BIS consults on UK implementation of the EU Accounting Directive

29 Aug, 2014

The Department for Business, Innovation and Skills (BIS) has issued a consultation on the UK implementation of the EU Accounting Directive, which consolidates existing legislation on financial reporting and aims to reduce the regulatory burden on smaller companies.

The European Union published the EU Accounting Directive 2013/34/EU (‘the Directive’) on 26 June 2013, which amended Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. The Directive aimed to simplify the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union. The UK government is now seeking views on the proposed implementation of the accounting and auditing provisions of the Directive into UK law.

The consultation:

  • proposes to increase the thresholds for small and medium-sized companies. The thresholds for determining what is a small company will be raised to the top end of the range permitted by the Directive. A company will be small if it meets at least two of: total assets <£5.1m (up from £3.26m), turnover <£10.2m (up from £6.5m), <50 employees (unchanged). A company will be medium-sized if it meets at least two of: total assets<£18m (up from £12.9m), turnover <£36m (up from £25.9m), <250 employees (unchanged). BIS consider that this would allow approximately 11,000 additional companies to access the small company accounting regime;
  • implements changes to comply with the new largely harmonised small company regime whereby the Directive prevents member states from requiring more than a minimal set of mandatory notes to the financial statements unless additional disclosure is necessary for a true and fair view. In practice, this means that many small companies will present fewer notes in future;
  • asks whether small companies should be allowed to only prepare abbreviated accounts for shareholders; currently they must prepare full accounts for shareholders and may file abbreviated accounts. The government believes the question of the level of detail should be one for shareholders;
  • asks whether the existing restrictions - whereby the small and medium-sized company regimes cannot be adopted by ineligible companies and members of ineligible groups - should be amended. The Directive will continue to require that public companies (in the UK a PLC) with securities admitted to trading, credit institutions and insurance companies are ineligible. BIS are asking whether they should maintain the other classes of ineligibility including being an unlisted public company (in the UK a PLC), MiFID investment firm, UCITS management company, or e-money issuer and, in the case of the medium-sized limits, the majority of other regulated UK financial services companies;
  • explores the opportunities offered by the option to provide greater flexibility in the layout of the profit and loss account and balance sheet. In particular, BIS is seeking views as to whether it would be possible to adopt International Financial Reporting Standards (IFRS) formats, removing a further complexity for companies adopting Financial Reporting Standard (FRS) 101;
  • amends the approach in relation to the writing off of goodwill and development costs. In the rare situations where the useful economic life cannot be reliably estimated, the government is proposing that they should be amortised over a maximum of ten years (the top end of the range permitted by the Directive) – assuming this change is made, the FRC will consider amending Financial Reporting Standard (FRS)102 which currently includes a limit of five years;
  • proposes removing the option whereby a company preparing consolidated financial statements has a choice to only list the principal subsidiaries in the notes to the financial statements and provide a full list with the annual return. Problems with compliance for companies taking this option have been identified by BIS as part of the Red Tape Challenge (link to UK government website); and
  • proposes that micro-entity companies should no longer have to prepare a Directors’ Report; they are already exempt from filing this.

The consultation paper also:

  • asks whether the small company audit exemption thresholds should be changed at the same time as the small company accounting regime thresholds. The government’s current view is that they should not, and are likely to be consulted on as part of implementing the EU Audit Reform regime;
  • proposes making a change to the statutory contents of the audit report from the amended EU Statutory Audit Directive at the same time as these accounting changes. Auditors must state whether, based on the knowledge obtained during their audit, the directors’ report and any strategic report (a) comply with applicable law and (b) contain any material misstatements; and
  • asks questions about the application of the small companies regime to charitable companies. The government is proposing that, as such companies are outside the scope of the Directive, they will not be subject to the restriction on which notes to the financial statements may be required by law. This would allow the law to continue to require companies with the Charities Statement Of Recommended Practice (SORP).

The Accounting Directive must be incorporated into UK law no later than 20 July 2015, but permits that the changes may first apply for financial years beginning on or after 1 January 2016.

The Financial Reporting Council is expected to consult in due course on the changes to UK financial reporting standards that will be required as a result of the implementation of the EU Accounting Directive in the UK.

Comments are invited by 24 October 2014.

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2014 IFRS 'Green Book' — Coming Soon

29 Aug, 2014

The IFRS Foundation has announced that 'A Guide through IFRS 2014' will be available soon.

This volume (nicknamed the "Green Book") will include the full text of the Standards and Interpretations and accompanying documents (such as the Basis for Conclusions) issued by the IASB as at 1 July 2014 with extensive cross-references and other annotations. This edition does not contain documents that are being replaced or superseded but remain applicable if a reporting entity chooses not to adopt the newer versions early.

The new requirements since 1 July 2013 include:

The Green Book will sell for £94 plus shipping for the two book set (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

Proposed amendments to government Financial Reporting Manual to reflect new accounting standards

28 Aug, 2014

The Government Financial Reporting team at HM Treasury has published two Exposure Drafts (EDs) proposing amendments to the government Financial Reporting Manual (FReM).

The Government Financial Reporting Manual (FReM) Exposure Draft (14)01 (link to HM Treasury site) proposes amendments to the FReM to reflect the application of IFRS 13 ‘Fair Value Measurement’ in the public sector. This exposure draft follows two previous exposure drafts on the application of IFRS 13 for the public sector (exposure drafts (13)01 and (12)03). Each of these consultations has informed the development of financial reporting policy and HM Treasury’s final proposals as set out in this exposure draft.

The Exposure Draft includes a new “principles based approach” to determining the use of IFRS 13 in the public sector.  It considers how IFRS 13 may be applied in the public sector context by distinguishing between those assets which are held for their service potential (i.e. operational assets) and those that not held for their service potential or that are surplus assets that can be disposed of. HM Treasury proposes that only assets in this second group are valued at fair value in accordance with IFRS 13, and then only if the entity holding those assets is not restricted from accessing the market. 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.

The Government Financial Reporting Manual (FReM) Exposure Draft (14)02 (link to HM Treasury site) proposes amendments to the FReM with the aim of simplifying and streamlining the presentation of the statutory annual reports and accounts produced by central government entities so as to better meet the needs of users. HM Treasury launched the simplifying and streamlining accounts project in April 2013 (link to HM Treasury website) and issued a consultation (part of that project) setting out proposals to restructure the format of the Annual Report and Accounts (ARA) produced by central government entities in July 2014.  This exposure draft details the proposed changes to the 2015 to 2016 FReM as a result of the project.

The Exposure Draft proposes to restructure the traditional ‘front-half’ annual report and ‘back-half’ financial statements into three integrated sections: performance, accountability and the financial statements. The purpose of the performance section is to “tell the story” of the reporting entity, providing information on the entity, its main objectives and strategies and the principal risks it faces. The accountability section contains the Governance Statement, remuneration report and information on parliamentary accountability including the Statement of Parliamentary Supply. The final integrated section will comprise the audited financial statements.  HM Treasury proposes that notes to the accounts will only be required in respect of material balances.

The comment deadline for both exposure drafts is 13 October 2014.

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IPSASB seeks to clarify which entities should apply IPSASs

28 Aug, 2014

The International Public Sector Accounting Standards Board (IPSASB) has released a consultation paper that seeks comments on the applicability of International Public Sector Accounting Standards (IPSASs) to government business enterprises (GBEs) and other public sector entities. The consultation paper is part of an IPSASB project to consider the types of entities for which IPSASs should be developed.

Currently, the scope of each IPSAS specifically excludes GBEs and references the Preface to International Public Sector Accounting Standards, which states that GBEs apply International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

IPSAS 1, Presentation of Financial Statements, defines a government business enterprise as an entity with all the following characteristics:

  • Is an entity with the power to contract in its own name
  • Has been assigned the financial and operational authority to carry on a business
  • Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery
  • Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm’s length), and
  • Is controlled by a public sector entity.

The consultation paper, The Applicability of IPSASs to Government Business Enterprises and Other Public Sector Entities, seeks to address concerns that a wide range of entities are being identified as GBEs, through diversity of practice in the application of the definition, and some entities being described as GBEs even though they may not meet all the requirements of the definition.

The paper identifies two possible approaches as to defining the IPSAS reporting mandate:

  1. Describe the characteristics of public sector entities for which IPSASs are intended, without defining GBEs. The high-level characteristics would be based on either:
    1. current and developing IPSASB literature (including the Conceptual Framework), or
    2. terms and explanations from the Government Finance Statistics (GFS)
  2. Modifying the current definition of a GBE in IPSAS 1 to either:
    1. clarify the current GBE definition to make it easier to be consistently applied, without modifying the definition significantly, or
    2. narrowing the definition of a GBE to profit-oriented entities, so excluding entities that have a financial objective of full cost recovery.

The IPSASB has expressed a unanimous preliminary view that the first approach is the best way forward, with the majority of board members supporting the development of high-level characteristics of a public sector entity based on existing IPSASB materials. This view is supported on the basis it is high-level and principles based, and acknowledges the role of regulators and other relevant authorities in determining which entities should apply IPSASs. The consultation paper also notes that this approach is consistent with the approach the IASB takes in respect of profit-oriented entities in the Preface to International Financial Reporting Standards and individual IFRSs.

The consultation paper is open for comment until 31 December 2014. Click for IPSASB press release (link to IFAC website).

FCA consults on early implementation of the Transparency Directive's requirements for reports on payments to governments

27 Aug, 2014

The Financial Conduct Authority (FCA) has issued a consultation on the early implementation of the Transparency Directive Amending Directive 2013/50/EU requirement for issuers that are active in the extractive or logging of primary forest industries to prepare a report annually on payments made to governments in the countries in which they operate. Comments are due by 7 October 2014.

Earlier this month, the Department for Business, Innovation and Skills (BIS) published its feedback on implementation of the country-by-country reporting provisions of the EU Accounting Directive (Directive 2013/34/EU (link to European Commission website))  for extractives companies - those in the mining, oil and gas sectors, as well as those who log primary forests.

In its response, BIS indicated that the FCA would consult on the equivalent requirements of the revised Transparency Directive (Directive 2004/109/EC) (TD) as amended by the Transparency Directive Amending Directive (Directive 2013/50/EU (link to the European Commission website)).

The FCA has published CP 14/17 which proposes new rules and guidance in Chapter 4 of the Disclosure and Transparency Rules (DTRs). The proposed requirements are contained in a new DTR 4.3A:

  • Extractives companies with transferrable securities admitted to trading on an EEA regulated market should prepare a report on payments to governments for financial years commencing on or after 1 January 2015. This is consistent with the timing of the forthcoming company law requirement under the EU Accounting Directive, but a year earlier than required by EU law. In the case of a parent undertaking, the report must be on a consolidated basis.
  • Reports under DTR 4.3A must be disseminated via a Regulated Information Service ('sent down the wire'). That announcement must set out which the website on which the report is available. The report must remain available on that website for ten years.
  • A UK company reporting under the forthcoming BIS regulations will be treated as having prepared a report as required by DTR 4.3A, although it will be necessary to both disseminate it as required by DTR 6.3 and file it at Companies House.

The new requirements will also apply to companies who are required by the Listing Rules to comply with DTR 4 as if they were an issuer for the purposes of the DTRs.

The sanctions regime that will apply in cases of failure to comply with DTR 4.3A will be that applicable to failures to comply with other parts of DTR 4. The new sanctions regime required by the revised TD will be introduced later with the other changes required by the revised TD.

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We comment on the CMA proposals for audit reform in the UK

27 Aug, 2014

We have published our comment letter on the Competition and Markets Authority’s (CMA’s) consultation on the draft Statutory Audit Services for Large Companies Market Investigation (Mandatory use of competitive tender processes and Audit Committee responsibilities) Order 2014 ("the Order").

The Order seeks to implement aspects of the Competition Commission’s package of remedies for audit reform in the UK in light of agreement at European level on audit reform.

We welcome the CMA’s decision to align the timetable and transitional requirements for their requirement for FTSE 350 companies to tender their audits every ten years with the tendering and rotation requirements of the new EU audit reform package. Our main comment concerns the interpretation of those transitional provisions; we urge the CMA to discuss these with the Department for Business, Innovation and Skills (BIS), and the European Commission. This would help avoid confusing interaction between three different sets of rules – those of the CMA, those of EU law, and the requirements of the UK Corporate Governance Code which will remain until at least October 2016.

Our other comments are

  • in order to avoid an immediate and unplanned tender if a company unexpectedly enters the FTSE 350 during a year, the status of the company in the preceding financial year should be used to determine whether the Order applies to a company;
  • a statutory requirement to disclose compliance with the Order would be uninformative to stakeholders. More useful quantitative and qualitative information is already required by the UK Corporate Governance Code and other parts of the draft Order – if a disclosure obligation is retained, it should be made more informative; and
  • the CMA should be clear that they intend to use the information gathering powers in the Order only if sufficient information is not already available. We believe that compliance with the Order should be monitored by the FRC, who will already be monitoring compliance with the rotation and tendering requirements of the EU audit reform package.

The full comment letter can be downloaded from our publications pages.

EFRAG calls for some new members of its IAWG

27 Aug, 2014

The European Financial Reporting Advisory Group (EFRAG) is looking for some new members of its Insurance Accounting Working Group (EFRAG IAWG) following the retirement of some of its existing members.

Some of the members in the Working Group have indicated that they are no longer available to contribute to the Working Group. Therefore, EFRAG has decided to launch a call for applicants. More in particular EFRAG is looking for candidates with an auditors and industry background to fulfil three vacancies.

Members are expected to have a strong technical expertise on insurance issues - accounting for insurance contracts - and financial instruments as well as more general IFRS accounting issues and practice. Members are appointed intuitu personae, no substitute is allowed.

Further information can be found in the press release posted on EFRAG's website.

EFRAG issues feedback statement on its draft comment letter on the disclosure initiative

27 Aug, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a feedback statement to summarise the comments received by the EFRAG on its draft comment letter on the disclosure initiative (proposed amendments to IAS 1).

On 25 March 2014, the IASB published an exposure draft (ED/2014/01 ‘Disclosure Initiative (Amendments to IAS 1)’) containing a number of amendments to IAS 1.

In response to the exposure draft, the EFRAG issued a draft comment letter that noted its support for the project and provided several suggestions to improve the proposed amendments.

The EFRAG’s feedback statement 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 general consensus from constituents was "almost all respondents welcomed the IASB’s proposals in the ED and the overall message of the EFRAG draft comment letter. However, the majority of respondents that answered our questions did not agree with EFRAG’s suggestion to prohibit disclosure of immaterial information. Constituents also raised a number of minor concerns on the other topics covered by the amendments."

For more details on the feedback statement, please see (links to EFRAG website):

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IASB issues three investor webcasts

22 Aug, 2014

As part of its Investor Education Initiative, the IASB has published three investor-focused education webcasts to keep the investor community informed on recent accounting matters. The webcasts are done in collaboration with the CFA Institute.

The following webcasts are available:

For more information, see the Investor Education webcast series and programme on the IASB website.

FRC issues revised versions of FRS 101 and FRS 102

22 Aug, 2014

The FRC has today issued revised editions of FRS 101 and FRS 102, incorporating recently published amendments.

The amended version of FRS 101 Reduced Disclosure Framework incorporates amendments set out in:

The amended version of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland incorporates:

The revised versions of the standards can be accessed on the FRC website.


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