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Comments invited on new draft SORP for registered social housing providers

11 Dec 2013

The National Housing Federation (NHF) has published an Exposure Draft (ED) on a revised Housing Statement of Recommended Practice (“the Housing SORP”) setting out revised proposals for accounting for registered social housing providers in the UK.

SORPS issued by the NHF apply to social housing providers preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique to the housing association sector.

The ED updates the previous Housing SORP to include the requirements of FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'.

Consistent with the effective date of FRS 102, the final Housing SORP will be effective for accounting periods beginning on or after 1 January 2015.  Early application is permitted for accounting periods ending on or after 31 December 2012 providing it does not conflict with the requirements of the current Housing SORP or legal requirements for the preparation of financial statements. 

Responses are sought from housing associations and other interested parties such as professional accounting bodies, the Homes and Communities Agency, and lenders.  

Comments are invited by the NHF until 14 February 2014.

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IASB publishes proposals for amendments under its annual improvements project (cycle 2012-2014)

11 Dec 2013

The International Accounting Standards Board (IASB) has published to its website an exposure draft (ED) of proposed amendments to four International Financial Reporting Standards (IFRSs) under its annual improvements project.

The IASB uses the annual improvements project to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of another major project.

The ED proposes the following amendments:

IFRS Subject of amendment

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

To add specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued

IFRS 7 Financial Instruments: Disclosures

To add additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required

To clarify the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements

IAS 19 Employee Benefits

To clarify that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level)

IAS 34 Interim Financial Reporting

To clarify the meaning of 'elsewhere in the interim report' and to require a cross-reference

The ED proposes that all of the amendments will be effective for annual periods beginning on or after 1 January 2016. Entities are permitted to early adopt all the proposed amendments. Click for IASB Press Release (link to IASB website).

You can access ED/2013/11 Annual Improvements to IFRSs 2012–2014 Cycle on the IASB's website. The IASB requests comments on the ED by 13 March 2014.

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

FRC issues draft amendments to the FRSSE

10 Dec 2013

The Financial Reporting Council (FRC) has today issued an Exposure Draft (FRED 52) containing proposed amendments to the Financial Reporting Standard for Smaller Entities (FRSSE) as a result of The Small Companies (Micro-Entities’ Accounts) Regulations 2013 (SI 2013/3008) (“the Regulations”).

The Regulations permit companies qualifying as micro-entities to prepare and file ‘abridged’ accounts for periods ending on or after 30 September 2013 (provided that accounts for such periods have not been filed).  This means that they can use simplified formats for the balance sheet and profit and loss account and are only required to provide notes to the financial statements concerning guarantees and other financial commitments and certain transactions with directors.  

The FRC propose amendments to the FRSSE to enable micro-entities to state compliance with the FRSSE whilst taking advantage of the exemptions contained within the Regulations.  The proposed amendments also avoid the potential conflict with the law under which the accounts are deemed to give a true and fair view without supplementary information. 

The proposed amendments reflect the new primary statement format available in the Regulations and permit micro-entities to disapply all presentation and disclosure requirements of the FRSSE except those that are required by the Regulations.  The proposed amendments do not affect the recognition or measurement of amounts included in the financial statements of micro-entities. 

The FRC expects a more comprehensive revision to the FRSSE when the EU Accounts Directive (2013/34/EU) has been incorporated into UK law.  At that time it will “reconsider how best to present the accounting standard requirements for micro-entities, which may include issuing an accounting standard for micro-entities separately from the accounting standard applied by other small entities”.     

The FRC invite written comments on FRED 52 until 12 February 2014. 

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IAASB issues standard on a broad range of assurance engagements

10 Dec 2013

The International Auditing and Assurance Standards Board (IAASB) has issued a revised standard on assurance engagements other than audits or reviews of historical information, such as financial statements. The revised standard would apply to engagements such as statements on the effectiveness of internal control, and assurance reports on sustainability reports and integrated reports. The revised standard provides guidance on the concepts of 'reasonable assurance' and 'limited assurance', and has guidance on the differences between the two levels of assurance.

The revised International Standard on Assurance Engagements (ISAE), ISAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information, contains requirements and application and other explanatory material specific to reasonable and limited assurance attestation engagements, but can also be applied to 'direct engagements' if the requirements are adapted and supplemented as necessary. An assurance engagement is one in "which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria)." Accordingly, the ISAE requires the practitioner to obtain an understanding of the underlying subject matter and respond to risks of material misstatement in the subject matter information.

The selection of appropriate criteria is also a key part of applying the ISAE, and are determined in the context of the engagement circumstances using the exercise of professional judgement. The ISAE provides the example of customer satisfaction being measured by reference to the number of resolved customer complaints, or alternatively by reference to the number of repeat purchases made in a period of time following an initial purchase (of course, many other measures may be available and relevant to an engagement). The practitioner is required to assess the suitability of the criteria and the assurance report identifies the applicable criteria against which the underlying subject matter was measured or evaluated, including where relevant the source of the criteria, measurement or evaluation methods used, significant interpretations made and changes in methods used.

The ISAE outlines the various professional requirements a practitioner must following in undertaking their work, such as ethical requirements, engagement acceptance, quality control, and planning and performing the engagement, and the reporting obligations. Practitioners are required to comply with the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA) related to assurance engagements, and also requires the engagement partner to be a member of a firm that applies International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

Some of the changes made in response to constituent comment include:

  • Limiting the ISAE within the context of attestation engagements only, rather than both attestation engagements and direct engagements, but allowing its use in direct engagements. Consideration of direct engagements may be the subject of a future project
  • Including additional application material highlighting how the nature and extent of procedures may vary between 'reasonable assurance' (expressed in a positive form) and 'limited assurance' engagements
  • The adoption of a 'columns' approach to more clearly delineate the key requirements where the work effort differs between reasonable and limited assurance, and further clarify the work effort through terminology changes and other guidance
  • Giving greater emphasis to the importance of a practitioner's consideration of whether the criteria are suitable
  • Providing additional guidance on the form and content of the practitioner's report.

The revised ISAE 3000 is effective for assurance engagements where the assurance report is dated on or after 15 December 2015. Click for more information (link to IFAC website).

IIRC finalises its Framework for integrated reporting

09 Dec 2013

The International Integrated Reporting Council (IIRC) has released its ‘International Integrated Reporting <IR> Framework’ (<IR> Framework). The <IR> Framework seeks to explain the fundamental concepts, principles and content requirements underlying an 'integrated report', which is considered the next step in the evolution of corporate reporting.



The International Integrated Reporting Council (IIRC) was formed in August 2010 with the objective of creating a globally accepted framework for a process that results in communication by an organisation above value creation over time.  The initial formation of the IIRC involved HRH The Prince of Wales bringing together The Prince’s Accounting for Sustainability Project (A4S), the Global Reporting Initiative (GRI), and a cross section of representatives from civil society, corporate entities, accounting firms and organisations, regulators, non-government organisations and standard-setters.

Since its initial formation, the IIRC has rapidly pursued its objectives, including:

  • Publishing a Discussion Paper Towards Integrated Reporting in September 2011
  • Formation of a IIRC Pilot Programme in October 2011 for organisations to pilot <IR>
  • Releasing a prototype <IR> Framework in November 2012
  • Publishing a Consultation Draft of the <IR> Framework in April 2013, together with number of background papers on key <IR> concepts that led into the development of the Consultation Draft.

The release of the finalised <IR> Framework follows additional consultation and consideration by the IIRC and its working groups of feedback obtained through these due process steps.


Overview of <IR>

Integrated reporting (stylised by the IIRC as '<IR>') is seen by the IIRC as the basis for a fundamental change in the way in which organisations are managed and report to stakeholders. A stated aim of <IR> is to support integrated thinking and decision-making. Integrated thinking is described in the <IR> Framework as "the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects".

The <IR> Framework expresses the IIRC's vision in the following way:

The IIRC's long term vision is a world in which integrated thinking is embedded within mainstream business practice in the public and private sectors, facilitated by Integrated Reporting (<IR>) as the corporate reporting norm. The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability.

There are three fundamental concepts underpinning <IR>:

  1. Value creation for the organisation and for others.  An organisation’s activities, its interactions and relationships, its outputs and the outcomes for the various capitals it uses and affects influence its ability to continue to draw on these capitals in a continuous cycle. 
  2. The capitals.  The capitals are the resources and the relationships used and affected by the organisation, which are identified in the <IR> Framework as financial, manufactured, intellectual, human, social and relationship, and natural capital.  However, these categories of capital are not required to be adopted in preparing an entity’s integrated report , and an integrated report may not cover all capitals – the focus is on capitals that are relevant to the entity
  3. The value creation process.  At the core of the value creation process is an entity’s business model, which draws on various capitals and inputs, and by using the entity’s business activities, creates outputs (products, services, by-products, waste) and outcomes (internal and external consequences for the capitals).

The <IR> Framework sets out the purpose of an integrated report as follows:

The primary purpose of an integrated report is to explain to providers of financial capital how an organization creates value over time. An integrated report benefits all stakeholders interested in an organization’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators, and policy-makers.

The ‘building blocks’ of an integrated report are:

  • Guiding principles – these underpin the preparation of an integrated report, informing the content of the report and how information is presented
  • Content elements – the key categories of information required to be included in an integrated report under the Framework, presented as a series of questions rather than a prescriptive list of disclosures.

The table below summarises each of these building blocks, together with the other key requirements for an integrated report:


High-level summary of the requirements for an integrated report


  • An integrated report should be a designated, identifiable communication
  • A communication claiming to be an integrated report and referencing the Framework should apply all the key requirements (identified using bold italic type), unless the unavailability of reliable data, specific legal prohibitions or competitive harm results in an inability to disclose information that is material (in the case of unavailability of reliable data or specific legal prohibitions, other information is provided)
  • The integrated report should include a statement from those charged with governance that meets particular requirements (e.g., acknowledgement of responsibility, opinion on whether the integrated report is presented in accordance with the Framework) – and if one is not included, disclosures about their role and steps taken to include a statement in future reports (a statement should be included no later than an entity’s third integrated report referencing the Framework)


  • Strategic focus and future orientation – insight into the organisation's strategy
  • Connectivity of information – showing a holistic picture of the combination, inter-relatedness and dependencies between the factors that affect the organisation's ability to create value over time
  • Stakeholder relationships – insight into the nature and quality of the organisation's relationships with its key stakeholders
  • Materiality – disclosing information about matters that substantively affect the organisation's ability to create value over the short, medium and long term
  • Conciseness – sufficient context to understand the organisation's strategy, governance and prospects without being burdened by less relevant information
  • Reliability and completeness – including all material matters, both positive and negative, in a balanced way and without material error
  • Consistency and comparability – ensuring consistency over time and enabling comparisons with other organisations to the extent material to the organisation's own ability to create value.


  • Organisational overview and external environment – What does the organisation do and what are the circumstances under which it operates?
  • Governance – How does an organisation’s governance structure support its ability to create value in the short, medium and long term?
  • Business model – What is the organisation’s business model?
  • Risks and opportunities – What are the specific risk and opportunities that affect the organisation’s ability to create value over the short, medium and long term, and how is the organisation dealing with them?
  • Strategy and resource allocation – Where does the organisation want to go and how does it intend to get there?
  • Performance – To what extent has the organisation achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
  • Outlook – What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
  • Basis of preparation and presentation – How does the organisation determine what matters to include in the integrated report and how are such matters quantified or evaluated?


Changes made in finalising the Framework

The <IR> Framework incorporates the IIRC’s responses to feedback received in the consultation process, and input from participants in the IIRC’s Pilot Programme.  Some of the changes made in finalising the Framework include:

  • Better explaining the relationship between an integrated report and other reports and communications, such as financial reports and sustainability reports – the Framework notes an integrated report is “intended to be more than a summary of information in other communications… rather, it makes explicit the connectivity of information to communicate how value is created over time”
  • Changing the primary objective of an integrated report from a focus on the audience (providers of financial capital) to a purpose (explaining how an organisation creates value over time), so as to reflect the broader constituent interest in <IR>
  • Further elucidating the concept of ‘value’ and ‘value creation’, explaining that value arises from increases, decreases or transformations of capitals, and has two linked aspects: value for the organisation (which enables financial returns to providers of financial capital) and for others (stakeholders and society at large).  The Framework also explains that value and value creation need not be quantified in an integrated report
  • Clarifying terminology used, including the relationship between ‘integrated thinking’ and <IR>
  • Including an additional Content Element in the <IR> Framework on ‘Basis of preparation and presentation’, requiring an entity to describe its basis of preparation and presentation of the integrated report, including the significant frameworks and methods used to quantity or evaluate material matters.  Greater emphasis has also been given to using existing measurement guidance, including accounting standards, to ensure consistency in measurements across various reports and communications
  • Addressing concerns around the involvement of those charged with governance in an integrated report – whilst the requirement for a statement acknowledging responsibility for the integrated report has been retained, a two-report grace period has been included to allow organisations  to take responsibility for an integrated report, at least on a comply or explain basis.
The question of whether those charged with governance should provide a statement acknowledging their responsibility for the integrated report was the single most contentious issue arising from the IIRC’s consultation process with only just over 50% of respondents in support. Investor representatives in general felt such a statement is necessary to add credibility to the integrated report and prevent it being seen as a marketing document. The principal argument against such a statement came from respondents in countries like Japan where there is currently no requirement for such a statement in relation to financial statements and there is no evidence that this has caused investors to look less favourably on Japanese stocks. By holding integrating reporting to a higher standard, the IIRC risks discouraging take up in such markets. Time will tell whether this proves to be the case.

The <IR> Framework is accompanied by a Basis for Conclusions and another document identifying at a more detailed level how various issues raised by respondents to the April 2013 Consultation Draft were treated, as well as mapping significant changes in structure and movements of text from the Consultation Draft to the <IR> Framework.


More information

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2014 IFRS 'Blue Book' now available

09 Dec 2013

Further to our story on 15 November 2013, the IFRS Foundation has published the "2014 IFRS Consolidated without early application".

This volume (nicknamed the 'Blue Book') contains all official pronouncements that are mandatory on 1 January 2014. It does not include IFRSs with an effective date after 1 January 2014.

Changes since the 2013 edition include:

  • Amendments to the following Standards: IFRSs 1, 3, 5, 7, 9, 10, 12, 13 and IASs 7, 12, 24, 27, 28, 32, 34, 36 and 39
  • One new Interpretation, IFRIC 21
  • IFRS Foundation Constitution and Due Process Handbook

The Blue Book sells for £68 plus shipping (academic, developing country, and volume discounts apply). The publication can be purchased through the IASB web shop.

The Bruce Column — Integrated Reporting achieves lift-off

09 Dec 2013

The international integrated reporting framework has finally been published. Here our regular resident columnist, Robert Bruce, looks at why it has the potential to be revolutionary and what is likely to happen next.

The essence of integrated reporting appears on page 17 of the new framework, released today. ‘The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management reporting, analysis and decision-making, and subsequently into the integrated report’.

It has been a long and intense journey to reach this point. The concept of connected reporting came to the fore in the work of the Prince’s Accounting for Sustainability Project back in 2009. This week the International Integrated Reporting Council (IIRC), which sprang out of that project, has issued its full framework explaining and showing how integrated reporting can become, and is already becoming, the accepted ‘process founded on integrated thinking that results in a periodic integrated report by an organisation about value creation over time and related communications regarding aspects of value creation’. In other words it brings together all the aspects of a company, its business model, and its relationships, both internal and external to show the outside world how it all works while also transforming the potential of the organisation internally through the same process of understanding.

What was originally being discussed in a small meeting room, once upon a time Prince William’s bedroom, in St James’ Palace in London, is now mainstream and global, with over a hundred companies around the world taking part in its pilot programme. And it is a persuasive and evolutionary process. This is not something being implemented from the top down. The IIRC has been patient and painstaking in trying to create something which is market-led and answers corporate desires for a better way forward. Sensibly it could see that the chances of acceptance and goodwill towards the process depended on that.

The benefits, experience, and lessons learned from the pilot programme will enable many others to take part with reasonable confidence. The momentum will bring more organisations around the world into the fold. The fact that the IIRC is a global coalition of regulators, investors, companies, standard-setters, the accounting profession and NGOs gives it enormous strength.

There are still issues. Some prefer greater precision and regulation in their lives than the integrated reporting framework insists upon. Some feel it may lead them into greater initial complexity. But the underlying philosophy, that of benign guidance towards an environment where ‘integrated thinking’ will enable organisations to see their world and its connections anew, will help. As the introduction to the framework puts it, ‘The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability’.

EBA publishes follow-up review of banks transparency in their 2012 reports

09 Dec 2013

The European Banking Authority (EBA) published today its assessment of the disclosures made by 19 European institutions in response to the Basel Pillar 3 requirements, as set out in the EU Capital Requirements Directive (CRD). In their view, despite improvements in some specific areas, credit institutions' compliance with disclosure requirements has not improved from last year's assessment, where no bank had fully met all the requirements. The report also highlights that the comparability and consistency of disclosures between the different institutions could be improved.

This report from the EBA focusses, in particular, on those areas where a need for improvement has been previously identified, such as the scope of application, own-funds and disclosures related to credit exposures under the Internal Ratings Based (IRB) approach, securitisation, market risk and remuneration. For each of these areas, the report identified best practices, and encourages institutions to implement them.

The report highlights some improvements in relation to the scope of application and own-funds disclosures. However, disclosures regarding credit exposures under the IRB approach, securitisation activities and market risk have showed only marginal improvements, if any. Disclosures on remuneration were assessed as satisfactory, although the EBA believe that, in general, quantitative information could be improved.

The EBA's report is available from their website here.

Government to accelerate the removal of quarterly reporting requirements

06 Dec 2013

The government has indicated in its Autumn Statement that it will move to accelerate the removal of mandatory quarterly reporting requirements for UK companies.

In November the government expressed their support for the removal of mandatory quarterly reporting requirements which were one of the recommendations of Professor Kay in his review of the UK Equity market in 2012 (the “Kay Review”) (link to BIS website).  The Kay Review sought to address the issue of short-termism in the equity market.   

The removal of mandatory quarterly reporting has been agreed at a European Union level as part of the amendments to the Transparency Directive and must be transposed into UK law by November 2015. 

However, as part of the Autumn Statement, the government has announced its intention to bring forward this change.  They comment: 

The government will introduce an element of the Transparency Directive in advance of the November 2015 deadline for implementation, to remove the requirement for listed companies to publish quarterly reports. The government plans to bring forward enabling secondary legislation early in 2014, allowing the Financial Conduct Authority to implement this change following public consultation. 

Click for full text of the Autumn Statement and related documents on the HM Treasury website.

Update 02/06/2014:

The UK Government has adopted the enabling secondary legislation (link to website).  The Financial Conduct Authority will now need to consult on changes to its Disclosure and Transparency Rules to give effect to this amendment to remove mandatory quarterly reporting.

Investor Forum launched in response to Kay review of UK equity markets.

06 Dec 2013

The Investment Management Association (IMA) has announced the launch of an Investor Forum (the “forum”) intended to “promote shared commitment to long-term strategies and sustainable wealth creation among asset owners, asset managers and companies”. The forum is being launched by The Collective Engagement Working Group and is expected to be operational by June 2014.

The forum was one of the recommendations of Professor Kay in his review of the UK equity market in 2012 (the “Kay Review”).  The ‘Kay Review of UK Equity markets and long-term decision making’, published in July 2012, sought to address the issue of short-termism in the equity market.  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.   

Professor Kay’s investor forum recommendation was aimed at facilitating collective engagement to the benefit of the equity market and UK businesses. 

The Collective Engagement Working Group (established by the Association of British Insurers (ABI), the Investment Management Association (IMA) and the National Association of Pension Funds (NAPF) anticipate that the forum will complement existing “individual and collective engagement mechanisms” that are already in place and which, in their opinion, already “work well”.  They comment that the forum will identify how investors can “extend their ability and effectiveness to work together in their engagement with companies”.  It will be open to a wide range of investors, providing the opportunity for overseas investors to participate. 

It is hoped that this collective engagement will help to promote long-term strategic thinking on behalf of asset owners, asset managers and companies enabling them to create “sustainable wealth” for stakeholders.  

One feature of the forum will be to operate “Engagement Action Groups”, managed by a secretariat, to “address and resolve issues of concern when they arise at major listed companies".  To further promote long-term performance, The Collective Engagement Working Group recommend that major listed companies hold an annual strategy meeting or equivalent with institutional investors outside of the Annual General Meeting.  This meeting will inform investors of the company strategy and “link governance to the company’s long-term strategy without the focus on short-term results”. 

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