The main concern is with companies which “have put in place arrangements to provide additional collateral to their pension schemes in exchange for reduced annual contributions and a longer period to fund the pension scheme deficit”.  Whilst the FRRP see “genuine commercial reason for establishing such arrangements” their focus over recent years (and where enquiries have been opened) has been on those companies that have reclassified pension liabilities as equity instruments. 

The FRC comment that some of the arrangements (which usually involve the establishment of a Scottish Limited Partnership to hold the collateral) contained within annual reports and accounts reviewed by the FRRP, have included additional features that appeared to have been introduced to “achieve the accounting outcome whereby a company’s obligation to make future payments to its pension scheme is transformed into an equity instrument in the company’s consolidated accounts”.  

The FRC further comment that this impacts favourably on financial solvency, gearing and reported comprehensive income. 

The full press release can be obtained from the FRC website, here.

The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  The Conceptual Framework identifies the principles for the IASB to use when it develops and revises International Financial Reporting standards (IFRSs).  The DP was published in July 2013 and contained proposals for topical areas where it considered that amendments to the existing Conceptual Framework were necessary. Included in the DP were proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure.  

The ACCA comment that the CF should “include coverage of the concepts of prudence and accountability”.  They comment: 

Prudence is built into the existing IFRS in a number of ways and has implications for the draft guidance set out in the discussion paper on the recognition of assets and liabilities.  Given this, it would be wrong for the concept not to be addressed and explained in the conceptual framework.  Accountability is referred to but it needs to be promoted to a position of at least equal prominence to the making of investment or credit decisions. 

The ACCA also highlight that the IASB should introduce concepts or principles within the areas dealing with the unit of account, derecognition and disclosures as they see that these are still “gaps” in the Conceptual Framework.  They comment that “while we agree that there needs to be a degree of flexibility for the IASB in the application of the framework”, the CF, as it currently stands, is “unsatisfactory”.  

The ACCA would also like a “more coherent definition of liabilities that brings together the approach to conditional liabilities, constructive liabilities and the economics of economic compulsion”, “clearer recognition filters” for asset recognition and more work to be performed on when to recognise items in profit or loss or other comprehensive income (OCI).  They comment: 

Clear principles for the presentation of items as either OCI and profit or loss are needed, as the rationale for the differing treatment is difficult to discern. 

The comments of the ACCA are largely consistent with those of the Financial Reporting Council (FRC) and the ICAEW who would also like the re-introduction of the concepts of prudence and accountability within the Conceptual Framework and greater clarity as to when to recognise items within profit or loss and OCI. 

The full comment letter can be accessed from the ACCA website below.  

Click for:

• ACCA press release (link to ACCA website).
• ACCA full comment letter (link to ACCA website).
• ICAEW press release (link to ICAEW website).
• Our previous UK Accounting Plus story on the IASB Discussion Paper: DP/2013/1: ‘A Review of the Conceptual Framework for Financial Reporting’.
• Our UK Accounting Plus project page in the Conceptual Framework.

The guidance “illustrates how risk and assurance arrangements can be directed to meet the delivery and accountability needs of the Accounting Officer and Board, providing evidence-based assurances on the management of risks that threaten successful achievement of public service delivery objectives”. 

The guidance highlights that the assurance framework should provide evidence that underpins the risk and control environment in the annual Governance Statement, which is a key feature of an organisation’s annual report and accounts as it contains information on the corporate governance, risk management and internal control arrangements in place at the organisation. 

Information is provided as to how to structure an assurance framework (including assurance mapping (mapping assurances within an organisation to the risks identified which “threaten the achievement of an organisation’s outcomes and objectives”), with a “Three Lines of Defence” model put forward.  Guidance is also provided on how to manage, monitor and report on risks. 

The full publication can be obtained on the HM Treasury website, here.

The full agenda for the meeting, dated 10 January 2014, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  The Conceptual Framework identifies the principles for the IASB to use when it develops and revises International Financial Reporting standards (IFRSs).  The DP was published in July 2013 and contained proposals for topical areas where it considered that amendments to the existing Conceptual Framework were necessary. Included in the DP were proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure. 

The FRC “strongly support the IASB’s decision to recommence work on its Conceptual Framework” commenting that they believe that “the existing Conceptual Framework is out of date and incomplete”.  The FRC agrees with a number of the proposals within the DP: 

The IASB’s commitment to revisit the Conceptual Framework, to bring it up-to-date and add guidance in areas that are not adequately addressed.

The equal emphasis placed on the statement of profit or loss and OCI and the statement of financial position, and the recognition of the statement of cash flows as a primary financial statement.

The IASB’s preliminary view that a single measurement basis may not provide the most relevant information, and that the selection of a measurement basis should depend upon how an asset or liability contributes to future cash flows.

The retention of a total (or sub-total) for profit or loss as a primary source of information about the return an entity has made on its economic resources in a period.

The retention of the current definition of equity—the residual interest in the assets of the entity after deducting all its liabilities. 

However, they also believe that more “fundamental analysis”, than is currently provided in the DP, is required in areas such as:

The clarification of the definition of liabilities to situations where the requirement to transfer economic benefits can be avoided by the entity’s future actions;

The discussion of measurement concepts;

The objective of the statement of profit or loss; and

The unit of account. 

Regarding the discussion of measurement in the DP, the FRC comment that it “fails to provide the depth of analysis that is necessary if the Conceptual Framework is to provide useful guidance to the IASB for the development of accounting standards”.  They further comment that “the discussion of specific measurement bases is superficial and incomplete”. 

In particular, the FRC comment that they would like the concepts of accountability (or ‘stewardship’), reliability and prudence to be re-introduced to the Conceptual Framework (within the chapters on ‘Objectives and qualitative characteristics’) “as they are fundamental to financial reporting”.  The FRC highlight that many of the ideas that they put forward for the inclusion of these concepts are contained within their series of bulletins produced jointly with the European Financial Reporting Advisory Group (EFRAG).  The FRC would also like these chapters to “acknowledge that financial statements should provide information that assists in an assessment of the entity’s business model”.  They comment: 

Financial statements should not simply provide an inventory of assets and liabilities and information on changes in them, but should portray how the entity uses its assets and liabilities to create value. 

The FRC would like the Conceptual Framework to continue to reflect the concept of going concern and are of the view that the definitions of an asset and liability in the DP are “rather vague and may be interpreted broadly”.  They would like the Conceptual Framework to clarify their meaning “to ensure consistent application”.   

Whilst the FRC is supportive of the IASB’s intention to “complete its revision to the Conceptual Framework expeditiously”, they do express concerns with completing the project too soon and recommend that “the IASB keeps the timetable for the revisions to the Conceptual Framework under review” in case it needs to be extended to ensure that “a high quality Conceptual Framework” is finalised. 

The full comment letter can be accessed from the FRC website below. 

Click for:

• Press release (link to FRC website).
• Full comment letter (link to FRC website).
• Our previous UK Accounting Plus story on the IASB Discussion Paper: DP/2013/1: ‘A Review of the Conceptual Framework for Financial Reporting’.
• Our UK Accounting Plus project page in the Conceptual Framework.

EFRAG supports the IASB's proposed amendments to IAS 27 Separate Financial Statements, stating in its draft comment letter that the amendments better align the accounting principles applicable to different sets of financial statements. However, the EFRAG suggests the following issues for reconsideration:

• Consequential amendments to IAS 28 Investments in Associates and Joint Ventures — EFRAG encourages the IASB to better explain why they are necessary in the Basis for Conclusions.
• Retrospective application — EFRAG thinks that "relief should be provided from full retrospective application to entities that opt to use the equity method to account for subsidiaries in their separate financial statements".
• Objective of separate financial statements — EFRAG would like the IASB to clarify the objective of separate financial statements in this project and in the future.

Comments on the EFRAG draft comment letter invited by 30 January 2014.

Please click for:

• EFRAG draft comment letter (link to EFRAG website)
• Press release (link to EFRAG website)
• Our December 2013 story on ED/2013/10
• Our IAS 27 — Equity method in separate financial statements project page
• Deloitte's 'Need to know' newsletter explaining the ED's proposed amendments

The different bases of value contained within the IVS Framework are: 

Market value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion;

Investment value is the value of the asset to the owner or a prospective owner for individual investment or operational objectives; and

Fair value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. 

The IVS Framework also defines Special Value and Synergistic Value which are a component of one or more of Market Value, Investment Value or Fair Value. 

Synergistic Value is an additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values.

Special Value is an amount that reflects particular attributes of an asset that are only of value to a special purchaser. 

The guidance and illustrative examples have been published to assist practitioners to better understand the concepts within the IVS Framework “by illustrating their application in various scenarios”.  The examples also identify the differences between the IVS bases of value.  

The guidance and illustrative examples do not form part of the International Valuation Standards (IVSs).  

The IVSC expect to publish further guidance on other areas in the near future and have requested that respondents rank the other areas in order of perceived priority. 

Comments on the ED are invited until 31 March 2014. 

The ED, ‘Chapter 1 – Bases of Value’ can be obtained from the IVSC website.

The SORP Board published the original ED in August 2013 with a comment period ending in November 2013.  The ED proposed updates to the previous SORP to include the requirements of FRS 100 ‘Application of Financial Reporting Requirements’, FRS 101 ‘Reduced Disclosure Framework’ and FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'; the three main standards that were introduced as a package to replace UK GAAP. 

The ED did not permit the accrual model to be used for government grants, however many respondents, among other things, commented that this model better reflects the substance of the transaction and the performance model reduces the understandability of the financial statements.  As a result of the feedback, the draft SORP is to be amended to allow an accounting policy choice (as is the case with FRS 102) between using the accrual and performance models for government grants.  

Many respondents also disagreed with the proposals for enhanced remuneration disclosures, however the working party has not proposed any changes to their original proposals, instead they have commented that “this is an issue that regulators should lead on". 

A number of drafting changes to the ED were also proposed which are to be reflected within the draft SORP.    

The revised draft SORP (link to further and higher education SORP website) incorporating these changes, has now been published (15 January 2014), and issued to the Financial Reporting Council (FRC) for approval with the expectation for a final SORP by June 2014. 

Click for further information on the proposed changes and responses (all links to further and higher education SORP website).

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 amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting. 

The proposed amendment to IAS 19 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).

EFRAG “supports the IASB’s intention to develop guidance dealing with countries where a high-quality corporate bond market does not exist and that use the same currency as other countries".  However EFRAG identify a number of implementation issues with the proposed amendments to IAS 19 such as “jurisdictions adopting stronger currencies of other countries” and comment that “it is unclear if the proposals would result in an outcome that is consistent with the objectives the IASB is trying to achieve”.  EFRAG also asks constituents to respond whether they are aware of any circumstances where the amendments to IAS 19 will not result in meaningful outcomes.

Before finalising the IAS 19 proposals, EFRAG comment that the IASB should “clarify the objectives underlying the selection and use of a discount rate in measuring post-employment benefit obligations” to allow constituents to be able to use their judgement in applying the requirements of paragraph 83 of IAS 19.

Comments are invited by EFRAG until 7 February 2014. 

Click for:

• Draft comment letter (link to EFRAG website). 
• Press release (link to EFRAG website).
• Our previous story on the Exposure Draft ED/2013/11 Annual Improvements to IFRSs 2012–2014 Cycle. 
• Deloitte's 'Need to know' newsletter on the Annual Improvements exposure draft.

The revised ED retains key features of the insurance contracts accounting model that was exposed by the IASB in 2010.  However, to address constituent’s concerns, a large number of modifications were made to the 2010 ED which the IASB sought feedback on in June 2013.   

EFRAG published their draft comment letter in August 2013 and the final comment letter was published in November 2013.  

The feedback statement (link to EFRAG website) provides an analysis of the EFRAG tentative position expressed in the draft comment letter, describes the comments received from constituents and then highlight how these comments were considered by the EFRAG Technical Group (EFRAG TEG) in reaching their final position on the IASB ED set out in their final comment letter to the International Accounting Standards Board (IASB).  The feedback statement also provides an overview of the results of the field test, on the ED conducted by EFRAG together with the National Standard Setters of France, Germany, UK and Italy.

Click for:

• EFRAG press release (link to EFRAG website).
• Feedback statement in full (link to EFRAG website).
• UK Accounting Plus story on ED/2013/07 Insurance Contracts.
• UK Accounting Plus page on the Insurance Contracts project.