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January

EPRA issues further additional guidance for companies applying the EPRA BPR

31 Jan 2014

The European Public Real Estate Association (EPRA) has issued additional guidance on the application of its Best Practices Recommendations (BPR), intended to facilitate the wider use of the BPR by property companies.

The guidance provides clarification of a number of general recommendations regarding application of the EPRA BPR, some frequently asked questions regarding a number of the specific requirements, and some examples of how companies have presented the EPRA Performance Measures in practice.

The general recommendations include such items as the application of materiality when calculating EPRA performance measures, the scope of the BPR and whether EPRA performance measures should be audited.

Frequently asked questions and a general description are provided for the following areas, expanding on the guidance contained in the BPR itself:

  • EPRA Earnings
  • EPRA NAV
  • EPRA NNNAV
  • EPRA Net Yield and EPRA ‘topped-up’ Initial Yield
  • Investment Property Reporting

Examples of good practice in reporting the EPRA performance measures are identified in the final section of the guidance.

The guidance document itself can be downloaded here (link to EPRA website).

IASB seeks members for new IFRS Taxonomy Consultative Group

31 Jan 2014

The IASB is seeking candidates for membership and Chair/Vice-Chair for its IFRS Taxonomy Consultative Group. The newly-created group will provide an advisory and review forum for members to actively assist the IASB in the maintenance and development of the IFRS Taxonomy and related activities.

Due to the integration of XBRL into the IASB standard-setting process and the creation of a new IASB staff group for the Disclosure Initiative, the IASB conducted a review of the IFRS Taxonomy Due Process. As a result, IFRS Taxonomy Consultative Group was created. The group replaces the XBRL Advisory Council (XAC) and the XBRL Quality Review Team (XQRT). The XAC is no longer operational, while the XQRT will only remain in existence until the new IFRS Taxonomy Consultative Group is up and running. In addition, the IFRS Advisory Council has taken on some of the general strategic responsibility of the XAC that specifically relate to how technology may impact standard setting and future corporate reporting. 

The IFRS Taxonomy Consultative Group will consist of 16-20 members, including a Chair and Vice-Chair. Candidates should have an expertise in at least one of the following areas:

  • XBRL
  • General taxonomy design
  • Financial reporting ontology
  • Consumption and preparation of electronically marked-up IFRS financial statements.

Application will be accepted until 28 February 2014.

For more information, see the press release on the IASB website.

EFRAG issues draft endorsement advice and effects study report on the Annual Improvements to IFRSs 2010 – 2012 and 2011 – 2013 cycles.

31 Jan 2014

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of the Annual Improvements to International Financial Reporting Standards (IFRSs) 2010 – 2012 Cycle and Annual Improvements to IFRSs 2011 – 2013 Cycle in the European Union (EU). EFRAG has also issued their Effects Study Report for both.

The Annual Improvements to IFRSs 2010-2012 Cycle incorporate eight amendments to seven standards being IFRS 2 Share-based Payment, IFRS 3 Business Combinations, IFRS 8 Operating Segments, IFRS 13 Fair Value Measurement, IAS 16 Property, Plant and Equipment, IAS 24 Related Party Disclosures and IAS 38 Intangible Assets. 

The Annual Improvements to IFRSs 2011-2013 Cycle incorporate four amendments to four standards being IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 3 Business Combinations, IFRS 13 Fair Value Measurement and IAS 40 Investment Property

The majority of the amendments are in the nature of clarifications rather than substantive changes to existing requirements. 

EFRAG supports the adoption of the Annual improvements for both cycles and recommends their endorsement.  EFRAG’s initial assessment is that the Annual Improvements for both cycles meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.     

EFRAG’s conclusion is supported by an Effects Study Report which considers the costs and benefits of implementing the Annual Improvements. EFRAG’s assessment is that the benefits for preparers and users in implementing the Annual Improvements for both cycles outweigh the costs.

Comments are requested by 3 March 2014. 

Click for (all links to EFRAG website):

EFRAG updates endorsement status report for draft endorsement advice on annual improvement cycles

31 Jan 2014

EFRAG has updated its Endorsement Status Report to reflect the fact that draft endorsement advice has been published on 'Annual Improvements to IFRSs 2010–2012 Cycle' and 'Annual Improvements to IFRSs 2011–2013 Cycle'.

Annual Improvements to IFRSs 2010–2012 Cycle affects seven standards (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38), Annual Improvements to IFRSs 2011–2013 Cycle affects four standards (IFRS 1, IFRS 3, IFRS 13, IAS 40). EFRAG's initial assessment is that all of the amendments satisfy the technical criteria for EU endorsement and EFRAG should therefore recommend their endorsement.

The endorsement status report, dated 31 January 2014, is available here.

IFAC and ICAS issue paper on the IASB’s conceptual framework

31 Jan 2014

The International Federation of Accountants (IFAC), along with the Institute of Chartered Accountants of Scotland (ICAS), has issued a paper which highlights some of the main themes and concerns that should be considered as the IASB updates its conceptual framework.

The IFAC / ICAS paper, Do We Need a Roadmap for Financial Reporting: Developing the IASB’s Conceptual Framework, discusses the role conceptual framework serves in (1) the standard-setting process and (2) practical use in financial reporting. It also explores whether the scope of the IASB’s conceptual framework covers today’s evolving financial reporting landscape and whether a single framework is globally feasible.

In addition, the paper examines the potential core building blocks and characteristics of the conceptual framework. These core building blocks include:

  • Scope of financial reporting.
  • Stewardship.
  • Business model.
  • Entity versus proprietary perspectives.
  • Prudence.
  • Unit of account.
  • Concept of capital.

The IFAC and ICAS have prepared this paper to encourage discussion between stakeholders as they provide feedback to the IASB’s Discussion Paper, A Review of the Conceptual Framework for Financial Reporting.

For more information, see:

EFRAG updates endorsement status report

31 Jan 2014

EFRAG has updated its Endorsement Status Report to reflect the fact that final endorsement advice has been published on 'Defined Benefit Plans: Employee Contributions' (Amendments to IAS 19 'Employee Benefits') and that the IASB has issued IFRS 14 'Regulatory Deferral Accounts'.

The IASB issued the amendments to IAS 19 in November 2013 to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. EFRAG's assessment is that the amendments satisfy the technical criteria for EU endorsement and EFRAG therefore recommends their endorsement.

The IASB published IFRS 14 Regulatory Deferral Accounts on 30 January 2014. The Standard is intended to allow entities that are first-time adopters of IFRS, and that currently recognise regulatory deferral accounts in accordance with their previous GAAP, to continue to do so upon transition to IFRS. EFRAG currently expects endorsement of IFRS 14 in the first quarter of 2015.

The endorsement status report, dated 30 January 2014, is available here.

We comment on FRED 52 'Draft amendments to the Financial Reporting Standard for Smaller Entities (effective April 2008) — Micro-entities'

31 Jan 2014

We have published our comment letter on the Financial Reporting Council’s Financial Reporting Exposure Draft (FRED) 52 ‘Draft amendments to the Financial Reporting Standard for Smaller Entities (effective April 2008)-Micro-entities'.

Overall we support the proposed amendments to the Financial Reporting Standard for Smaller Entities (FRSSE).  However we have some specific comments on the implementation of the amendments.  We comment: 

we are concerned that preparers of micro-entity accounts may find it difficult to identify those requirements that are applicable to them, and suggest that these may be presented in a more user-friendly format; and

we recommend that transitional provisions are implemented in respect of the proposed amendments which require micro-entities to apply historical cost accounting for tangible fixed assets, fixed asset investments and investment properties.

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

EFRAG issues final endorsement advice and effects study report on the amendments to IAS 19

31 Jan 2014

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letter and effects study report on the amendments to IAS 19 regarding employee contributions to defined benefit plans.

EFRAG supports the amendments to IAS 19, which clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service and permit a practical expedient if the amount of the contributions is independent of the number of years of service. The EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 19 outweigh the costs and therefore EFRAG recommends that the European Commission (EC) endorses the amendments.

Click for the following information on the EFRAG website:

ACCA comment on the FRC consultation on risk management

30 Jan 2014

The Association of Chartered Certified Accountants (ACCA) has published their response to the Financial Reporting Council’s (FRC’s) consultation ‘Risk management, internal control and the going concern basis of accounting’. Whilst commenting that “the new draft guidance much better reflects the intent of the Sharman Panel” and “that the joined-up approach in the guidance, which attempts to link risk management and internal control with risk reporting and assessment of going concern, is very helpful”, the ACCA has expressed some “serious concerns” with the “prioritised risk listing approach” to risk identification and management proposed by the FRC.

The FRC draft guidance, published in November 2013, seeks to integrate the FRC current guidance on going concern and risk management and internal control (often referred to as the “Turnbull Guidance”) and also makes some consequential revisions to the UK Corporate Governance Code and auditing standards.  The FRC has taken this approach “to encourage boards, as part of the same on-going process, to consider risk identification and management, including the assessment of solvency and liquidity risks, and to determine whether the company is able to adopt the going concern basis of accounting”.  

The FRC draft guidance also seeks to support the principles underlying the recommendations advocated by Lord Sharman in his report “Going Concern and Liquidity Risks: Lessons For Companies and Auditors” (link to FRC website).  

The main concern of the ACCA is that they feel the draft guidance will “steer” directors to a certain approach to risk management and that using the approach directors may feel that they have identified a complete list of risks which are the only ones they feel they should be managing.  They highlight that “the main danger, or risk, is that the guidance could foster a misplaced complacency about risk and the resilience of the risk model”.  They comment: 

the draft guidance implies that there is one way to do risk management by assessing the principal risks to the company’s business model and ability to deliver its strategy.  While this may be an important component of managing risk for most companies it should not be the only one.  This approach tends to assume that all significant risks can be foreseen and accurately assessed 

Company resilience, not risk assessment, should be the principal aim for boards when considering risk 

The ACCA would like further guidance as to how companies and their boards can be resilient to risks that have not been identified and provide some suggested steps to ensure this in their comment letter such as scenario planning and analysis.  

In relation to the section on guidance to identify material uncertainties to the going concern basis of accounting, the ACCA comment that they “broadly agree” with the proposals but would like the FRC to be clearer on the purpose of the exercise. 

Click for:

We comment on the draft SORP 'Accounting by Limited Liability Partnerships'

30 Jan 2014

We have published our comment letter on the draft Statement of Recommended Practice 'Accounting by Limited Liability Partnerships' (draft LLP SORP) published by the Consultative Committee of Accounting Bodies (CAAB). We agree that the draft LLP SORP overall provides useful guidance on the application of FRS 102 requirements to limited liability partnership accounting. However, we have raised a number of comments on some specific areas of LLP accounting covered by the draft SORP.

Our key comments include:

  • In our view, there is a need to define some of the terms used throughout the draft LLP SORP to ensure consistency of interpretation. In particular definitions of ‘clearly identifiable return on amounts subscribed’ and ‘members’ services’ would be helpful.
  • Instead of the SORP’s requirement for LLPs to produce a separate Member’s report, currently not required by FRS 102 or legislation, we recommend moving the relevant disclosures to form part of the financial statements, where they provide necessary context for the other information presented.
  • While we generally agree with the proposed business combinations accounting guidance, we have a concern about the application of the group reconstruction criteria to LLPs with no interests accounted for as equity. We believe that, in the context of LLPs with no capital accounted for as equity, the reference to ‘equity holders’ should include LLP members and the ‘rights of each equity holder’ should extend to include member profit sharing rights.
  • Overall, we believe the revised guidance on contractual or constructive obligations and annuities adequately reflects the requirements of FRS 102 and FRS 103 in relation to accounting for members’ post-retirement benefits. However the introduction of some additional clarifications and definitions would be useful. In particular we believe further clarification is required of the interaction of the FRS 102 definition of ‘puttable instruments’ and the LLP SORP definition of ‘post-retirement payments to members’ to avoid a potential conflict in application of the accounting guidelines to some situations.

In addition, the CCAB have asked a specific question on the need to retain the FRS 25 application flowcharts in the appendix to the LLP SORP. We agree with the CCAB that the flowcharts were always intended only as an illustrative guidance and to the extent they are not used by preparers their continued inclusion within the SORP is not warranted. We therefore agree with the removal of the flowcharts provided that the body of the SORP reflects all the principles necessary for accounting analysis.

While we agree with the CCAB that in many instances the basic accounting remains unchanged, there is one specific scenario where we envisage the application of the FRS 102 requirements to result in a different classification of members’ interests, in relation to the application of the ‘puttables exception’. For example, LLPs where members provide services, have automatic division of all profits and have their interest puttable on retirement would previously have had no equity, but would now be required to classify capital as equity under FRS 102. We therefore recommend providing an example illustrating the new treatment and highlighting the change from the old accounting requirements.

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

Correction list for hyphenation

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