October

Sir Winfried Bischoff speaks at the NAPF Stewardship Conference

03 Oct, 2014

Sir Winfried Bischoff, Chairman of the Financial Reporting Council (FRC), delivered the keynote address at the NAPF Stewardship Conference on 16 September 2014.

Sir Winfried spoke about the importance of fostering investment to the FRC's overall mission.  He talked about the objectives and application of the UK Stewardship Code, first issued by the FRC in 2010, looking at the impact it has had from the point of view of both companies and investors.  He also covered the European Commission’s proposed revisions to the Shareholder Rights Directive, which could mean that the Stewardship Code moves from be a voluntary code of best practice to a legal requirement for managers and owners.

Following on from this he discussed the imminent changes to the UK Corporate Governance Code, which were finalised on 17 September 2014.  These changes include the FRC's final response to the recommendations of the Sharman Inquiry - increased responsibilities for boards in relation to risk management and internal control and the requirement for a new viability assessment in the annual report.

The full text of the speech can be obtained from the FRC's website.

FRC publishes transcript of its 2014 Annual Open Meeting

02 Oct, 2014

The Financial Reporting Council (FRC) has published the transcript and proceedings of its Annual Open Meeting, held on Thursday 17 September 2014. The meeting began with an opening address by Chairman Sir Winfried Bischoff and a report by the Chief Executive Stephen Haddrill on the key activities of the FRC, followed by a question and answer session.

In his opening speech Sir Winfried Bischoff paid tribute to his predecessor, Baroness Hogg, and noted the many activities of the FRC since he became Chairman. These included:

He also noted that, looking forward, attention will be focussed on the need to expand the work of the Conduct Committee in the light of EU and Competition Commission developments.  Major projects on the quality of reporting by smaller and AIM listed companies and Clear and Concise reporting will continue, and the results of the thematic review on the audits of banks and financial institutions will be issued later in 2014.

Stephen Haddrill then discussed the work of the FRC during the past year. Main activities included:

  • promoting high quality corporate governance and effective investor stewardship by having investors that were willing and able to engage with companies was essential to the effective operation of the comply or explain principle on which the Code was based;
  • setting standards for accounting, audit and actuarial information;
  • monitoring the quality of audit reports and auditing - the FRC is a world leader in its approach to publishing information about the firms it monitors;
  • overseeing the accountancy and actuarial professions, including the provision of a disciplinary scheme; and
  • engaging with EU and international organisations, including liaising with the international Boards for accounting standards and auditing standards, the European Commission and European supervisory authorities and with other European Member States.

He also discussed the significant changes to the Code as a result of the revisions just published, corporate reporting developments during the year (including the introduction of the new UK GAAP regime and simplified requirements for micro-entities) and the FRC's contribution to developments around audit choice and auditor reporting.

He highlighted the importance of the FRC's international role, ensuring that the views of the UK and its capital markets were understood both in Brussels and in Washington. In relation to this he particularly highlighted the FRC's relationship with the International Accounting Standards Board (IASB).

The full transcript can be downloaded from the FRC website.

ACCA roundtable on EU audit reform

02 Oct, 2014

On 30 September 2014 the Association of Chartered Certified Accountants (ACCA), along with the European Group of International Accounting Networks and Associations (EGIAN) held a roundtable on the implementation of the new EU audit reform package. The event was hosted by Sajjad Karim, MEP, at the European Parliament.

The main conclusions of the roundtable were that businesses, investors and the audit profession have a desire for clarity from Member States on their choices of options, in order to allow for effective implementation that will ensure the main objective of the reform - improving audit quality - is reached.

The new audit reform package entered into force in June 2014 and will bring about the most far-reaching changes to auditing since the EU's formation over a century ago. Whether they will lead to the hoped-for changes in the market, however, will depend to a significant extent on how Member States will exercise the many options available in implementing the new legislation, together with the approach taken by audit committees and investors. In the UK, many of the requirements of the new directive have already been implemented by the Competition and Markets Authority.

A number of issues around the implementation of the new legislation were discussed at the roundtable. These ranged from the permitted extension of the mandatory rotation period in the event of public tendering or joint audit, the tendering process, the provision of non-audit services, to the possible future direction of SME audits. The event also provided an opportunity to hear the views of the European Parliament, of the European Commission, of institutional investors, of the business community, and of the auditing profession on the desired future shape of the audit market.

In concluding the debate, Jos van Huut, Chairman of EGIAN, said:

June 2014, after almost four years of  difficult - and even emotional at certain stages -  debate, marks the end of a political process at EU level. It took an enormous effort to get to agreed positions, reflecting different interests of different players, as well as different traditions across Europe. Today’s debate shows that implementation will not be easy either, there are many Member State options in both the Directive and the Regulation, creating the risk that measures will differ across Europe, and as a consequence jeopardise the concept of the single market. If the reform is to achieve its full potential, the EU, Member States, investors, boards, audit committees, and audit firms, all need to be actively involved. That is why we all need to cooperate and to continue the dialogue we started this afternoon.

The ACCA press release on this conference is available on their website.

Hans Hoogervorst speaks on corporate governance

02 Oct, 2014

Today, at the 2014 IOSCO Conference, IASB Chairman Hans Hoogervorst provided his comments on the role global accounting standards play in strengthening corporate governance in the capital markets.

Chairman Hoogervorst highlighted that in a recent IASB survey on the use of IFRS around the world, 114 out of 138 jurisdictions have adopted IFRS with another 12 allowing the use of IFRS. He noted that with the increasing use of IFRS globally, investors are better prepared to effectively evaluate and compare the performance of companies. However, he mentioned that additional work is necessary in order to provide investors a more accurate assessment of a company and used leases as an example to stress his point that accounting standards are key component of corporate governance.

For more information, see his speech on the IASB’s website.

Trustees aim at limited Constitution review

02 Oct, 2014

Among the agenda papers released for the upcoming meeting of the IFRS Advisory Council, which is being held in London on 13-14 October 2014, is a paper on the upcoming review of the structure and effectiveness of the IFRS Foundation.

The IFRS Foundation Constitution requires the IFRS Foundation Trustees to undertake a review of the entire structure of the IFRS Foundation and its effectiveness every five years. After Constitution reviews in 2003-2005 and 2008-2010, the IFRS Foundation Trustees announced in February 2014 that they intend to start their next review of the structure and effectiveness of the IFRS Foundation in 2015. Purpose of the session at the Advisory Council meeting is to update the Advisory Council members on the progress of preparatory work for the review and to seek initial views and suggestions from Advisory Council members.

The paper available on the IASB website details at length the outcomes of previous reviews. It also mentions, that the last strategy review (2010-2012) covered many issues that would be part of a Constitution review. The paper states: "Trustees do not propose to re-run whole of that review" and "Existing three-tier structure supported by constituents in the last Strategy Review: do not propose to revisit".

Among the suggested topics for the upcoming review are:

  • Structure
    • operation of the current structure
    • effectiveness of the Interpretation Committee’s more prominent role since 2012
    • output of the 2013 self-assessment of the Advisory Council
  • Remit
    • public sector accounting
    • relationship with wider reporting
    • relationship between purpose of financial reporting standards and other public policy objectives
  • Other
    • funding
    • governance procedures
    • assessing how the IFRS Foundation matches up against other standard-setting and regulatory organisations

As communicated earlier, the review will also include a review of the optimal size of the International Accounting Standards Board (IASB).

Not mentioned among the topics for the upcoming Constitution review is a review of the Accounting Standards Advisory Forum (ASAF), even though the ASAF's Terms of Reference require such a review 'two years after the establishment of the group'.

Given this more limited set of topics, the Trustees believe that unlike during the earlier Constitution reviews only one round of public consultation will be needed this time. It is expected to take place in first half of 2015.

Please click for the agenda paper for the Advisory Council meeting on the IASB website.

31st annual ISAR meeting will focus on compliance and enforcement

02 Oct, 2014

The thirty-first session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) will be held in Geneva on 15-17 October 2014. The main agenda item of the session will be monitoring of compliance and enforcement of international corporate reporting standards and codes.

Since 2010, ISAR has been developing an Accounting Development Tool for high-quality corporate reporting. The findings of pilot tests of the tool and discussions of the findings at ISAR sessions reflected that countries require further guidance on building efficient mechanisms for the monitoring of compliance and enforcement. At the last meeting, ISAR therefore proposed to focus its deliberations during the thirty-first session on such mechanisms.

In preparation for the meeting a paper Key foundations for high-quality corporate reporting: Good practices of monitoring and enforcement, and compliance mechanisms has been made available to facilitate the discussions on this topic. It describes the key elements that need to be considered when building efficient monitoring and enforcement systems for companies, audit firms and professional accountants, highlights standards and guidance issued by international and regional bodies and selected national good practices and discusses the main challenges faced by countries in their efforts to establish efficient mechanisms for the monitoring of compliance and enforcement.

Please click for the following information on the UNCTAD website:

EFRAG publish final comment letter on amendments regarding the application of the investment entities exemption

01 Oct, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter on the proposed amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures'. The proposed amendments aim at addressing issues that have arisen in relation to the exemption from consolidation for investment entities.

The IASB proposes in ED/2014/2 Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28) amendments aimed at clarifying the following aspects:

 

  •  Exemption from preparing consolidated financial statements. The suggested amendments confirm that an entity can apply the consolidation exemption even if its parent entity measures its subsidiaries at fair value in accordance with IFRS 10.

EFRAG supports this proposal but notes that the possible interaction between the proposed amendment and the EU Accounting Directive needs to be investigated further.

 

  • A subsidiary providing services that relate to the parent's investment activities. The requirement for an investment entity to consolidate a subsidiary, instead of measuring it at fair value, would apply only to those subsidiaries that act as an extension of the operations of the investment entity parent, and do not themselves qualify as investment entities.

EFRAG supports the IASB’s efforts to clarify the application of IFRS 10, but disagrees with the proposal to limit the situations where an investment entity parent should consolidate a subsidiary to those subsidiaries that are not investment entities.

 

  • Application of the equity method by a non-investment entity investor to an investment entity investee. When applying the equity method, a non-investment entity investor in an investment entity retains the fair value measurement applied by the associate to its interests in subsidiaries, unless the non-investment entity investor is a joint venturer where the joint venture is an investment entity.

EFRAG considers that fair value measurement of an investment entity’s investments provides the most useful information and should be retained by a non-investment entity investor when applying the equity method to its investment entity investees, regardless of whether the investee is an associate or a joint venture.

Please click for:

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

01 Oct, 2014

We have published our comment letter on the FCA's proposals for early implementation of the EU Transparency Directive's requirements for reports on payments to governments. We are broadly supportive of the FCA’s proposals. Our key concern is that, in view of the fact that FCA proposes that the requirements apply to accounting periods commencing on or after 1 January 2015, we believe the FCA needs to draw their rules to the attention of those companies most likely to be affected.

Whilst UK companies may already be aware of the BIS proposals in this area, companies incorporated outside the UK but with securities (debt or equity) admitted to trading on the Main Market of the London Stock Exchange may not be aware of the FCA’s plan for early adoption.

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

Second EDTF progress report on the implementation of disclosure recommendations

01 Oct, 2014

In October 2012, the Enhanced Disclosure Task Force (EDTF) presented a report to the Financial Stability Board (FSB) recommending key enhancements to the risk disclosures made by banks. The report identified seven fundamental principles for enhancing risk disclosure and included 32 specific recommendations. After a first progress report published in 2013, the EDTF has now published a second progress report in line with its original report.

For the 2014 progress report the EDTF conducted a survey on the level and quality of the implementation of their report Enhancing the Risk Disclosures of Banks in major banks' 2013 annual reports.

The survey results confirm that significant progress has been made towards implementing the EDTF recommendations. The banks' self-assessment is that they have implemented 73% of the EDTF recommendations in aggregate in 2013 disclosures. 2012 this number was at 50%. Particular improvement could be observed in quantitative disclosures, where the implementation rate increased from 40% to 70% on an aggregate basis.

Geographically, banks in the United Kingdom showed the highest implementation rates (98%), while implementation was lowest in the United States and Asia-Pacific (58% and 51%, respectively). Canadian banks reported the most progress and increased their aggregate implementation of all EDTF recommendations by 58% between 2012 and 2013 disclosures to a total of 92%.

Analysed by sections, qualitative disclosures related to the EDTF's recommendations concerning risk governance and other risks show the highest implementation rates (exceeding 84% over all banks) while the lowest implementation rates were observed in relation to liquidity and funding disclosures.

Please click for the following information on the FSB website:

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