October

The Bruce Column — Finance drives sustainability and SSE to awards win

13 Oct, 2015

Power supplier SSE has won the award in the large company category, sponsored by Deloitte, at the Finance for the Future awards. Robert Bruce, our regular, resident, columnist tells the story behind their achievements.

Building sustainability into huge capital expenditure projects so that all stakeholders can understand what is happening is a challenge for any finance function. But this is what has been achieved with Scottish Hydro Electric Transmission, (SHE), part of the power provider, SSE, which has won the overall award in the large business category at the 2015 Finance for the Future Awards, sponsored by Deloitte.

What they were aiming to do was develop the electricity transmission network capacity, what you and I would refer to as ‘the grid’, in the north of Scotland to be able to offer sufficient capacity to generators of electricity. Bearing in mind the European policy directive requiring the UK to generate 40% of its electricity from low-carbon sources by 2020, the emphasis had been shifted to new low-carbon generation. SSE was already aiming to provide the energy in a reliable and sustainable way and one of the company’s six core values was “Sustainability: operating ethically, taking the long term view to achieve growth while safeguarding the environment.” By definition that aligned sustainability with the finance function and the company’s finance models. ‘There is huge importance in conducting business in a long term and sustainable manner to meet our regulatory obligations’, said Dr George Cobb, group sustainability accountant.

‘We believed we needed to look wider in finance than purely economics, your standard cost-benefit analysis,’ said Cobb, ‘and we wanted to bring environmental and social aspects into the standard model. That was where our capital expenditure projects were having an impact. We wanted to respond to our stakeholders’.

So initially what was important was setting up a structure to demonstrate that future projects are both financially viable and sustainable in the long term. But the development, planning and approval process for capital projects can be complicated and time consuming. ‘Making significant untested changes increases risk’, said Cobb. What was needed was a documented and coordinated methodology to demonstrate a sustainable financial contribution across key areas, and balance their relative priorities.

And that assessment methodology is what they built. They built a Sustainable Commercial Model (SCM) for large scale transmission capital projects, a model that incorporates the wider, sustainable total value into strategy decisions, from planning to energisation and beyond where applicable.  

This used less than £1m of funding and focused on the sustainability impacts of the Beauly Denny Transmission project, a £600m project which has significantly increased the size of the Scottish Hydro Electric Transmission business to well in excess of £1bn of assets. Of course the new methodology has a long lasting benefit since it will be used for future capital projects – it is expected that the SHE Transmission will invest between £3-4bn during the eight year price control period to 2021.

 ‘Our goal was to have this communications tool that was driven by financial numbers’, said Cobb, ‘because everyone understands what a pound is, but a tool that is able to communicate very different measures sometimes, around health and safety, for example, visual amenity, and a tool that uses a robust methodology and robust challenge’.

‘One of the most positive stories is that initially it was going to be a finance initiative because it was around the money and whether we were getting a good return on capital’, said Cobb, ‘but it quickly became involved with our project teams and project managers. Now we are using it on multiple projects. We are talking to our regulator about it. We are talking to other infrastructure companies in the UK’. This is all part of the effort to collaborate and share. ‘We are happy to share’, he said. ‘We are happy to learn because we really do feel we can communicate our message and so really drive sustainability into finance’.

The sharing of the learning with other transmission operators in the UK creates a multiplier. Not only will the savings that SSE create be tangible, they can be rolled out across other operators.

‘It gives you’, said Cobb, ‘a worked example of how sustainability impacts can be measured and used to inform the financial and operational process of future capital investment decisions’. ‘It enables’, he said, ‘all stakeholders of transmission projects, and wider, to review the value created in a transparent and accountable format against an established baseline value. It is this baseline of knowledge that is the greatest contribution to finance and sustainability: a worked example and model which has been tested’. It is hoped that this can now be used as the basis on which future projects will be assessed and improved to provide truly sustainable, and financially sound, capital.

The result of the project was that, as with integrated reporting, there is a link established across disciplines from the finance function to the wider sustainability community, both internally and externally. And as a result they created a collaborative experience of sharing techniques, knowledge and experience of project outcomes and results. The work of the finance function embedded rigour and an audit trail into the process that allowed decisions and assumptions to be documented into a form which was transparent to all parties. ‘The project showed senior management, typically accountants, that sustainability and finance must work together’, said Cobb. ‘Although it is only one project so far, the results establish the process for future projects and, arguably, provide a very good estimate of future outcomes’.

And it has demonstrated the value and central role of the finance function in such projects. ‘The position of trust and significance that finance holds within our organisation is also fundamental to the success of the project’, said Cobb. ‘It has helped convert sceptics due to the level of rigour, relevance, transparency and engagement that was provided from an embedded resource’.

The project shows how accountants are at the heart of sustainability. ‘The accountants play a pivotal role’, he said. ‘The finance teams have a very privileged position, where they sit on projects, and that is where they can drive very significant change in sustainability’.

FRC comments on the IASBs clarifications to IFRS 15

13 Oct, 2015

The Financial Reporting Council (FRC) has commented on the IASB exposure draft ED/2015/6 'Clarifications to IFRS 15'.

The FRC supports the proposed clarifications to IFRS 15 and agrees with the International Accounting Standards Board (IASB) that any clarifications should only be made where “this is necessary to ensure that the requirements of the Standard are interpreted consistently”. 

Whilst supporting the IASB’s efforts to achieve convergence between IFRS 15 and the Financial Accounting Standards Board (FASB) equivalent revenue Standard (Topic 606) and reducing divergence between the two Standards, the FRC highlights that the development of a high quality Standard that meets the needs of its stakeholders should be prioritised over convergence “when agreement with the FASB on appropriate and consistent interpretation of the Standards cannot be reached”.  In this light, it agrees with the IASB’s decision “not to clarify or amend in IFRS 15 certain matters that the FASB has decided to clarify or amend in Topic 606”.

The FRC believes “it is imperative” that the Basis for Conclusions states the reasons for differences in wording between each area of IFRS 15 and Topic 606 and this should include “whether the difference is simply semantic and is not expected to result in divergent practice, or that it could result in divergent practice and explain the circumstances in which this may occur”.  The FRC also recommends that the Basis for Conclusions “specifically states that IFRS reporters should not apply the requirements of Topic 606 in areas where FASB amendments result in more extensive or restrictive requirements”.

Finally the FRC suggests that the IASB and FASB should continue regular dialogue on implementation issues to enable “agreement to be reached on appropriate and consistent interpretation of the revenue Standards wherever possible”.

The full comment letter is available on the FRC website.

Latest IASB 'Investor Update' issued

13 Oct, 2015

The IASB has issued the seventh edition of its newsletter 'IASB Investor Update' to provide investors with quick access to information on current accounting and financial reporting issues.

This issue features:

  • Spotlight: Financial instruments — a focus on the new disclosure requirements in IFRS 9 Financial Instruments;
  • In profile: Views from Marietta Miemietz, Director and Co-founder of Primavenue, on the financial reporting debate and the work of the CFA UK’s Financial Reporting and Analysis Committee;
  • Shaping the future in 15 minutes: An invitation to partake in the IASB’s online survey on the agenda consultation;
  • Current projects that need input from the investment community;
  • Current events calendar.

The IASB Investor Update newsletter is available on the IASB's website.

FEE paper puts forward the idea of 'CORE & MORE'

13 Oct, 2015

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has published a paper presenting a new approach to corporate reporting.

The paper starts by stating that the audience for corporate reporting is continually growing and diversifying and that corporate reporting needs to properly address the needs of an ever wider audience. Building on this premise, the authors look at the content of corporate reporting in two broad areas, financial reporting and reporting on non-financial information (NFI – defined throughout the paper as anything other than financial information). While financial reporting is a well-established concept, NFI reporting is still developing and currently seems to have resulted in a patchwork of different, often unconnected, reports.

Acknowledging that none of the reports currently available can address the needs of a wider stakeholder group as a single standalone report, FEE puts forward a new approach to corporate reporting: CORE & MORE.

  • The CORE report would contain the key information that is important for obtaining a fair understanding of the key elements of the company’s affairs, the key financial results and additional information that is considered to be relevant and material for the company’s stakeholders.
  • The MORE report(s) would include more detailed information, for example detailed disclosures for financial statements or additional information that would be of a wider range than that in the CORE report.

The paper argues that the approach - especially when combined with an efficient use of modern technology - would allow for more timely presentation of information, would give companies the possibility to update individual elements without affecting the other parts, and could be used by stakeholders to tailor the information presented to their own information needs.

Please click to access the press release and the paper on the FEE website.

Overview of the IPSASB's consultation paper on social benefits

12 Oct, 2015

The International Public Sector Accounting Standards Board (IPSASB) has released a multimedia presentation on its consultation paper on recognition and measurement requirements for social benefits.

The paper was published in July 2015; comments are due by 31 January 2016. The 30 minute presentation highlighting the key issues raised in the consultation paper is available on the IPSASB website.

October 2015 IASB meeting agenda posted

09 Oct, 2015

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 20-22 October 2015.

The most significant items on the agenda include:

  • Leases — The staff recommends that the effective date of its leases standard be 1 January 2019 and that early application be permitted (only in conjunction with the new revenue standard); a final standard is still to be issued in December 2015, although a few sweep issues need to be resolved.
  • Insurance — The staff recommends a shortened comment period of 60 days (subject to approval by the Trustees’ Due Process Oversight Committee, which is meeting in Beijing next week); an exposure draft is expected to be issued in December 2015.
  • Disclosure initiative — The Board will revisit cash restrictions (disincentives) but agreed at its September meeting that it would go forward with the project even if it cannot agree on this topic (which would then become part of its project on disclosure principles).

The full agenda for the meeting can be found here. We will post any updates to the agenda, as well as our Deloitte observer notes from the meeting, on this page as they become available.

IASB seeks input on future work plan and priorities

09 Oct, 2015

The IASB has released a survey to gather input from investors and analysts about its future work plan and priorities.

The survey, which is part of the IASB’s 2015 agenda consultation, requests feedback on two main topics: (1) the scope of the IASB’s work and (2) the prioritization of topics in the IASB’s future work plan.

The survey ends on 15 December 2015. For more information, including a link to the survey, see the press release on the IASB’s website.

Constituents split over proposed deferral of effective date of September 2014 amendments to IFRS 10 and IAS 28

09 Oct, 2015

With the comment period ending today for the IASB's Exposure Draft (ED) of proposed amendments to IFRS 10 and IAS 28 aimed at deferring the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded, it has become obvious that constituents are split as to whether this proposed deferral should be finalised.

In August 2015 the IASB proposed in ED/2015/7 Effective Date of Amendments to IFRS 10 and IAS 28 deferring the effective date of the 2014 amendments because it wants to deal with a series of issues around IAS 28 - including an identified conflict of the September 2014 amendments with IAS 28  - more comprehensively as part of its research project on the equity method of accounting. The proposed deferral is intended to avoid that entities would need to change the way in which they apply IAS 28 repeatedly in a short period of time.

Constituents arguing against the deferral note that the amendments issued in September 2014 were broadly supported (by the respondents to ED/2012/6) and have fully passed the IASB's due process. They also point out that the September 2014 amendments lead to an increased clarity and the reduction of diversity in practice for the majority of transactions that are in the scope of the amendments while the identified inconsistency in IAS 28.31 only affects a small number of transactions. Among the comment letters not supporting the IASB proposal are those from the standard-setters of Australia, Germany, and New Zealand as well as from the European Securities and Markets Authority (ESMA).

Constituents arguing for the deferral stress in particular that the deferral is important to enable entities to avoid changing the way in which they apply IAS 28 twice. However, they are split as to whether early application should continue to be permitted which some believing it would help address diversity in practice and some believe it would even increase diversity. All parties agree that if such a deferral is finalised, the IASB needs to prioritise its work on the research project on the equity method and come to conclusions soon. Among the supporters of the deferral are the Canadian, the Korean, and the Spanish standard-setter. In September, the European Financial Reporting Advisory Group (EFRAG) published a draft comment letter supporting the deferral, however, a final letter has not been published yet.

Please click for access to all comment letters made available publicly so far on the IASB website.

IFRS 15 — ESMA believes the IASB has identified the right issues, calls for clear documentation of impacts of differences between IASB and FASB

08 Oct, 2015

The European Securities and Markets Authority (ESMA) has commented on the IASB exposure draft ED/2015/6 'Clarifications to IFRS 15'.

ESMA agrees with the proposed clarifications to IFRS 15 but regrets regrets that the IASB and FASB were not able to maintain convergence between their standards. Nevertheless, the comment letter states:

ESMA agrees that the IASB identified the right issues that require clarification from the TRG discussions and that no further clarification on the issues for which amendments are proposed by the FASB is required at this stage. [...] Regarding any further standard-setting process related to IFRS 15, unless a major flaw of the standard is identified, any remaining minor issues to be identified by the implementation process could be addressed by referring the issue for consideration to the IFRS Interpretation Committee or to the post-implementation review.

ESMA urges the two Boards to maintain their efforts to keep the standards as convergent as possible and to discuss emerging issues together until the date of mandatory adoption of IFRS 15. Also, ESMA supports the IASB’s decision to include a discussion in the Basis for Conclusions to the ED of the potential impacts on convergence for each of the issues where either the IASB or the FASB have decided to propose different amendments to their respective standards. ESMA urges the IASB to keep track of the differences and clearly communicate them, updating the comparison as the Boards’ proposals are finalised or new differences emerge.

Please click to access the full comment letter on the ESMA website.

FRC and Charity Commission consult on new taxonomy for charity accounts

08 Oct, 2015

The Financial Reporting Council (FRC) and the Charity Commission have today published a consultation on a proposed new XBRL charity accounts taxonomy to enhance the quality of financial reporting for Charities in the UK and Ireland.

The Charity Commission wants charities to be able to file their accounts digitally with Companies House in line with many other companies.  The proposed taxonomy will make it easier and quicker for those charities that have to file with both the Charity Commission and Companies House and will also enhance the quality and accessibility of such accounts.

The taxonomy, intended to support iXBRL tagging of accounts,  is designed to align with the new Charities Statement of Recommended Practice (SORP) (Financial Reporting Standard (FRS) 102)) issued in July 2014 and the expected modifications proposed in the Update Bulletin 1 to update the SORP for changes to FRS 102 since the initial SORP was published.  It is proposed to replace the existing Charity Taxonomy issued in 2009 under the previous Charity SORP 2005. 

The consultation would like views in particular on the tagging approach taken for:

  • transfer of funds on the Statement of Financial Activities (SoFA);
  • content of the Charity Audit and Independent Examiner Report;
  • charitable activities in the Trustees’ Annual Report, SoFA and notes and disclosures; and
  • analysis and allocation of support costs across activities in notes and disclosures. 

Comments on the proposed taxonomy are invited until 8 December 2015.  

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