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Feedback on the EFRAG Discussion Paper on the classification of claims

31 Mar 2015

The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement summarising the main messages from respondents to EFRAG’s Discussion Paper 'Classification of Claims'.

The paper, published in July 2014, was aimed at assisting the IASB in the development of its project on distinguishing between equity and liabilities in the context of the revision of the Conceptual Framework for Financial Reporting. The EFRAG paper addressed the classification of claims in general and thus went beyond the discussion around the mere distinction between equity and liabilities. Respondents to the Discussion Paper generally supported the identified framework but most respondents considered that current binary classification model in IFRS should be retained, with a negative definition of equity and refinement of the positive definition of a liability. The Discussion Paper and reactions to it were discussed at the last ASAF meeting.

The feedback statement is available on the EFRAG website.

ESMA publishes report on the activities of accounting enforcers and their findings within the EU in 2014

31 Mar 2015

All in all, the European Securities and Markets Authority (ESMA) sees improved transparency in European IFRS financial statements but believes that more information is needed on forbearance practices and impairment tests.

The report contains data from the examination approximately a quarter of the IFRS interim or annual financial statements of the 6400 issuers listed on EU regulated markets. The enforcers took action against 306 (22%) of the issuers subject to ex-post examinations, representing approximately 5% of issuers listed on regulated markets. The report also includes quantitative and qualitative results of the review of the 2013 interim and annual IFRS financial statements of 176 issuers in the EU and examines the level of compliance with IFRS in the areas identified as common enforcement priorities. Although the assessment showed improvements in the quality of application of IFRS, ESMA identified room for improvement where insufficient information was provided relating to forbearance practices in financial statements as well as the lack of disclosure of key assumptions when performing impairment tests for non-financial assets with an indefinite useful life.

In connection with the report, which is based on ESMA's 2014 Guidelines on enforcement of financial information, ESMA has also published a table of which EU jurisdictions comply, do not comply or intend to comply with the guidelines (including reasons for non-compliance).

The following information is available on the ESMA website:

IASB Chairman discusses non-GAAP measures

31 Mar 2015

In a speech given in Seoul, Korea, Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB), stressed that 'greater discipline' is needed in the use of non-GAAP measures.

Mr Hoogervorst touched on several topics during his speech - including the Disclosure Initiative and the IFRS Taxonomy -, but the main focus of his remarks were non-GAAP measures and their relation to IFRS financial statements.

In his speech, he admitted that alternative performance measures (or 'non-GAAP measures') can be very helpful as IFRSs do not cater to individual sectors but aim at creating comparability across sectors. This makes them comparatively generic, and alternative performance measures can be used to provide investors with additional, more tailored insight into how a company is being run. Yet he also warned that alternative measures are not free of bias as even seemingly common measures such as EBITDA are often presented in an 'adjusted' or 'normalised' or otherwise modified form. In addition, non-GAAP measures are often presented with a prominence that obscures IFRS numbers. Mr Hoogervorst stated:

While the IASB has no ambition to stamp out the use of non-GAAP measures, we do think that investors would benefit from greater discipline in their presentation in the financial statements. That is why the IASB is currently looking at such measures as part of our Disclosure Initiative. Our starting point for this work is the belief that the IFRS numbers should serve as the primary performance measures by which entities describe their financial position and performance. We go to great lengths to ensure the IFRS numbers are neutral, comparable, and verifiable. IFRS financial statements provide information that markets can trust. From this starting point, we have no problem with companies providing additional non-GAAP measures to enrich the IFRS data in financial statements. Yet some basic ground rules should be respected.

The basic rules Mr Hoogervorst referred to were that alternative performance measures should not present information that is misleading and that this information should not be given greater prominence in the financial statements than the IFRS numbers. He also stressed that the IASB is aware that this might be an area where more action is needed. He said: "We are also open to the idea of learning from the use of non-GAAP measures. Where the use of such measures is widespread and many companies are systematically adjusting the IFRS numbers, then maybe there is a vacuum in IFRS that we need to look at." However, he also pointed out that the IASB has already begun to act. Mr Hoogervorst cited the December 2014 amendments to IAS 1 as a case in point and also mentioned that a discussion paper on the principles of disclosure is expected to be published by the end of 2015.

Please click to download the full text of Mr Hoogervorst's speech from the IASB website.

Director of Investor Engagement appointed to the FRC

30 Mar 2015

The Financial Reporting Council (FRC) has announced the appointment of Jennifer Walmsley as Director of Investor Engagement to facilitate its outreach among investors and develop policies to support its mission to foster investment.

Jennifer Walmsley will join the FRC in June.

The press release can be found on the FRC website, here.

March 2015 IFRS Interpretations Committee meeting notes — Part 2 (concluded)

30 Mar 2015

The IFRS Interpretations Committee met in London on 24 March 2015. We've posted the Deloitte observer notes for the final session on IFRS 5.

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):


Items for continuing consideration

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

March 2015 ASAF meeting notes on insurance contracts

30 Mar 2015

The Accounting Standards Advisory Forum (ASAF) in London on 26–27 March 2015. We have posted the Deloitte observer notes from the session on insurance contracts.

The meeting discussed a presentation from the Accounting Standards Board of Japan (ASBJ), which proposed that the contractual service margin (CSM) of an insurance contract should be presented in the accumulated balance of other comprehensive income (AOCI), and sought the ASAF’s advice on specific issues relating to the new insurance contracts Standard as the earliest possible mandatory date of this Standard will be after the mandatory effective date of IFRS 9 Financial Instruments. Please click through for direct access to the notes.

US SEC commissioner discusses global accounting standards

27 Mar 2015

Kara Stein, a Commissioner of the US Securities and Exchange Commission (SEC), gave her opinion on the future of IFRSs in the United States during a speech at the Brooklyn Law School in New York City. Ms Stein discussed international cooperation in the wake of the global financial crisis and called for worldwide collaboration on data aggregation and disclosure. She then discussed IFRS adoption in the United States, noting:

I am not convinced of a need to abandon U.S. GAAP in favor of IFRS. That is not to say that U.S. GAAP is perfect. Nor is IFRS perfect. I’m also not convinced that providing financial statements in two different sets of accounting standards would be beneficial for either investors or issuers. With complexity in both businesses and products on the rise, it seems that presenting information in a dueling set of financial reporting standards does not really aid in understanding.

To be frank, this debate between dueling standards needs to move on. Neither regime worked ideally in the financial crisis, and neither may serve investors well in today’s post-financial crisis, technologically disrupted, and data-driven world. In practice and in reality, accounting standards may vary between jurisdictions due to legal and cultural factors, as well as differences in perspective. Remember, IFRS is not consistently implemented around the world.

Ms Stein acknowledged that convergence “makes sense” but suggested “reimagining” accounting regimes to use technology and globalisation to “minimize differences and maximize global investment and access to capital.”

The full transcript of Ms Stein’s speech is available on the SEC's website.

March 2015 IFRS Interpretations Committee meeting notes — Part 1

27 Mar 2015

The IFRS Interpretations Committee met in London on 24 March 2015. We've posted the Deloitte observer notes for the sessions on IAS 12, IAS 19, IAS 21, IFRS 10, IFRS 11, IFRIC 14, and the Committee's work in progress

Second issue of the IASB's new publication series for investors

27 Mar 2015

The IASB has issued the second edition of its newsletter 'The Essentials' that aims at increasing investors' awareness of IFRS and enhance the insights they obtain when analysing information produced by IFRS financial statements.

The series was introduced in the latest Investor Update the IASB published last week. The second issue of this series deasl with the presentation of financial statements and addresses reporting principles, the reporting of extraordinary items and differences between IFRSs and US GAAP.

Please click to access Issue 2 of The Essentials or the archive of all issues (both links to IASB website).

Latest figures released highlight boardrooms are on track to meet women on boards target

27 Mar 2015

A report published by Cranfield School of Management shows that the proportion of women on UK boards continues to increase. The report ‘The Female FTSE Board Report 2015 – Putting the UK Progress into a Global Perspective’ (“the Cranfield report”) highlights that only 17 more board seats on FTSE 100 companies are required to be held by women in order to achieve 25 per-cent female representation by 2015 as set by Lord Davies in his report in February 2011. The report also indicates that the FTSE 250 “has also made great progress, more than doubling the percentage of women on their boards since 2011”.

The Cranfield report highlights that if the current rate of one women appointment to every two men is sustained the 25% target will be met before the end of 2015.  The Cranfield report credits the increase “to the leadership and determination of so many senior business leaders, keen to address the gender gap on their boards and within their organisations”.  The report also credits the role of the government.

The Cranfield report has been published at the same time as Lord Davies publishes the fourth annual progress report into women on boards (link to BIS website) (‘Women on boards – Davies review annual report 2015’) (“the Davies report”) which outlines the progress achieved against each of the ten recommendations made in in his report ‘Women on Boards’ in February 2011 (link to BIS website).  These recommendations aimed to ensure that more women were appointed to boardroom positions.

The key findings in the Cranfield report, which are consistent with latest statistics released by the Professional Boards Forums’ BoardWatch (link to Professional Boards Forum BoardWatch website), are:

  • The percentage of female-held directorships on FTSE 100 boards has increased to 23.5% in March 2015, up from 20.7% in March 2014 and 12.5% as of February 2011 when Lord Davies reported.
  • The percentage of female-held directorships on FTSE 250 boards has increased to 18% in March 2015, up from 15.6% in March 2014 and 7.8% as of February 2011 when Lord Davies reported.
  • There has been a decrease in the number of all-male boards in the FTSE 100 from two in March 2014 to none in March 2015.   The number of all-male boards for FTSE 250 companies has decreased from 48 in March 2014 to 23 in March 2015.
  • The number of companies with at least 25% women directors in the FTSE 100 as of March 2015 is 41 (up from 36 in March 2014) and the equivalent number for FTSE 250 companies is 65 (up from 51 in March 2014).

To ensure success in achieving the 25% target, the Cranfield report proposes six strategies:

Build a sustainable pipeline of executive women.

Develop an agile working culture in which real meritocracy is nurtured.

Extend greater robustness and transparency in the board appointment process. Look at the suitability of women candidates outside of the corporate sector.

Ensure that women make more headway not only as NEDs but as Chairs, Senior Independent Directors and Heads of Nominations Committees. More work is needed on the development of board directors.

Many Chairmen champion gender diversity. This needs to be extended to CEOs and senior managers to develop the female pipeline.

Champions of change outside of business are also needed, such as the equivalent to the Davies Committee, the Government, media and researchers, to ensure that progress continues.

As well as highlighting the above results, the Cranfield report also examines how the growth of women on the UK’s top boards compares to other countries in Europe and across the world and identifies a number of remaining challenges facing women on corporate boards.  Additionally, the Cranfield report provides a review of what Lord Davies’ recommendations have accomplished.

These findings support continued progress against the recommendations made by Lord Davies in 2011.  Whilst incorporating the findings of the Cranfield report in his report he comments that “the job is not yet done.  I am confident that we will meet the 25% in the coming months, and with continued action and focus, this paradigm shift will be sustained in the long term”. 

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