments to IFRSs, in response to issues addressed during the 2011–2013 cycle. Four standards are affected by the amendments.

Annual Improvements 2011–2013 Cycle makes amendments to the following standards:

Standard Amendments
IFRS 1 First-time Adoption of International Financial Reporting Standards (changes to the Basis for Conclusions only) Meaning of effective IFRSs
Clarifies that an entity, in its first IFRS financial statements, has the choice between applying an existing and currently effective IFRS or applying early a new or revised IFRS that is not yet mandatorily effective, provided that the new or revised IFRS permits early application. An entity is required to apply the same version of the IFRS throughout the periods covered by those first IFRS financial statements.
IFRS 3 Business Combinations Scope of exception for joint ventures
Clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
IFRS 13 Fair Value Measurement Scope of paragraph 52 (portfolio exception)
Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation.
IAS 40 Investment Property Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property
Clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property requires the separate application of both standards independently of each other.

The amendments are effective for annual periods beginning on or after 1 July 2014, but can be applied earlier. For more information, please see the press release on the IASB's website or our Annual improvements page.

Deloitte has prepared an 'Need to know' newsletter explaining the amendments.

IASB concludes the 2010-2012 Annual Improvements cycle

12 Dec 2013

The IASB issued 'Annual Improvements to IFRSs 2010–2012 Cycle', a collection of amendments to IFRSs, in response to issues addressed during the 2010–2012 cycle. Seven standards are affected by the amendments.

Annual Improvements 2010–2012 Cycle makes amendments to the following standards:

IFRS Amendments
IFRS 2 Share-based Payment Definition of 'vesting condition'
Amends the definitions of 'vesting condition' and 'market condition' and adds definitions for 'performance condition' and 'service condition' (which were part of the definition of 'vesting condition' before).
IFRS 3 Business Combinations
(with consequential amendments to other standards)
Accounting for contingent consideration in a business combination
Clarifies that contingent consideration that is classified as an asset or a liability shall be measured at fair value at each reporting date.

IFRS 8 Operating Segments

Aggregation of operating segments
Requires an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments.

Reconciliation of the total of the reportable segments' assets to the entity's assets
Clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segment assets are reported regularly.

IFRS 13 Fair Value Measurement
(amendments to the basis of conclusions only, with consequential amendments to the bases of conclusions of other standards)
Short-term receivables and payables
Clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial.
IAS 16 Property, Plant and Equipment Revaluation method - proportionate restatement of accumulated depreciation
Clarifies that when an item of property, plant and equipment is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.
IAS 24 Related Party Disclosures Key management personnel
Clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity.
IAS 38 Intangible Assets Revaluation method - proportionate restatement of accumulated amortisation
Clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.

The amendments are effective for annual periods beginning on or after 1 July 2014, but can be applied earlier. For more information, please see the press release on the IASB's website or our Annual improvements page.

Deloitte has prepared a 'Need to know' Newsletter explaining the amendments.

ICAEW issues updated guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services.

12 Dec 2013

The Institute of Chartered Accountants in England and Wales (ICAEW) has issued updated guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services.

The updated guidance, Tech 14/13 FRF ‘Disclosure of auditor remuneration’, supersedes the draft guidance set out in TECH 04/11 FRF.  It provides guidance on the application of the legal requirement for companies to disclose in their individual and group accounts the remuneration receivable by the company’s auditor and the auditor’s associates for the audit of the accounts and (non-audit) services.  The legal requirements are set out in the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011 (SI 2011/2198) (“the 2011 Regulations”) which amended the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 (SI 2008/489).      

Tech 14/13 FRF is “substantively unchanged” from the draft guidance in Tech 04/11 FRF.  However the ICAEW has included additional guidance in relation to question 46 ‘Does information about other services performed after the period end need to be disclosed in the accounts?’  They comment: 

additional guidance has been added to the answer to question 46 to clarify the relationship between the requirements of the 2011 Regulations and the contents of the illustrative template for communicating information on audit and non-audit services to those charged with governance that is appended to the Auditing Practices Board’s Ethical Standard 1 Integrity, objectivity and independence

Click for Tech 14/13 FRF on the ICAEW website.

HM Treasury publishes final guidance on CRD IV country-by-country reporting and Regulations approved.

11 Dec 2013

The Capital Requirements (Country by Country Reporting) Regulations 2013 (SI 2013/3118) (“the Regulations”), which will transpose the country-by-county reporting requirements in the EU Capital Requirements Directive 4 (“CRD IV”) into UK law, have now been approved. Alongside the Regulations, HM Treasury has published final guidance to aid preparers in interpreting and applying the Regulations.

In November, HM Treasury invited comments on draft Regulations and draft guidance.  Following a short period of consultation HM Treasury has indicated that the “responses to the final consultation were broadly positive”.  However, as a result of the consultation, HM Treasury has made some amendments to the draft guidance to provide some further clarification in certain areas. 

The key aspects of the Regulations are:

  • All institutions (as defined in Article 4(1)(3) of the CRR) should publish annually, on a consolidated basis, by country where they have an establishment:

a)      their name, nature of activities and geographic location;

b)      number of employees;

c)      their turnover;

d)     pre-tax profit or loss;

e)     corporation tax paid; and

f)     any public subsidies received.

  • Institutions will be required to publicly disclose the information from 1 January 2015 and from 1 July 2014 they must disclose (a)-(c) above. 
  • Certain “global systematically important institutions” will be required to disclose additional information such as their pre-tax profit or loss, their taxes paid and any public subsidies received by 1 July 2014.  Should this disclosure not be deemed to be prejudicial all credit institutions and investment firms will have to disclose this information from 1 January 2015. 
  • This information is to be published “in accordance with accepted accounting standards on a consolidated basis for each country in which the institution has a subsidiary, branch or both”.  The final guidance states that “in practice this will require institutions to use an accounting approach to consolidation either in accordance with International Financial Reporting Standards (IFRSs) or Generally Accepted Accounting Principles (GAAP)".  The final guidance explains that aggregation of disclosure may be allowed where more than one institution within the group is within the scope of the Regulations.  The final guidance also elaborates on how institutions which are part of a wider group may meet their disclosure obligations.
  • The disclosures are required to be audited and the final guidance explains that this could be part of the statutory audit or part of an additional external assurance engagement. 

The Regulations will be enforced by the Prudential Regulation Authority (PRA) for PRA-regulated institutions and by the Financial Conduct Authority (FCA) for all other institutions.  They will come into force on 1 January 2014. 

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FRC supports IAASB proposed changes to audit reports

11 Dec 2013

The Financial Reporting Council (FRC) has issued their final comment letter on the International Auditing and Assurance Standards Board (IAASB) proposed changes to audit reports. Whilst the FRC are “strongly supportive” of the proposals they do highlight certain areas where they feel that changes or improvements can be made.

The IAASB Exposure Draft (ED) ‘Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs) revises a number of existing ISAs (700, 260, 570, 705 and 706) but also introduces a new ISA, ISA 701 ‘Communicating Key audit matters in the Independent Auditor’s Report’.  Under ISA 701, the IAASB proposes that within the audit report there should be a “key audit matters” section which would outline audit matters that were of most significance which arose during the audit.    

The FRC “continues to be strongly supportive of the IAASB’s proposals” but also feel certain changes or improvements can be made: 

  • Proposed ISA 701.  The FRC comment that although the auditor should use judgment when describing key audit matters, the proposed ISA 701 should still be “more prescriptive regarding the minimum description in the auditor’s report of each key audit matter”.  The FRC comment that the current proposals are “minimal and may fail to achieve the outcome that the IASB is hoping for in the content of auditor’s reports”.
  • Addition to proposed ISA 700.  The FRC comment that this should “require the auditor’s reports of listed companies to include information concerning the scope of the audit and the way in which the scope was influenced by the auditor’s risk assessment and application of the concept of materiality”.  The FRC “encourage” the IAASB to adopt a similar level of requirements as the FRC has introduced in their revisions to ISA 700 ‘The Independent Auditor’s Report on Financial Statements’ (UK and Ireland) which increase disclosures to be provided in three areas; risks, materiality and scope of the audit. 
  • Key audit matters disclosure.  The FRC comment that the proposed requirement to describe key audit matters in the auditor’s report or to refer to such a description “is unnecessary where the auditor is satisfied that such matters have been appropriately disclosed in the Annual Report by those charged with Governance”.  The FRC are keen to avoid duplication of a description of the key audit matters in both the auditor’s report and the report prepared by those charged with governance.  They comment that where key audit matters have been described by the audit committee (but not explicitly highlighted as key audit matters), the audit report need only highlight what were the key audit matters in the report prepared by those charged with governance rather than repeating them in the audit report.
  • Key audit matters distinction.  The FRC comment that “the IAASB’s proposals do not fully take into account the important definitional difference between an Emphasis of Matter and a Key Audit Matter”.  The FRC indicate that the proposals do not highlight which key audit matters were, in the auditor’s judgment, fundamental to users’ understanding of the financial statements.  The FRC “strongly recommend” that the auditor is required to make this distinction. 

The FRC also comment that they do not believe that the IAASB should provide illustrative examples of key audit matters as this may result in a “standardised” approach, something that was reiterated by investors at a recent roundtable event held in Brussels jointly hosted by the FRC and ACCA.  The FRC believes that key audit matters should be entity specific. 

Additional responses to the detailed questions raised in the IAASB ED are contained within the full FRC comment letter which can be obtained on the International Federation of Accountants (IFAC) website link below. 

The views of the FRC are echoed by The European Securities and Markets Authority (ESMA), The Association of Chartered Certified Accountants (ACCA) and the Investment Management Association (IMA). 

ESMA believe that “the proposed auditor’s report should bring a higher degree of transparency to the audit process” and enhance the accountability of the auditor.  ESMA also believe that the key audit matters section of the audit report should be unique to the specific entity and “should not contain boilerplate language” although, ESMA does acknowledge the usefulness of examples of the key audit matter section.  ESMA also expresses some concerns over the proposals indicating that they do not feel that the proposed standards “provide clear requirements and sufficient guidance to guarantee consistency in the auditor’s approach to key audit matters”. 

The ACCA comment that the inclusion of a key audit matters section within the audit report, as specified by ISA 701, will be “beneficial for users”.  The ACCA also believe that the content of the key audit matters section “should be determined by auditor judgment”.  However, the ACCA believes that the proposals should not be prescriptive but remain “principles-based” which will allow consistency and comparability in approach. 

The IMA comment that the 'key audit matters' section "is a significant step towards increasing the transparency of the audit process and improving the usefulness of the audit report for investors".  They also support that audit reports should be bespoke and "tailored to a company's changing circumstances".

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