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May 2015 IASB meeting notes posted — part 2 (concluded)

03 Jun 2015

The IASB met at its offices in London on 18–20 May 2015. We have posted the Deloitte observer notes from the education session on rate-regulated activities and the sessions on revenue recognition, IFRS implementation issues, financial instruments with characteristics of equity, IFRS 2 research project, rate-regulated activities, dynamic risk management, and disclosure initiative.

Click through for direct access to the notes:

Monday, 18 May 2015

Tuesday, 19 May 2015

Wednesday, 20 May 2015

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

IFRS Foundation issues taxonomy guide for regulators

03 Jun 2015

The IFRS Foundation has issued a guide, “Using the IFRS Taxonomy — a Regulator’s Guide,” to help market regulators and other organisations adopt and use the IFRS taxonomy within an electronic filing system.

The guide provides details on:

  1. How to get started.
  2. IFRS taxonomy ar­chi­tec­ture.
  3. Ar­chi­tec­ture options for using the IFRS taxonomy in a filing system.
  4. Best practices/rec­om­men­da­tions.

For more information, see the press release and the guide on the IASB’s website.

Conduct Committee findings in relation to accounting under IFRS 3

03 Jun 2015

The Financial Reporting Council (FRC) has issued a press release of the findings of its Conduct Committee stemming from the review of the annual reports and accounts of fastjet Plc ("the company").

The principal issue related to a reverse takeover under the AIM rules accounted for as the purchase of a business by the company using acquisition accounting under IFRS 3 Business Combinations.

Following its review, the Conduct Committee concluded that the company was, for accounting purposes, the acquiree in the business combination and therefore that the transaction should have been accounted for as a reverse acquisition.

The Conduct Committee press release serves as a reminder that entities should review transactions carefully to identify the acquirer in an acquisition scenario as this can have a significant impact on the resultant accounting under IFRS 3.

Please click here for the full press release on the FRC’s website.

Investment Association publishes fifth report on institutional investor adherence to the FRC’s Stewardship Code

03 Jun 2015

The Investment Association (IA) has today published its fifth report (“the report”) looking at how institutional investors demonstrate adherence to the Financial Reporting Council’s (FRC’s) Stewardship Code ("the Code").

The Stewardship Code (link to FRC website) operates on a ‘comply or explain’ basis and is aimed at institutional investors, asset owners and asset managers. It sets out good practice on engagement with investee companies, which includes monitoring companies, entering into dialogue with boards and voting at general meetings.  The aim of the Code is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.

The report summaries the responses to a questionnaire by 130 (out of a total of 288) signatories to the Code as at 30 September 2014.  The respondents consisted of 92 asset managers, 30 asset owners and eight service providers.

Key findings from the report show:

  • There are an increasing number of signatories to the Code – 288 up from 274 in 2013.
  •  All respondents have a public policy statement on how they discharge their stewardship responsibilities under the Code (Principal 1 of the Code) and 88 per cent also have a public conflicts of interest policy (Principal 2 of the Code).
  • That 83 per cent of respondents reviewed their policy statements in 2014 and 45 per cent updated them.  This is a decrease from 90 per cent and 67 per cent in 2013 respectively where respondents were making changes as a result of the 2012 revisions to the UK Corporate Governance Code.
  • The proportion of asset managers where mandates refer to stewardship decreased to 74 per cent from 83 per cent in 2013. 
  • Engagement and voting by “most respondents” is conducted in-house.  Where engagement is external, those external providers are monitored.
  • There was a “significant increase” in respondents’ resource for engagement.  The headcount responsible for engagement increased to 2,090 in 2014 from 1,703 in 2013.
  • There are a wide variety of ways that respondents monitor their investee companies.  35 per cent of respondents engage with all of their UK holdings (2013: 34 per cent) whilst a number of respondents (22 per cent) prioritise engagement to those where there are “significant issues” (2013: 26 per cent).  The report highlights that board remuneration was considered to be the most important for engagement “which reflected the introduction of the binding vote in 2014”.  This was followed by corporate performance and then board leadership.  In 2013 business strategy, board leadership and board composition were the three issues respondents considered to be most important for engagement, followed by board remuneration.
  • There was an increase in overseas engagement particularly in Western Europe and the US and Canada but a decrease in Central and Eastern Europe and Japan.  However engagement with asset classes other than equities decreased.
  • In terms of the quality of the dialogue with companies, respondents indicated that this was at a similar level to 2013.  Over 80 per cent of respondents indicated that direct contact and one-to-one meetings are the most effective means of communication.  89 per cent of respondents were “fully or mostly satisfied” with the outcome of their engagement.
  • That less respondents give advance notice when they intend to abstain or vote against a resolution (39 per cent in 2014, 47 per cent in 2013). Voting records are disclosed publicly by 68 per cent of respondents, an increase from 66 per cent in 2013.
  • That “nearly all” of respondents report on their stewardship activities to clients or beneficiaries.  However this figure has fallen from 94 per cent in 2013 to 90 per cent in 2014. 

Along with these results, the report also provides practical examples of how respondents engage with companies with responses ranging from areas such as bribery allegations and culture, directors’ remuneration and governance and board independence. 

Click for (all links to IMA website):

FRC publishes Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies

02 Jun 2015

The Financial Reporting Council (FRC) has today published a Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies. Although the FRC highlights that the quality of reporting by such companies is generally regarded by investors to be “timely and of a good standard”, the FRC highlights that there is “room for improvement in a number of key areas” and these are the areas that investors pay most attention to.

The Discussion Paper provides the results of the first phase of an FRC project launched in July 2014 which aims to achieve a step change in the quality of financial reporting by smaller listed and AIM-quoted companies over a three year period.  The first phase focused on gathering and assessing evidence of the issues that smaller listed and AIM-quoted companies face (including being attractive to investors), understanding the barriers to higher quality reporting and then exploring ways that the FRC might assist such companies to address the quality of their reporting so as to improve confidence in the integrity of their financial statements and of the markets as a whole. 

The Discussion Paper highlights a number of factors that contribute to a “higher incidence of poorer quality annual reports by smaller quoted companies than by their larger counterparts” including:

  • Smaller companies think that investors do not read their annual reports and hence see the preparation of the annual report as a “compliance exercise rather than being seen as an opportunity to provide relevant information to stakeholders”.  The FRC highlights, however, that investors “have told the FRC that such reports are important to them”.    
  • Smaller quoted companies find preparing their annual reports a challenge.  Such challenges might include a lack of skilled resources to prepare the report or a lack of up-to-date technical knowledge with current reporting requirements and standards.
  • Smaller companies might have limited access to external financial reporting expertise. 

The FRC notes that “such factors can combine and contribute to a lack of focus, poor planning and insufficient time for adequate review and audit; as basic errors creep in”.  Although the finance function has a part the play in raising the bar on quality, the FRC also highlights that “those charged with governance and auditors can make a real and substantial difference to the quality of annual reports by engaging more effectively in the reporting process”. 

To assist smaller listed and AIM-quoted companies to improve reporting quality, the Discussion Paper provides a number or proposals under three broad areas: 

Reporting requirements and practices

The FRC highlights that use of boilerplate disclosure and disclosure of information that is not material to the financial statements are both likely to deter investors.  To encourage smaller listed and AIM-quoted companies to provide a more tailored annual report the FRC will (taken direct from the Discussion Paper):

  • consider whether the Capital Markets Union provides an opportunity to develop a differentiated disclosure framework for smaller quoted companies, building on the IFRS-based approach adopted in UK GAAP;
  • include specific consideration of smaller quoted companies in its Clear & Concise reporting initiative;
  • provide focused annual reminders to Boards of smaller quoted companies setting out the key areas of focus for investors, common errors that we encounter in annual reports and suggestions for improvements in these areas; and
  • encourage more participation by smaller quoted companies and their investment community in the practical work of the FRC’s Financial Reporting Lab to identify ways to improve the quality of corporate reporting.  Such participation would:
    • help to ensure that corporate reporting better meets the needs of both; and
    • explore additional methods of sharing with small companies the innovative suggestions developed in the Lab that are tested with investors, so they can be put into practice.

 Audit practices 

The Discussion Paper notes that phase 1 considered whether auditor ethical standards “inappropriately deny smaller quoted companies access to specialist skills and, if so, whether they should be amended to allow auditors of smaller quoted companies to have greater involvement in the preparation of all or part of the annual report”.  There was only “limited support” for any relaxation of the ethical standards for auditors but the FRC will consider as part of its 2015 review of ethical standards, providing greater clarity for auditors on what is acceptable and what is not.  The FRC will also review whether the process of granting of 'Responsible Individual' status could be improved to ensure that audit partners are suitably qualified and experienced to carry out audits of smaller quoted companies. 

Company governance and resources 

To address the challenges faced by smaller listed and AIM-quoted companies regarding a lack of skilled resources the FRC will (taken direct from the Discussion Paper):

  • discuss with the accountancy and audit Professional Bodies (ICAEW, ACCA, ICAS, CAI) and others, ways of providing more focussed training to finance staff to fulfil CPD requirements;
  • discuss with the London Stock Exchange and UK Listing Authority ways to ensure that companies understand the importance of and have adequate financial reporting resources to meet their ongoing reporting obligations and encourage them to consider educational initiatives to assist companies in their reporting responsibilities; and
  • develop practical guidance for audit committees and boards on evaluating the adequacy of a company’s financial reporting function and process.

By improving the quality of reporting by smaller listed and AIM-quoted companies, the FRC indicates that it would “provide better and more relevant information to investors and potentially open up greater access to capital”.

The FRC invites users and preparers of annual reports to comment on the proposals by 31 July 2015.

The FRC will be holding an event to discuss the proposals in the Discussion Paper on 9 July 2015.  More information, including how to attend the event can be found on the FRC website.

 Click for:

Second IASB agenda consultation to be launched on 30 July

02 Jun 2015

Among the papers for the upcoming meeting of the IFRS Advisory Council is a paper offering a revised timetable for the Agenda consultation 2015. The paper notes that a request for views will be issued on 30 July 2015 with comments requested by 30 November 2015.

Originally, the IASB had intended to launch its second agenda consultation in December 2015. However, the paper argues that:

  • the 2011-12 agenda consultation process had been the first of its kind; the second consultation will profit from the lessons learnt;
  • as a result of the 2011-12 agenda consultation, the IASB's current agenda is very full and the IASB's ability to consult is constrained by the current commitments in its work programme;
  • the Trustees of the IFRS Foundation intend to review the IASB’s structure and effectiveness through public consultation in the third quarter of 2015 and the IASB believes that the agenda consultation process should be closely aligned with that as there are questions that interlink the two consultations.

Therefore, the IASB has concluded that it can - and should - launch the agenda consultation by publishing a request for views on 30 July 2015. During the comment period, the IASB intends to conduct further outreach. The IASB will discuss all feedback received at its January 2016 meeting and intends to publish a feedback statement on 29 February 2016. The time period expected to be affected by the results of the consultation would be the IASB work programme from mid-2016 to mid-2020.

Please click to access the agenda paper for the IFRS Advisory Council meeting on the IASB website. It also offers a draft of the request for views to be published in July.

We comment on FRED 61 ‘Draft amendments to FRS 102 – Share-based payment transactions with cash alternatives’

01 Jun 2015

We have published our comment letter on the Financial Reporting Council’s (FRC’s) Financial Reporting Exposure Draft (FRED) 61 ‘Draft amendments to FRS 102 – Share-based payment transactions with cash alternatives’.

FRED 61 proposes a narrow scope amendment to clarify and simplify the accounting for share and share option awards where a cash settlement alternative exists.  It seeks to amend paragraph 26.15 of Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland to:

align the requirements in FRS 102 with full IFRS and previous UK and Irish GAAP in cases where the entity can choose to settle in cash or equity;

retain the current requirements of FRS 102 to recognise a liability where the recipient can require settlement in cash; and

generalise the requirements to include those cases where the settlement method is dependent on an external event. 

We are supportive of the proposals.  However, we disagree with broadening the scope of paragraph 26.15 of FRS 102 to address those cases when the choice of settlement is dependent on an external event. 

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

GRI publishes analysis on sustainability and reporting trends in 2025

01 Jun 2015

The Global Reporting Initiative (GRI) has published a first Analysis Paper resulting from its Reporting 2025 Project that is designed to promote an international discussion about the purpose of sustainability reporting and disclosures looking ahead to 2025.

As part of the project, thought leaders in various fields are interviewed on subjects ranging from data technology to society and business development scenarios, with the aim of identifying main issues that will – or should be – at the center of companies' agendas and their public reports. The insights presented in the first paper provide result from the analysis of the first nine interviews. A second paper with more interviews will follow in September this year, a final report in January 2016.

The insights gained so far are:

  • Companies will be held accountable, more than ever before.
  • Business decision makers will take sustainability issues into account more profoundly.
  • Technology will enable companies and stakeholders to access, collate, check, analyse and correlate data.
  • Technology will enable companies to operate and report in a highly integrated way.
  • Ethical values, reputation and risk management will guide decision makers.
  • New indicators will emerge.
  • Reports will result both from regulated and voluntary processes.
  • Sustainability data will be digital and occurring in real-time instead of annually.

Please click to access the full report on the GRI website.

Financial Reporting Lab publishes report on how companies are approaching Audit Committee reporting in response to investor demands

01 Jun 2015

The Financial Reporting Lab (“the Lab”) has published an implementation report (“the implementation report”) which highlights how companies are responding to investor demands in relation to effective Audit Committee reporting.

In October 2013, the Lab published a project report (“the project report”) which provided insight from 19 companies and 25 investors on effective approaches to Audit Committee (AC) reporting including both the content and style of presenting information.  The report provided insights on the three areas of AC reporting under the revised (2012) UK Corporate Governance Code (“the Code”):

  • Addressing significant financial statement reporting issues;
  •  Assessing external audit effectiveness; and
  •  Appointing the auditor and safeguards on non-audit services.  

The implementation report considers specifically how companies have implemented investors’ preferences highlighted in project report.  The results are drawn from a random sample of 34 companies from the FTSE 350.

The implementation report highlights:

  • Style of the AC report.  All companies complied with the Code requirement for the Audit Committee report to be a separate section within the annual report and 82% of companies presented their AC report as a separate report which was preferred by investors in the project report – this was most commonly shown in the governance section of the annual report.  Investors in the project report indicated that they prefer personalisation in the AC report and the results of the implementation review indicated that all committees wrote in the first person, 62% included a photo and 24% included the signature of the AC chair.  The implementation report indicates that “overall, companies have implemented the Lab’s findings well, but personalising the report by adding in the AC chair photo and signature would go further to meet investor preferences based on building the perception of accountability”.
  • Significant reporting issues.  The implementation report indicates that “reporting of significant issues has been implemented to varying levels”.  59% of the companies were rated by the Lab as “good” or “average” in terms of their reporting of significant issues.  The project report indicated a number of attributes that significant issue disclosure should contain.  The implementation report identifies that 94% of issue disclosures contained clear context and 84% detailed the AC’s actions.  However, the Lab highlight that “improvement in explanations to make each issue disclosure specific to the company and to include the conclusion reached by the AC and the rationale could be made”.
  • Assessing external auditor effectiveness.  Investors demand “more detailed, but concise disclosure of the assessment of external auditor effectiveness”.  Results showed that only 41% companies provided a “reasonably” good level of detail of their assessment process.  The implementation report indicates that “most companies have significant room to improve reporting in this area by providing more detail on the activities undertaken and each of their outcomes”.  To assist companies, the FRC has recently issued a practice aid to assist audit committees in assessing the effectiveness of the external audit process.
  • Appointing the auditor.  The project report indicated a number of attributes of good disclosure around appointment of the auditor.  The implementation report indicates that “disclosures largely meet investor preferences, but clarity in relation to timing of next audit tender, and current audit partner tenure, rotation, and name should be considered”.
  • Safeguards on non-audit services.  The project report indicated a number of attributes of good disclosure around safeguards in non-audit services.  Of those, 94% of AC reports included the non-audit services policy and 73% described the criteria for AC approval.  The implementation report highlights that “improvement in reporting of the nature of non-audit services received, together with the relevant fee, and clearly stating the ratio of non-audit to audit fees, could be made by many companies”.

Further observations are available in the full implementation report which is available on the FRC website.

We comment on a tentative agenda decision of the IFRS Interpretations Committee

01 Jun 2015

We have published our comment letter on the tentative IFRS Interpretations Committee agenda decision on IFRIC 14 as published in the March 2015 IFRIC Update.

After thorough analysis, the IFRS Interpretations Committee tentatively concluded not to take onto its agenda a request to clarify whether the future minimum funding requirement for contributions to cover future service would apply for only the minimum fixed period under certain circumstances.

We agree with the IFRS Interpretations Committee’s analysis and decision not to add this item to its agenda for the reasons set out in the tentative agenda decision.

Please click to download the full comment letter here.

Correction list for hyphenation

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