CP 13/15 proposed a number of changes that affect premium listed companies with a controlling shareholder and also proposed a number of changes that affect all premium listed companies, whether or not they have a controlling shareholder.

The new rules were published by the FCA today and come into effect on 16 May 2014. 

Amongst other changes, LR 9.8.4CR has been added, requiring the annual report include all the information required under LR 9.8.4 R in a single identifiable section, unless the annual financial report includes a cross-reference table indicating where that information is set out.

Listing Rule 9.8.4R(14) has also been added requiring extra disclosure in the annual report if the listed company has a controlling shareholder (as per LR6.1.2AR a "controlling shareholder" means any person who exercises or controls on their own or together with any person with whom they are acting in concert, 30% or more of the votes able to be cast on all or substantially all matters at general meetings of the company – further details are included in LR 6.1.2 on which voting rights are disregarded for the purposes of this calculation).

On 16 May the FCA published the related policy statement (link to FCA website), including its response to feedback on the new rules.

Click for:

• Press release (link to FCA website).
• Our previous UK Accounting Plus news item on the proposals contained within CP 13/15.

The existing rules in section 11 of FRS 102 have been widely criticised as too restrictive, forcing some common debt instruments (and in particular, some for which measurement at amortised cost would be permitted by IAS 39 or IFRS 9) to be measured at fair value through profit or loss.  In response to this, the FRC published FRED 54, which sets out proposed amendments to address these issues.

Although overall we support the proposals, we do still have some concerns.  In particular:

• The proposed new rule regarding linkage to inflation does not clearly rule out classification of instruments where such a link is leveraged as basic.
• In our view, the existing rules regarding investments in preference shares require all such investments to be accounted for at fair value through profit or loss.  This applies regardless of whether these preference shares are in substance debt rather than equity, which is not a position that we support.
• Where an issuer has the option to redeem debt early but must pay a penalty (in excess of compensation for lost interest, which would be allowed), the proposals would require measurement of this instrument at fair value through profit or loss. Where such an option exists only to provide a disincentive for early prepayment (for example, in the case of some UK mortgages), we do not believe that fair value measurement is necessary as measurement at amortised cost would adequately reflect the risks associated with this instrument.

Apart from these specific issues, we urge the FRC to maintain their stated position in the exposure draft that not all instruments are basic just because they are common, and to resist calls from vested interests to widen the classification boundaries further.

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

Statements of Recommended Practice ("SORPs") are developed in the public interest and set out current best accounting practice. SORPS, issued by ‘SORP-making bodies’ are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique within specialised industries or sectors.  SORPs are issued on subjects on which it is not considered appropriate to issue an accounting standard at the time. 

SORPs cannot be taken as authority to depart from the requirements imposed by accounting standards, nor to extend the scope of accounting standards to include entities or circumstances which are otherwise excluded from specific accounting standards or accounting standards in general.

The SORP ‘Policy and Code of Practice’ provides the policy which industry or sectoral bodies must follow if they are to become a recognised ‘SORP-making’ body.  The SORP ‘Policy and Code of Practice’ also contains a Code of Practice for such bodies on developing SORPS.

The updated ‘Policy and Code of Practice on SORPS’ can be obtained from the FRC website.