The new EFRAG governance structure to which the new EFRAG Board belongs will become effective on 31 October 2014. According to the revised EFRAG Internal Rules, the EFRAG Board is responsible for all positions of EFRAG, after having considered the technical advice provided by EFRAG TEG and reflecting the results of EFRAG's due process and must ensure that EFRAG has an open and transparent due process including a public consultation process with European constituents on draft EFRAG positions such as discussion papers, draft comment letters, draft consultation documents and draft endorsement advices.

Further information is available in the related EFRAG press release and in more detailed form in the full text of the call for applications (link to website of the EU Commission).

The exposure draft, Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client, proposes to amend the Code in a number of ways, including:

• Providing more guidance regarding the threats that may be created by long association of audit personnel with audit clients
• Increasing the mandatory "cooling off" periods for rotated audit engagement partners from two to five years on audits of public interest entities (all other key audit partners would continue to be subject to a two year cooling off period)
• Tighter restrictions on the type of activities that can be undertaken by former key audit partners during the cooling off period, whilst clarifying that the cooling off period does not prevent an individual from assuming a leadership role in the firm
• Explicitly requiring consideration of potential threats created by the long association of all members of the audit team on all audit engagements
• Requiring concurrence of those charged with governance when certain exceptions to the rotation requirements are applied.

In developing the proposals, the IESBA considered whether the existing seven year "time on" period for key audit partners before rotation is required should be reduced to five years or some other shorter period. After an analysis of existing time on periods in various jurisdictions and other factors, the IESBA concluded that a seven year time on period "seems to provide the right balance between addressing the familiarity and self-interest threats to independence created by long association and the need to maintain relevant knowledge and experience to support audit quality".

The proposals are open for comment until 12 November 2014. Click for press release (link to IFAC website).

The paper, EFRAG Short Discussion Series – Levies: what would have to be changed in IFRS for a different accounting outcome? responds to constituent concerns raised during the European Union endorsement of IFRIC 21 Levies. The paper does not reach conclusions on the best accounting treatment for such levies, but instead seeks to investigate alternatives to address the concerns raised.

In particular, concern was raised about the immediate expensing of some levies, which the paper expresses as follows:

Combined with the requirements in IAS 38 Intangible Assets, IFRIC 21 will often result in the immediate expense of levies charged on an periodic basis (i.e., annually), when the law indicates an activity that occurs at a point-in-time. Some have expressed concern with this outcome because they believe that the cost of a levy charged periodically should be recognised over the period it refers to. They believe the economic substance of a recurring levy is that the entity is paying to operate over an annual period, although the law may identify a different activity that triggers the payment (such as being in operation at a certain date).

In exploring these concerns, the paper revisits the amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets proposed in the exposure drafts issued in 2005 and 2010 in the IASB's project on non-financial liabilities, and concludes that in EFRAG's view, the proposals would not address the concerns. Other alternative approaches that could address the concerns are also explored:

• amending the definition and recognition of a liability
• developing guidance to assess if the entity is receiving an asset or a service in exchange for the payment of the levy
• considering if other features of the law could affect when the obligating event occurs, beyond the date specified in the law
• amending IAS 34 Interim Financial Reporting
• applying the IAS 12 Income Taxes model
• carrying out a research project for levies and other similar transactions.

The paper notes that a possible solution relies on the identification of an asset or a service when one or the other arises. When such identification is not possible, a progressive recognition might be achieved by requiring recognition as soon as the entity does not have a realistic alternative to payment and linking the obligation to an activity performed over time: either through modifying the definition of a liability or adding an illustrative example in IAS 34. EFRAG also believes that a research project focusing on all transactions with government authorities "holds promise to provide a robust solution for levies".

The discussion paper is open for comment until 15 December 2014. Click for press release and the full discussion paper on the EFRAG website.

The new Accounting Directive (Directive 2013/34/EU) (link to European Commission website) (among other things) reduces unnecessary and disproportionate administrative costs on small companies by simplifying the preparation of financial statements and reducing the amount of information required by small companies in the notes to financial statements. Under the new Accounting Directive, small companies are only required to prepare a balance sheet, a profit and loss account and notes to meet regulatory requirements.  The new Accounting 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 Department for Business, Innovation and Skills (BIS) is expected to issue a consultation soon on the UK implementation of the new Accounting Directive.  In March 2014, BIS issued a consultation on the UK implementation of the country-by-country requirements for large extractive companies contained within Chapter 10 of the new Accounting Directive.

As a result of the Accounting Directive, the FRC has started a project to review the FRSSE in light of the changes to the small companies’ regime.  In its latest quarterly newsletter, the FRC commented:

As the legal changes to the small companies’ regime will be significant, retaining the FRSSE in its current form is not a realistic option, nor really is having accounting standards for small companies that are based on standards for larger companies that have been withdrawn. We have been giving more thought to how we will replace the FRSSE for small entities and micro-entities, as we develop a consultation document that will seek formal stakeholder feedback.

The FRC is expected to issue a consultation seeking stakeholders’ views on its outline plans for bringing small entities within the scope of FRS 102 (with reduced disclosures) and proposals for a new Financial Reporting Standard for Micro-entities (FRSME) based on the new micro-entities regime.  This consultation will be issued at the same time as the consultation by BIS.

The ICAEW forum is intended to encourage debate about both consultations.  The forum will comprise three short presentations followed by a question and answer session with the panel.  The ICAEW comments:

The proposals are likely to have a major impact on UK financial reporting, especially for small companies. This event will therefore be of particular interest to anyone with an interest in small company reporting in the UK. 

Further information and registration details are available on the ICAEW website.

The role of the Financial Reporting Advisory Board (FRAB) is “to ensure that government financial reporting meets the best possible standards of financial reporting by following Generally Accepted Accounting Practice (GAAP) as far as possible”.  The FRAB includes representatives from the accountancy profession in the private and public sectors, academia and government bodies.  The board meets regularly to consider proposed changes to policy and practice.

Key topics discussed during the meeting were:

• An update on the simplifying and streamlining annual reports and accounts project since the April 2014 meeting including the work undertaken to produce a consultation paper on this matter.  The consultation was subsequently issued by HM Treasury in July 2014.  The work of the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) in this area was also noted.
• An update on the European Public Sector Accounting Standards project.
• An overview of the Whole of Government Accounts (WGA) 2012-13 which was published on 10 June 2014.
• An update on the changes being made to the International Accounting Standards Board (IASB) and The International Public Sector Accounting Standards Board (IPSASB) conceptual frameworks and implications for public sector reporting.  The bulk of the IPSASB framework (phase 2 – elements and recognition, phase 3 – measurement and phase 4 – presentation) is due to be approved in September 2014.
• An Exposure Draft to be consulted on in the summer proposing amendments to the government financial reporting manual (FReM) to reflect the application of IFRS 13 ‘Fair Value Measurement’ in the public sector.  The proposals contained within the Exposure Draft remain unchanged to those discussed in the April 2014 meeting.  The Exposure Draft will include a new “principles based approach” to determining the use of IFRS 13 ‘Fair Value Measurement' in the public sector.  HMRC and CIPFA propose that IAS 16 ‘Property, Plant and Equipment’ is adapted such that IFRS 13 applies to assets which are not held for their service potential and to surplus assets which can be disposed of.    Under the proposal, IAS 16 will continue to be adapted to ensure that assets in use that are held for their service potential are held at current value and for those assets that are surplus where there are no restrictions on disposal, IFRS 13 will apply.  Where there are restrictions, a current value measurement will continue to be applied.
• An update on proposed changes to the FReM 2015/16 including the adoption of IFRS 13 Fair Value (as indicated above) and corresponding changes to IAS 16 and IAS 38 adaptations and changes to the form and content of the annual report and accounts as a result of the simplifying and streamlining project.
• Proposed changes to the 2015/16 Code of Practice on Local Authority Accounting in the UK.  A consultation was subsequently issued by the CIPFA the LASAAC in July 2014.

Click here for detailed minutes and other supporting documents on HM Treasury website.

A summary of the programme is set out below:

Papers for the meeting are expected to be made available in due course on the IASB's website.  The WSS meeting will be immediately followed by a meeting of the International Forum of Accounting Standard Setters (IFASS).

The IASB has also updated the meeting agenda for the Accounting Standards Advisory Forum (ASAF) meeting being held on 25-26 September 2014. We have updated our original article with the revised agenda.

Mr Mackintosh opened his speech reflecting on the lessons learned during the recent global financial crisis; he highlighted the interconnectedness and mutual dependence between economies, saying that "Post-crisis, policymakers are all too aware of how every national capital market in the world, even the largest, functions as little more than a satellite of the global financial system." Mr Mackintosh noted that one-third of all financial investments are international transactions.

After giving a brief history of the IASC and IASB, Mr Mackintosh discussed the recent progress towards achieving global accounting standards. He explained that 81% of countries surveyed mandate the use of IFRS for all or most public companies and that most of the remaining countries that have yet to require the use of IFRS for domestic purposes — including India, Japan, China and the United States—already allow its use in certain circumstances. Mr Mackintosh stressed that the IASB's high-quality Standards have been "validated" by more than a decade of use in various economies.

This evidence indicates that global standards are both desirable, achievable and in my view, inevitable. As economic globalisation continues apace, so too will the force of the arguments in favour of IFRS adoption within these remaining jurisdictions. That is why I believe that we should not fret too much about the timing by which we get every jurisdiction onto global standards. To quote Paul Volcker, legendary Chairman of the US Federal Reserve and the first Chairman of our Trustees, “Ultimately, this will get done”.

Mr Mackintosh went on to discuss the IASB's convergence efforts with the US FASB, and examined project successes and failures. He stressed that convergence cannot be a substitute for adoption and that the 'structural fault' of convergence is that independent boards have different imperatives—the FASB prioritises feedback from US constituents while the IASB weighs feedback from around the world including the US—leading the boards to reach incompatible conclusions. Mr Mackintosh also warned of the "many dangers of pretending" that converged national standards can substitute for global standards. He underscored that small differences in accounting requirements can have a substantial effect on reported performance. He said:

These are the reasons why full convergence can probably never be achieved, and why adoption of IFRS is the only viable approach to achieving global accounting standards. There really is no shortcut to meeting the challenges of economic globalisation, other than by providing a single set of high quality, global accounting standards. That is what IFRS does.

Mr Mackintosh concluded that globalisation will occur when countries have enough confidence in the IASB's processes, judgement and outreach activities. He reiterated his opinion that global standards are achievable and an inevitable consequence of continued economic globalisation.

Text of the full speech is available on the IASB's website.

The amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

The endorsement status report, dated 12 August 2014, is available here.

The insight report; ‘Towards Clear & Concise Reporting’ is part of the Financial Reporting Council’s (FRC’s) programme  of work to support clear and concise reporting; a project which began with the publication of ‘Guidance on the Strategic Report’, in June 2014.

The observations of the Lab in the insight report are based on a review of the annual reports of FTSE 350 companies having year ends between 30 September and 31 December 2013, released between 15 October 2013 and 20 March 2014.  In total 41 annual reports were reviewed.  The Lab highlights that “the aim of the review was to identify those companies which had made a significant effort in making their annual reports clearer and more concise”. 

Based on the results of this review and its observations of clearer and more concise reporting, the Lab encourages companies to think about the following in relation to their annual reports:

• The communication channels used and how to match information to users’ needs.  The Lab identified instances where companies had revised which information is presented in which communication channel which allowed the targeting of information to meet specific user needs.
• How to focus content on what is most important to investors.  Examples provided in the insight report include reporting on actions rather than just describing a process (for example risk reporting and how those risks are being managed with less focus on risk process and policy); focusing the level of sustainability reporting only to that which is material to the business and is required by legislation with more detailed information in an appendix or a separate report; removing standing information; removing five year summaries from the annual report as there is no UK requirement to include such information and reducing the actual detail presented in the financial review.
• Removing immaterial disclosures.  The Lab comments that “some companies made progress in using materiality to aid clarity and conciseness”.  Examples provided in the insight report include removing prior year disclosures that are no longer required in the current year (such as those related to the financial crisis which may no longer be relevant); removing elements in the annual report that are no longer required (such as creditor payment policies and practice and charitable donations) and removing immaterial notes to the financial statements.
• Using cross-referencing and layout to improve clarity.  The Lab comments that “annual reports that are logically laid out and present information with the minimum of duplication are user friendly”.  The insight report identifies that some companies have reduced the length of the annual report simply by altering the layout.  Examples include putting comparative data side by side as opposed to in separate tables and using white space on the contents pages to display information such as key performance indicators.  The insight report also indicates that some companies used cross referencing and signposting of information within the annual report which improved clarity.  

The insight report contains a section to provide “practical steps” that companies can adopt when seeking to implement processes to improve their annual reports to make them clearer and more concise.  The insight report identifies four steps reflecting the experiences of companies who have undergone corporate reporting change; plan the change; manage the process; do what’s needed and evaluate the changes.  Each of these steps is described in more detail the insight report and case studies are provided of two companies who have managed such a change process.

The Lab highlights that the insight report is guidance only and emphasises that “companies should consider whether the steps identified are suitable to their own circumstances”.

The press release and the full insight report are available from the FRC website. A slide deck summarising the key findings of the report is also available to download from the FRC website.