The summary brings together key findings from reports on: 

• Accounting policies and integration of related financial information;
• Towards Clear and Concise Reporting;
• Audit committee reporting;
• Presentation of market risk disclosures;
• Debt terms and maturity tables;
• Net debt reconciliations; and
• Operating cash flows. 

The summary highlights "areas where relatively simple changes could improve corporate reporting, enhancing the usefulness of reports for investors".

As well as taking on board the key messages from the Financial Reporting Lab reports, the summary also highlights that companies may wish to consider the Corporate Reporting Review Annual Report 2014, issued by the FRC in October, which summarises the FRC’s findings for the year and emphasises areas of reporting focus for Boards in the next reporting season.

The press release and full summary can be obtained from the FRC website.

Highlights from the meeting include:

• IFRSF risk/opportunities. Breakout sessions were held where members looked at what they considered to be biggest risk to the IFRSF and how these risks could present opportunities. The Council agreed to add an agenda item to its February meeting to further discuss this matter.  
• IASB project updates. 
  • Insurance — Discussions were held to provide the Council with the progress, difficulties and complexities that are occurring with this project.
  • Disclosure initiative — Feedback from the Council was positive concerning this project. They noted that there are initiatives currently occurring to improve disclosure effectiveness and encouraged the IASB staff to research those initiatives in order to get a better understanding of why they are taking place. In addition, the Council advised careful consideration should be taken on the use of non-IFRS information and the scope of the project.
  • Materiality — The main outcome from the discussions held included (1) support for the IASB to consider how materiality can improve disclosures, (2) keeping the definition of materiality as a part of IFRS, (3) prevent obscuring relevant information by not disclosing unnecessary immaterial information, (4) the IASB plays a role in changing the way materiality is applied, and (5) IASB should provide educational support.
  • Conceptual framework — The Council noted that any guidance issued needs to be neutral and focus on transparency.
• Investor liaison strategy. The Council provided feedback on steps the Council, IASB, and IFRSF could take to support the investor community.

The next meeting of the IFRS Advisory Council is scheduled for 23-24 February 2014 in London.

The full report on the IFRS Advisory Council meeting is available on the IASB website.

The most notable matter on which this chapter consults is whether to update references in the Listing Rules and Disclosure and Transparency Rules to refer to the 2012 UK Corporate Governance Code (“the Code”) rather than the 2010 Code. In summary we suggest that:

• the FCA should refer to the Code as issued by the FRC rather than any specific version. This would allow the Code to apply from the effective date specified by the FRC (in the case of the 2012 Code, periods commencing on or after 1 October 2012), rather than the 2012 Code, and remove the need for an FCA consultation each time the FRC updates the Code;
• the FCA and Prudential Regulation Authority should work to update references elsewhere in a similar way, and if this is not possible, to refer to the 2012 Code. In the other parts of their rules changing the references from the 2010 to 2012 Code would have little or no practical effect, and having references to different versions of the Code in different rules is unhelpful for listed entities that are also regulated financial institutions; and
• the FCA should consult sooner rather than later on the changes necessary for the 2014 Code. This would provide clarity to issuers and regulated financial institutions alike, and would also give the opportunity to remove the auditors’ review responsibilities for ten provisions of the corporate governance statement. These are now redundant as these areas are now subject to more explicit duties in auditing standards introduced with the 2012 and 2014 Codes; if this is not possible, then the FRC should be asked to update their materials supporting this review.

Further comments and full responses to all questions raised consultation are contained within the full comment letter which can be downloaded from our publications pages. The original consultation document is available from the FCA website.

The Code replaces the existing Monitor Audit Code for NHS Foundation Trust (applicable to foundation trusts) and the Audit Commission’s two Codes of Audit Practice (applicable to local authorities, police bodies, and NHS entities other than foundation trusts). Following this consultation, the Code will be finalised by the NAO and must then be approved by Parliament before it comes into force. When it does, it will apply to the audit of local public bodies for years commencing on or after 1 April 2015.

We broadly welcomed the new Code, observing that:

• the principles based nature of the Code is welcome, given the need for Parliamentary approval. In some areas we suggest that non-statutory supporting guidance will be helpful to promote consistency of application;
• the general principles, which refer to auditing standards and ethical standards, might usefully also refer to quality control standards, as well as requiring co-operation with other local auditors;
• the change in legal requirements for the auditors’ work on value-for-money at foundation trusts necessitates a change in the Code requirements. More work may be needed to clarify these duties and avoid an unintended change in work effort (and hence audit cost);
• it is not clear whether or not an ‘enhanced audit report’ (where the auditor comments on risks and their response, materiality and audit scope) is required for all larger local public bodies; and
• the limited audit regime for smaller public bodies should use International Standard on Review Engagements 2400 as its starting point.

Further comments and full responses to all questions raised consultation are contained within the full comment letter which can be downloaded from our publications pages.

The Committee will:

• continue discussion of issues arising on IFRS 11, IAS 19, IFRS 5, IAS 12 and IAS 2
• consider finalising tentative agenda decisions on IFRS 12, IAS 16/IAS 2, IAS 16, IAS 21 and IAS 39
• consider new issues on IFRS 10, IAS 32, IAS 21, IAS 12, IAS 28 and IAS 19.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

TECH 16/14BL addresses the situation in which a trading subsidiary of a charity donates all of its taxable profits to the parent charity and claims charitable donations relief on this amount. Charities Commission Guidance Note CC 35 (withdrawn in October 2014) gave guidance that such payments were not distributions as defined in the Companies Act 2006. The implication of this was that the amount donated could exceed the amount of profits available for distribution under the Act.

ICAEW became aware that the position set out in CC 35 was being questioned and accordingly sought Counsels' opinion on the matter. The advice received from Counsel is that, contrary to the guidance in CC 35, these payments are distributions under the Act and should have had regard to the amount of distributable profits available to the company. Accordingly, any payments made in excess of distributable profits will have been unlawful.

TECH 16/14BL gives the following guidance on the consequences of this advice:

• Where an unlawful distribution has been made, the parent charity has a liability to repay such amounts received over the previous six years and the subsidiary company has a corresponding asset. These are not financial assets / liabilities as they arise from the operation of the law and not from a contract. They should be recognised at the full amount due (subject in the case of the asset to write-downs for any irrecoverability).
• It is reasonable to say that, in order for the recognition of these assets and liabilities to give rise to a prior year error, the parent charity / the company would need to have known at the time that the payment was an unlawful distribution. Accordingly, the liability and asset would usually be recorded by current year entries and not a prior year adjustment.
• In certain circumstances the subsidiary company may have a legal right to recover unlawful distributions from its directors. However, this right is unlikely to have accounting consequences unless the charity is financially unable to repay the unlawful distributions but the directors are.

As well as setting out these consequences, the TECH also gives some practical remediation steps available to charities and their subsidiaries, as well as steps to take in relation to future payments.

The TECH also notes that HMRC are considering the tax impact of this development for charities and their trading subsidiaries and that guidance on this is expected in due course.

*Update 26 February 2016 - HMRC has now issued specific guidance on the tax treatment.  The revised guidance is available on the HMRC website.  The Charity Commission has also issued revised guidance which is available on the Charity Commission website*

The full text of TECH 16/14BL (revised) is available from the ICAEW website.

Related Topics

The framework was developed in a multi-phase project after it was initiated in 2006. Phase 1 dealing with Role and Authority of the Conceptual Framework, Objectives and Users of General Purpose Financial Reporting, Qualitative Characteristics, and Reporting Entity was completed in January 2013. These chapters laid the groundwork completing the other three phases of the project, which saw exposure drafts on Elements in Financial Statements, Recognition in Financial Statements, and Measurement of Assets and Liabilities in Financial Statements in November 2012 and on The Presentation of Information in General Purpose Financial Reports in April 2013.

The exposure drafts have now been finalised and combined into the new framework together with the chapters already issued and a preface discussing the characteristics of public sector entities. The most marked change in comparison with the exposure drafts is that the definitions of elements have been brought closer to the definitions in the the IASB Conceptual Framework.

Especially noteworthy is the fact that 'deferred inflows' and 'deferred outflows' have been dropped from the definitions of the elements of financial statements. Nevertheless, the IPSASB continues to believe that there may be circumstances under which the six elements defined in the framework (assets, liabilities, revenue, expense, ownership contributions, and ownership distributions) may not provide all the information in the financial statements that is necessary to meet users' needs. The chapter on elements therefore states:

In some circumstances, to ensure that the financial statements provide information that is useful for a meaningful assessment of the financial performance and financial position of an entity, recognition of economic phenomena that are not captured by the elements as defined in this Chapter may be necessary. Consequently, the identification of the elements in this Chapter does not preclude IPSASs from requiring or allowing the recognition of resources or obligations that do not satisfy the definition of an element identified in this Chapter [...] when necessary to better achieve the objectives of financial reporting.

The finalised framework will enable the IPSASB to further improve the consistency of its standard-setting by strengthening the linkage between IPSASs and enhance the IPSASB's accountability through improved transparency of the concepts underpinning the development of IPSASs and RPGs.

The new framework can be accessed through the press release on the IPSASB website. The press release also states that the IPSASB will be making decisions on new projects in early 2015.