The evolution continues. In his latest interview Paul Druckman explains how he thinks this should work. The CEO of the International Integrated Reporting Council, (IIRC), is determined that the implementation of integrated reporting should be a gradual acceptance, rather than a mandated imposition. And when I caught up with him recently to record our interview* he was in a relaxed frame of mind.

He is happy. After much work through pilot programmes and consultation around the world a full framework for the implementation of integrated reporting was unveiled late last year. Now he is in the business of maintaining the momentum and spreading the word into the upper echelons of business life. ‘We need to make sure people are aware that we are talking about an evolution in corporate reporting’, he told me.

This is where the approach is different. There have been many attempts to improve corporate and financial reporting in the past. But all of them have, to a greater or lesser extent, involved ripping up the past and implementing the new. And that approach has always failed.

This is not what integrated reporting is about. ‘There is still the stigma about this being about “another report”’, he says in the interview. ‘The challenge’, as he puts it, ‘is not to be “yet more”, but to be “part of” the evolution’. In other words he wants it to be seen not as overload but as part of what people are trying to do anyway.

And for that to work there has to be an understanding that he is talking about corporate reporting in the wider sense rather than financial reporting in the narrowest. Often ‘their mindset is in compliance’, he says of the financial reporting community. ‘Their mindset is not: “What information is useful?”’ This is where the change has to come.

And the same applies to investors. Integrated reporting will, he says, ‘enable them to look at the company through the door of strategy rather than only through data’. Companies, he argues, already think this way. It is just that reporting systems have not always encouraged or required them to explain it clearly. ‘Any good company is going to be thinking strategically’, he says. ‘Integrated reporting is about demonstrating that integrated thinking’. Indeed there is a drive in many jurisdictions for narrative and financial reporting to work together more effectively to provide a coherent and consistent story of the company’s performance and position.

So this is the direction in which corporate reporting is already travelling. Integrated reporting simply provides recognition of this and enables companies to work within the changes rather than struggling to keep up with them. It is ‘an articulation of your company’s strategy’, he says. And this is what allows the value of a company to become clear.

Looking ahead he sees the gradual implementation of integrated reporting as producing more thoughtful and useful information.  ‘In ten years’ time integrated reporting will be the corporate reporting norm’, he says. 

*The full interview with Paul Druckman is available at UK Accounting Plus, here.

Click through for direct access to the notes:

Friday, 14 March 2014

• Conceptual framework

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

The new standard is applicable to entities that have insurance contracts (including reinsurance contracts) and are applying FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.  The standard is also applicable to entities applying FRS 102 who issue financial instruments with a discretionary participation feature. 

FRS 103 consolidates existing guidance included within the International Accounting Standard Board’s (IASB’s) IFRS 4 Insurance Contracts, the existing requirements of FRS 27 Life Assurance and elements of the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (ABI SORP).  It allows entities to continue with their current practices for insurance contracts (subject to certain additional considerations, such as, for example, identification of embedded derivatives) whilst also allowing them the flexibility to take advantage of “improvement options” (subject to legal and regulatory requirements) similar to those which are available to entities applying IFRS 4 in the UK and Republic of Ireland.  

FRS 103 requires disclosure that: 

identifies and explains the amounts in an insurer’s financial statements arising from the insurance contracts (including reinsurance contracts) it issues and reinsurance contracts that it holds;

relates to the financial strength of entities carrying on long-term insurance business; and

helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from those insurance contracts. 

The final standard is largely consistent with the Financial Reporting Exposure Draft (FRED) 49: ‘Draft FRS 103 Insurance Contracts’ issued in July 2013.  The main changes are:

• Clarification about the ability of entities not legally constituted as insurers to continue with accounting policies similar to those adopted previously.
• Clarification that for the purposes of applying section 30 Foreign Currency Translation of FRS 102 entities should treat all assets and liabilities arising from an insurance contract as monetary.
• Clarification around the status of implementation guidance, stating that it is non-mandatory. 

The FRC expects the FRS 103 to have a “limited life” stating: 

We are issuing FRS 103 to fill a gap in UK and Irish accounting standards for those entities applying FRS 102 that have insurance contracts.  We recognise that there are forthcoming changes to the regulatory framework for insurers, as well as on-going work internationally on financial reporting for insurance contracts, and as a result we are allowing entities, generally, to continue with their existing accounting policies for the time being.  We expect to revisit this topic in a few years’ time, to consider whether changes to FRS 103 are desirable in response to regulatory or international accounting developments. 

FRS 103 is the latest addition to financial reporting standards in the UK and Republic of Ireland and follows the publishing of FRS 100 ‘Application of Financial Reporting Requirements’, FRS 101 ‘Reduced Disclosure Framework’ (both published in November 2012) and FRS 102 (published in March 2013) – the three main standards that were introduced as a package to replace UK GAAP. 

Alongside FRS 103 the FRC has also published non-mandatory implementation guidance.  The FRC has also issued an impact assessment for FRS 103 and a feedback statement summarising the comments received in response to FRED 49. 

Click for (all links to FRC website):

• Press release
• FRS 103 Insurance Contracts
• Implementation Guidance to accompany FRS 103: Insurance Contracts
• Impact assessment and Feedback Statement - FRS 103: Insurance Contracts
• Our UK Accounting Plus project page on FRS 103
• Deloitte 'Need to know' on FRS 103 Insurance Contracts

The areas of FRS 102 affected are:  

• Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’.  The FRC has issued editorial amendments regarding presentation requirements for financial instruments when an entity chooses to apply the recognition and measurement provisions of International Accounting Standard (IAS) 39 ‘Financial Instruments: Recognition and Measurement’ or International Financial Reporting Standard (IFRS) 9 ‘Financial Instruments’ and/or IAS 39.  The editorial amendments relate to paragraph 11.2 of Section 11 and paragraph 12.2 of Section 12.
• Section 35 ‘Transition to this FRS’.  The FRC has issued an editorial amendment regarding transitional exemptions in relation to accounting for service concession arrangements.  The editorial amendment relates to paragraph 35.10(i) of Section 35. 

In November 2013, the FRC issued three clarification statements in relation to Section 12 ‘Other Financial Instruments Issues’, Section 29 ‘Income Tax’ and Section 1 ‘Scope’.  

The full document of all editorial amendments and clarification statements to FRS 102 (as of March 2014) can be found on the FRC website.

The conference will feature presentations by IASB Vice-Chairman Ian Mackintosh and IASB members (Stephen Cooper, Patrick Finnegan, Darrel Scott, Wei-Guo Zhang).

Some of the topics to be covered at the conference include:

• The future of financial reporting
• IASB update:
  • Major IFRSs
  • Implementation
  • Conceptual framework
  • Research projects
• Panel discussions on IFRS disclosures, the upcoming revenue requirements, and IFRS 9

The conference will also have break-out sessions featuring:

More details, including registration information, are available on the IASB website.

The ED updates the previous SORP (which was issued in January 2009) 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.  Many paragraphs of the SORP have also been re-drafted to incorporate recent legislative changes which allow investment companies to distribute capital profits by way of a dividend.

Our key comments are as follows:

• We believe that the guidance with regard to presenting total comprehensive income will encourage consistency in the sector.  However, we disagree with the proposed guidance to label a single statement as the ‘income statement’ as this is a defined term.
• Paragraph 39A includes requirements that do not appear to be consistent with the requirements of Section 11 of FRS 102.  We recommend that the draft SORP clarify that the effective interest rate method, without any adjustments, is the basis for calculating the yield on the instrument. 

Our full comment letter can be downloaded here.

The Parliament voted on a package that includes an annual contribution to the work of the IFRS Foundation of approximately 4.3 million euro. There were 474 votes in favour of continued co-financing and 28 against.

Michel Prada, Chairman of the Trustees, commented:

We will continue to work in close cooperation with the European Commission, to fully support its evaluation of Europe’s experience of IFRS and give consideration to any recommendations related to enhancements of the governance arrangements of the Foundation as part of our public consultation on the structure and effectiveness of the IFRS Foundation, due to begin in 2015.

Please click for access to the full press release on the IASB website.

Interested listeners have the ability to dial into the conference call.  Please click link for details of the registration on the EFRAG website.  The agenda can also be downloaded from the EFRAG website.  

Patricia McBride, who is a citizen of both the UK and Australia, has previously held technical roles supporting the standard-setters in Australia, New Zealand and Hong Kong on IFRS issues. Part of her career was also spent in academia. She will succeed Pieter Dekker who will leave EFRAG in early April, after four years with the organisation.

The current reform of EFRAG's governance and mandate as result of the Maystadt review will probably also lead to enhanced responsibilities of EFRAG's Technical Director.

Please click for access to the press release on the EFRAG 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. 

ESMA’s main comments are: 

• That the International Accounting Standards Board (IASB) should ensure that the notions ‘held for distribution to owners’ and ‘cost for distribution’ are added/amended to all relevant parts of IFRS 5 to avoid potential diversity in practice and to achieve consistent application of the standard.
• That in relation to the proposed amendment to IAS 19, ESMA would like clarification “on whether the IAS 19 requirements for regional markets sharing the same currency also apply in the case where a currency is pegged to another currency”.
• That in relation to the proposed amendment to IAS 34, although ESMA are “broadly supportive” they believe that it is important that the interim financial report remains readable and understandable as a whole and that it should be safeguarded “from a potential excessive use of cross-referencing”.
• That the amendments in respect of IFRS 5 should be applied retrospectively, consistent with the comments made by the European Financial Reporting Advisory Group (EFRAG). 

The full comment letter can be downloaded from ESMA’s website below. 

Click for: 

• Full comment letter (link to ESMA website).
• Our UK Accounting Plus project page on the Annual Improvements to IFRSs 2012–2014 Cycle.
• 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.