ICAEW expresses concerns over BIS proposals for implementing country-by-country reporting requirements for large extractive companies

29 May, 2014

The Institute of Chartered Accountants in England and Wales (ICAEW) has responded to the Department for Business, Innovation and Skills (BIS) consultation on proposals to implement the country-by-country reporting requirements for large extractive companies introduced by the European Union (EU) Accounting Directive. Although the ICAEW “welcome the Government’s commitment to introducing the requirements of the Directive into UK law”, they have expressed a number of concerns over the proposals for implementing the requirements of the Directive “that the Government should consider”.

Chapter 10 of the EU Accounting Directive (Directive 2013/34EU (link to European Commission website)) (“the Directive”) and changes made by Directive 2013/50/EU (link to the European Commission website) to the Transparency Directive (2004/109/EC)) require listed and large non-listed companies with activities in the extractive industry and the logging of primary forests to report any payments made to governments on a country-by-country basis in an effort to improve the transparency. The Directive was published in the Official Journal of the European Union on 29 June 2013 and EU Member States have until 20 July 2015 to incorporate the rules into their national law. The BIS proposals were published in March 2014.

The ICAEW recognise that there is “political pressure to expedite the implementation of these new requirements”, but have expressed concern over the “very short” consultation period allowed by BIS, particularly as this may not have allowed “interested parties who have not been involved in the prior discussions” to provide a response “in a timely manner”.

The ICAEW is also concerned about the wording of the final regulations (included as an appendix in the consultation) and provide areas that they suggest BIS pay “particular attention” to in their comment letter. Areas identified include:

Making it clear in the regulations that payments made to governments must be reported on a cash (rather than an accruals) basis. The ICAEW highlight that “this is a critical point for companies to understand, not only because it will impact the figures reported but also because it is likely to represent a significant challenge when they start to collate the required information – company accounting systems and accruals based”.
Increasing the clarity over the scope of the regulations for entities in a group context and for the treatment of joint ventures and associates undertaking extractive activities.

In response to the proposed penalty regime in the consultation, the ICAEW agree that “as an initial starting point, the penalty regime should be similar to that in place for the failure to prepare and file statutory accounts and reports”. However, they comment that in establishing the penalty regime “it is important for the Government to take into consideration that the new reporting requirements for extractive industries differ in nature from more conventional financial reporting”.

The ICAEW also express concern over the timing of the availability of industry guidance and comment that as “companies are likely to find it difficult to apply the draft regulations as they currently stand”, guidance on the new reporting requirements should be “finalised as quickly as possible”.

BIS propose that the first report should be prepared in respect of financial years commencing on or after 1 January 2015. The ICAEW comment that BIS may need to “settle for a slightly later implementation date” in order to address concerns raised with the consultation.

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