January

IASB user survey on debt disclosures

23 Jan, 2014

The International Accounting Standards Board (IASB) has released a survey of investors and analysts to gather information about the usefulness of disclosures regarding debt, including changes in an entity's debt position. The survey results will assist the IASB in deciding whether to undertake a project on debt disclosures.

The possible need for International Financial Reporting Standards to include a disclosure requirement for a net debt reconciliation arose from the feedback from the disclosure forum and had earlier been considered in the financial statement presentation project. In the Feedback Statement from the disclosure forum, the IASB noted the following:

Over the last five years investors have consistently asked the IASB to introduce a requirement that entities must disclose and explain their net debt reconciliation. This is an example where users think that adding a requirement might reduce clutter by specifying about how debt information should be disclosed.

At its October 2013 meeting, the IASB discussed the possibility of including disclosures about 'net debt' as part of possible short term amendments to IAS 1 Presentation of Financial Statements. The IASB decided not to include any proposals on net debt in the short-term amendments to IAS 1, but instead consider this matter separately within another part of the IASB's overall disclosure initiative project. As this meeting, IASB members also noted a possible need for transparency about cash, any restrictions on cash, and tax effects on cash.

Following on from these discussions, the publication survey responds to constituent feedback from investors and analysts "that they would like more information about period-on-period changes in debt to be included in audited financial statements" and is designed to assist the IASB in identifying specific information needs and how the information is used.

The survey explores topics such as:

  • Whether investors and analysts consider debt in the analysis of an entity and how such information is used
  • Whether understanding the reasons for period-on-period movements in debt is important, and if so, whether analysis is undertaken on total debt, key components, or both, and whether non-cash movements are considered
  • Feedback on the adequacy of information currently provided by entities and where information about debt should be provided (e.g. management commentary, financial statements, presentations)
  • Whether debt should be defined in IFRS, even if this increased the complexity and timeline of any possible IASB project
  • Experience with significant restrictions and/or cost to an entity from an ability to access or move cash, where such information is currently derived if available, and whether this aspect should be considered in any project

The survey includes a table illustrating a possible period-on-period movement in debt (noting that this is not currently specifically required by IFRS), which is reproduced below:

 

Movement in debt (in millions) 2012 2011
At 1 January 7,905 6,525
Exchange adjustments -25 75
Net cash flow 385 -295
Changes in finance leases 235 1,600
Debt assumed from acquisitions 755 -
At 31 December 9,255 7,905

The survey closes on 21 February 2014 and can be accessed on the Investor resources page on the IASB's website.

EHRC to undertake project on women on boards

23 Jan, 2014

The Equality and Human Rights Commission (EHRC) has today announced that it is to undertake a project looking at the under-representation of women on boards.

The EHRC comment that the focus of the project will be on: 

recruitment practices of corporate companies at board level including the use of head hunters in supporting FTSE 350 companies in filling board level appointments, open advertising of positions and the role of Chairs in ensuring more equal, transparent and open practices.  

The project follows calls from the government for companies to “seize the opportunity and increase the number of women in their boardrooms".  Despite latest figures highlighting that the proportion of women on boards continues to increase, there is still a requirement for further appointments in order to achieve 25 per-cent female representation by 2015 as set by Lord Davies in his report in February 2011 (link to the Department for Business, Innovation and Skills website). 

Amendments to the UK Corporate Governance Code in 2012 require companies to set out clear disclosures on diversity, including gender, any measurable objectives that they have set for implementing the policy, and progress on achieving the objectives.  

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We comment on a number of tentative agenda decisions of the IFRS Interpretations Committee

21 Jan, 2014

We have published our comment letters on IFRS Interpretations Committee agenda decisions on IFRS 2, IFRS 10, IAS 8, IAS 17, IAS 39, and IFRIC 21, as published in the November IFRIC Update.

More information about the issues is set out below:

IssueMore information
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors — Distinction between a change in an accounting policy and a change in an accounting estimate
IAS 17 Leases — Meaning of ‘incremental costs’
IAS 39 Financial Instruments: Recognition and Measurement — Accounting for term-structured repo transaction
IFRS 2 Share-based Payment — Price difference between the institutional offer price and the retail offer price for shares in an initial public offering
IFRS 10 Consolidated Financial Statements: Investment Entities Amendments — Definition of investment-related services or activities
IFRIC 21 Levies — Identification of a present obligation to pay a levy that is subject to a pro rata activity threshold as well as an annual activity threshold

You can access all our comment letters to the International Accounting Standards Board, IFRS Foundation, and IFRS Interpretations Committee here.

GAAP 2014 — Annual report disclosures for UK listed groups

21 Jan, 2014

Deloitte has released 'GAAP 2014 - Annual report disclosures for UK listed groups'. This publication provides comprehensive guidance on the presentation and disclosure requirements for company reporting that will apply to listed groups for 2013/14.

This publication reflects recent changes to reporting requirements. The front half provides guidance on the application of the new requirements for a strategic report which replace the business review within the directors’ report.  This includes new requirements on the company’s strategy, business model, human rights and gender diversity.  The directors’ report illustrates the new requirements on greenhouse gas emissions. 

The front half also illustrates the new form of directors’ remuneration report including the ‘single figure’ for each director.  The disclosure requirements of the now effective 2012 UK Corporate Governance Code have also been illustrated.

The back half of the publication illustrates the mandatory adoption of IAS 19 Employee benefits (revised) and IFRS 13 Fair value measurement.  Also illustrated is the adoption of the 'suite of five' issued in May 2011— IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, and the revised versions of IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures.  Although companies reporting under IFRSs as adopted by the EU have been given an extra year to comply (1 January 2014), the early adoption of these new standards has been illustrated.  From the perspective of the model annual report, the key change is a lot of extra disclosures, particularly around non-controlling interests.  

An overview of the UK regulatory framework is provided at the start of the publication.  This is followed by the narrative statements that are typically found in the front half of annual reports.  The back half of the publication contains model financial statements.  Detailed commentary is provided throughout outlining the disclosure requirements with cross references, inter alia, to the requirements of International Financial Reporting Standards, the 2006 Companies Act, the Listing Rules, the Disclosure and Transparency Rules and the UK Corporate Governance Code.   

This publication is based on legislation (the Companies Act 2006) and regulation in issue as at 15 October 2013 which is effective for years beginning on or after 1 January 2013 (including the new requirements of company law for periods ending on or after 30 September 2013). There may be changes to the law or accounting standards subsequent to that date.  In addition, the interpretation of IFRSs will continue to evolve over time.

Orders for Deloitte’s GAAP publication may be placed via the LexisNexis website.

Further agreement reached on EU audit reform proposals

21 Jan, 2014

The Legal Affairs Committee (JURI) of the European Parliament has today endorsed the framework for EU audit reform agreed by the Lithuanian EU Council Presidency and the European Parliament in December 2013.

Under the new rules, the societal role of auditors will be clarified, with the aim of increasing audit quality and transparency. Mandatory rotation of auditors will be introduced, requiring companies to retender at 10 years and change the auditor at least every 20 years. The reforms include further restrictions on the provision of non-audit services to audit clients and prohibit the use of restrictive clauses in contracts which limit a company’s choice of auditor.  

The next steps will be for a plenary vote in parliament with indications on the European Parliament website that this will be in April. 

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Agenda for the January 2014 IFRS Interpretations Committee meeting

20 Jan, 2014

The IFRS Interpretations Committee is meeting at the IASB's offices in London on 29-30 January 2014. The agenda for the meeting is now available.

The Committee will:

  • Continue discussion on a number of issues related to IAS 12, IAS 19, IFRS 10 and IFRS 11
  • Consider finalising tentative agenda decisions on IAS 29 and IAS 32
  • Consider a broad range of new issues on various standards (IAS 1, IAS 12, IAS 16, IAS 28, IAS 32, IAS 34, IAS 37, IFRS 3, IFRS 10)
  • Discuss feedback from the IASB on the Committee's recommendations about disclosure requirements about an assessment of going concern.

The full agenda for the meeting, as of 20 January 2014, can be found here.  We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

GAAP 2014 — UK Reporting

20 Jan, 2014

Deloitte has released 'GAAP 2014 - UK Reporting'. The 2014 edition of our manual, combines all of our UK reporting manuals (previously “iGAAP” and “ukGAAP”) into one comprehensive set of volumes. The volumes provide guidance to entities reporting under either International Financial Reporting Standards (IFRSs) or UK GAAP by (1) focusing on the practical issues faced by reporting entities; (2) explaining clearly the requirements of IFRSs and UK GAAP; (3) adding interpretation and commentary when IFRSs/UK GAAP are/is silent, ambiguous, or unclear; and (4) providing many illustrative examples.

GAAP 2014 comprises four volumes, as follows: 

  • Volume A – Legal and regulatory framework deals with the common legal and regulatory issues that are relevant to all UK companies, whether they report under UK GAAP or IFRSs. It also addresses the requirements of Financial Reporting Standard (FRS) 101, the IFRS reduced disclosure framework. Many entities in the UK will be eligible to adopt FRS 101 under the ‘new’ UK GAAP regime, which may be adopted now if desired.
  • Volume B – FRS 102 deals with the ‘new’ UK GAAP standard, FRS 102 which is mandatory for entities to apply from 2015, but may be adopted earlier;
  • Volume C - IFRSs (comprising two books) deals with IFRS reporting in the UK, excluding financial instruments; and
  • Volume D – IAS 39 and related Standards deals with financial instruments standards endorsed for use in the EU for those applying IFRSs. 

Volume C deals comprehensively with those new Standards that apply for periods beginning in 2013, and also covers those further pronouncements issued by the International Accounting Standards Board (IASB) up to 31 July 2013 that will apply from 2014 and later.  It provides expanded guidance on the application of the most recent Standards and Interpretations from the IASB, including:

  • the 'suite of five' issued in May 2011 and effective in 2013 — IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, and the revised versions of IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures.
  • IFRS 13 Fair Value Measurement.
  • the revised version of IAS 19 Employee Benefits.
  • Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in October 2012.
  • Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36), issued in May 2013.
  • IFRIC 21 Levies, issued in May 2013.

Volume B provides detailed analysis of the replacement for existing UK GAAP, FRS 102, as well as analysing the key differences between FRS 102, ‘old’ UK GAAP and IFRSs and providing useful practical guidance on implementation of the new requirements. 

The new set of manuals does not address ‘old’ UK GAAP (i.e. FRSs 1-30, SSAPs and UITFs, which will be withdrawn on adoption of FRSs 100-102). The existing manual, ukGAAP 2013, will continue to be relevant for companies currently reporting under ‘old’ UK GAAP. 

Orders for Deloitte’s GAAP manuals may be placed via the LexisNexis website.

Model financial statements are also available in the form of GAAP 2014 - Annual report disclosures for UK listed groups.

We comment on the FRC consultation on executive remuneration

20 Jan, 2014

We have published our comment letter on the Financial Reporting Council’s (FRC's) consultation on whether to amend the UK Corporate Governance Code (“the Code”) to address a number of matters related to executive remuneration. We fully support the FRC’s position that changes should only be made to the Code where there is strong evidence demonstrating the need for change.

The FRC published their consultation in October 2013 and sought views on three main areas; clawback provisions, remuneration committee membership and actions companies may take if they fail to obtain a substantial majority in support of a resolution on remuneration. 

Extended clawback provisions

  • We agree that the Code should adopt the terminology used within the new directors’ remuneration regulations.
  • We do not think that the Code should be extended to include a “comply or explain” presumption that companies have provisions to recover and/or withhold variable pay.  We comment that “the binding vote on policy provides an opportunity for shareholders to register any concerns in relation to the recovery and withholding policy and therefore the current requirements to “consider” are appropriate”. 

Remuneration Committee membership

  • We do not support changing the Code to deter the practice of non-executive directors who are also executive directors in other companies sitting on the remuneration committee.  We comment that “there may be value in having the experience of an individual with executive experience on the committee”. 
  • We comment that the current provisions within the Code relating to the independence of non-executive directors, “should ensure that the constitution of the committee is appropriate and that it operates effectively”. 

Voting

  • We do not support the inclusion of a specific requirement to report to the market where a company fails to obtain at least a substantial majority.  We comment that the definition of ‘substantial’ will be “different for different companies making it difficult to define in the Code”.
  • We consider that the provisions under the new directors’ remuneration regulations, where companies are required to provide, in the Annual Remuneration Report, a summary of the reasons for failing to obtain at least a substantial majority in support of a resolution on remuneration are “sufficient”. 

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

Former IFRS Advisory Council Chairman outlines thoughts on its operation

20 Jan, 2014

Paul Cherry, former Chairman of the IFRS Advisory Council, has published a personal reflection on the operation and evolution of the IFRS Advisory Council over recent years, and the way in which its activities will continue to evolve in the future.

Paul Cherry was appointed Chairman of the (then) Standards Advisory Council (SAC) in December 2008.  His initial three year term commenced on 1 January 2009 and was extended in June 2011 for a further two years to end on 31 December 2013. During his term, the SAC was renamed the IFRS Advisory Council and underwent a number of changes.

In his article, Mr Cherry notes the following:

  • A number of important changes made to the structure and role of the IFRS Advisory Council, including most members now being appointed as representatives of organisations rather than as individuals
  • The appropriateness of the size and composition of the Council, including broad geographic and constituent diversity and efforts to increase representation of financial statement users
  • Improvements in feedback from constituents on the performance of the Council
  • A change in focus from technical matters to more a strategic and cross-cutting matters, which has been facilitated by the establishment of the Accounting Standards Advisory Forum (ASAF)
  • Future changes in the operation of the Council, including topics such as whether the Council should have a higher profile, how the Council should assist the IASB in the promotion and adoption of International Financial Reporting Standards (IFRS), and the consultation process and interaction of the Council's activities with the IASB's current agenda.

In relation to the last two points above, Mr Cherry provides the following assessment:

The strategic focus will need to be a conscious approach in the future, including (i) a longer-term view of the IASB’s agenda beyond the current agenda, (ii) a wider view of the financial reporting environment, including corporate reporting trends and the issues that are likely to affect financial reporting in the future, and (iii) the broader context of corporate reporting and of developments related to corporate reporting. These developments include integrated reporting, technological/digital developments and other areas that are likely to affect financial reporting in the future.

In December 2013, the Trustees announced the appointment of Joanna Perry as Chairman of the IFRS Advisory Council with effect from 1 January 2014.

The full text of Paul Cherry's article is available on the IASB website.

EFRAG launches ‘Short Discussion Series’ issuing the first two papers: (1) Conceptual analysis of the equity method and (2) Implications for standard setting following from a literature review on how captial providers use information

17 Jan, 2014

The European Financial Reporting Group (EFRAG) has issued two ‘Short Discussion Series’ (SDS) papers. The first paper deals with the equity method and especially considers to what extent the equity method in IAS 28 is a measurement basis, a one-line consolidation or a combination of both. EFRAG seeks to initiate a discussion on this topic and asks for constituents' comments. The second paper builds on a literature review on how captial providers use information that was presented in late December 2013 and reflects on implications of this literature review for standard setting. EFRAG has initiated the ‘Short Discussion Series’ in order to promote debates that address topical and problematic issues in financial reporting among European and other constituents.


EFRAG-SDS-paper on the equity method

Currently, the guidance in IAS 28 relating to the application of the equity method lacks clarity and is causing diversity in practice. It is not always clear whether the measurement basis or one-line consolidation concept should be applied to situations and issues that are not specifically addressed in IAS 28. The objective of this SDS paper is to gather feedback from constituents on their views regarding the equity method, which the EFRAG will consider when addressing this issue with the IASB and thus assisting the IASB to develop a clear set of principles for the basis of the equity method.

Comments are requested by 15 May 2014.

For more information, see the press release and the Short Discussion Series paper on the EFRAG website.


EFRAG-SDS-paper on the implications for standard setting following from the results of a literature review on the use of information by captial providers

The academic literature review was published by the EFRAG and the ICAS in December 2013. It examined how capital providers use financial statements. As a second step in its proactive project, EFRAG discusses in this SDS paper the implications for standard setting following from the findings of the academic literature review. While it seems not to be possible to meet the needs of all types of users simultaneously, the findings may, however, provide some directions for, for example, measurement, other comprehensive income, the importance of the statement of profit or loss, and other topics.

For more information, see the press release and the Short Discussion Series paper on the EFRAG website.

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