November

FRC’s Financial Reporting Lab issues report on disclosure of dividend policy and practice

25 Nov, 2015

The Financial Reporting Council’s (FRC's) Financial Reporting Lab has published a report on the disclosure of dividend policy and practice by companies. The report covers issues relevant to all sizes of listed company and focuses primarily on disclosures in the annual report, although a range of company communications are considered. It is intended to act as practical guidance to assist listed companies in providing dividend disclosures to investors and incorporates best practice examples.

Both companies and investors agree that dividend policy and practice disclosures are fundamental to evaluate investment decisions and to assess management’s stewardship. The FRC’s Financial Reporting Lab project on the disclosure of dividend policy and practice was prompted by an interest from a group of long-term institutional investors in the capital maintenance regime and then broadened to cover best practice disclosure of dividend policy and practice.

The report covers the following topics:

  • The importance of good dividend policy disclosure – consensus is that dividend disclosures are not being clearly articulated and that there is frequently a disconnect between any description of the dividend policy and how that policy has been implemented in practice.
  • The characteristics of good dividend policy disclosure i.e. what ‘good’ looks like. This should cover why the particular policy has been chosen, what the policy will mean in practice and the timeframe over which the particular dividend policy is likely to apply. Companies should also seek to address any risks and constraints associated with their policy in their disclosure.
  • Dividend declaration disclosures– investors have expressed a desire to see the quality of information in dividend disclosures enhanced to include information including:
    • the period to which the dividend relates;
    • the amount per share and aggregate amount;
    • the remaining steps necessary to approve the dividend e.g. shareholder vote at AGM;
    • the level of resources available to the parent including detail on how the dividend will be funded.
  • What investors want from disclosures on dividend resources available to the parent - including elements of distributable profits disclosure. The FRC has confirmed their understanding that there is no requirement under the Companies Act 2006 to disclose the amount of distributable profits. However, as the level of realised profits can be significantly different to the balance in retained earnings, participants in the FRC Lab’s project indicated that the parent company’s statement of changes in equity is a useful place to provide such a disclosure as it can clarify the distributable/non-distributable split of the company’s reserves and/or profit. An example of such a disclosure can be found in Appendix 4 of the report.
  • The placement of disclosures - currently disclosures on dividends are spread across a wide range of company information with investors focusing primarily on preliminary announcements, presentations and annual report disclosures. Appendix 2 of the report highlights the importance of the interaction between the dividend and reporting cycles when providing dividend disclosure. 

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FRC believes Conceptual Framework must 'embrace asymmetric prudence'

25 Nov, 2015

The Financial Reporting Council (FRC) has commented on the IASB's exposure draft ED/2015/3 'Conceptual Framework for Financial Reporting'.

The FRC calls on the IASB to reconsider its proposed Conceptual Framework so that it properly reflects the importance of stewardship, prudence and reliability, which it considers to be fundamental to financial reporting. The FRC stresses that prudence is more than taking a cautious approach to accounting. Rather prudence prudence requires a greater readiness to recognise losses than profits:

The reintroduction to the Conceptual Framework of a specific reference to prudence is very welcome. However, the treatment of it in the Exposure Draft — as support for the idea of neutrality — is wholly inadequate. The essence of prudence is the idea referred to in the Basis for Conclusions as ‘asymmetric prudence’ — a lower threshold for the recognition of liabilities and losses than for assets and gains — which is absent from the text of the draft Conceptual Framework itself.

The FRC adds that the term 'neutrality' that is used in the framework might be misleading and suggests it should be replaced 'unbiased'.

Finally, the FRC notes that it is "particularly odd" that the IASB acknowledges that the concept of asymmetric prudence is reflected in current accounting standards (for example in IFRS 15), but has omitted it from its draft Framework.

Please click to access the full comment letter and a corresponsing press release on the FRC website.

We comment on the proposed changes to the Conceptual Framework

25 Nov, 2015

We have published our comment letters on the IASB's EDs 2015/3 'Conceptual Framework for Financial Reporting' and 2015/4 'Updating References to the Conceptual Framework (Proposed amendments to IFRS 2, IFRS 3, IFRS 4, IFRS 6, IAS 1, IAS 8, IAS 34, SIC-27 and SIC-32)'.

In our comment letter on ED/2015/3, we note that we think further improvements are necessary before the revised Conceptual Framework is issued. Please click to access the full comment letter.

In our comment letter on ED/2015/4, we agree with the proposed amendments to reference to the Conceptual Framework and with the Board’s proposed means of transition. Please click to access the full comment letter.

European Union formally adopts amendments to IFRS 11

25 Nov, 2015

The European Union has published a Commission Regulation endorsing the May 2014 amendments to IFRS 11 that clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business.

Commission Regulation (EC) No 2015/2173 of 24 November 2015 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council published in the Official Journal on 25 November 2015 adopts Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) issued by the IASB in May 2014. The EU effective date is the same as the IASB's effective date (annual periods beginning on or after 1 January 2016 with earlier appication permitted).

EFRAG has updated its endorsement status report to reflect that the European Union has published Commission Regulations adopting Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) (yesterday) and Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) (today) for use in the European Union.

CFA institute and IASB discuss agenda consultation

24 Nov, 2015

The CFA Institute and IASB have posted a webcast which features IASB member Patrick Finnegan discussing the IASB’s 2015 Agenda Consultation.

Specifically, Mr Finnegan discussed:

  • “the IASB’s current Agenda Consultation;
  • where the IASB stands on previously identified investor priorities, such as financial statement presentation and disclosures; and
  • how other corporate reporting initiatives and technology are influencing the IASB’s strategy and agenda-setting process.”

The webcast is available on the CFA Institute’s website.

ECON announces public hearing on IFRS 9

24 Nov, 2015

The Committee on Economic and Monetary Affairs (ECON) of the European Parliament announces that it will hold a public hearing on IFRS 9 'Financial Instruments' on 1 December 2015.

The hearing (from 15:00 to 16:30) will see presentations by invited experts followed by a discussion between ECON members and the experts. The hearing will be webstreamed on http://europarltv.europa.eu.

The ECON is currently paying close attention to IFRS 9 and its possible endorsement. Only recently, the Committee commissioned four studies on the standard.

Accounting bodies call upon world leaders to put in place a sustainability framework

24 Nov, 2015

The Accounting Bodies Network (ABN), established by the Prince of Wales' Accounting for Sustainability project (A4S), is calling on world leaders ahead of the COP 21 Climate Change meeting in Paris to put in place a framework that will enable investors to make informed decisions that will support the goal of a sustainable future.

The open letter published yesterday on the A4S website notes that professional accountants can help to address climate change, as accounting is central to decision-making and professional accountants can provide relevant analysis, reporting and assurance to help organisations generate and preserve value, and can therefore be influential in driving sustainable behaviours. In order to do so, however, it is essential that world leaders agree a common framework. The open letter therefore states:

We urge governments to:

  1. Commit to an agreement in Paris that provides a clear signal that governments will act to achieve a low carbon, sustainable future 
  2. Put in place a framework that sets out necessary government actions, reduces uncertainty and enables investors, businesses and others to make informed decisions that are consistent with this aim.

Please click to access the open letter and the corresponding press release on the A4S website.

European Union formally adopts amendments to IAS 16 and IAS 41

24 Nov, 2015

The European Union has published a Commission Regulation endorsing 'Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)'.

Commission Regulation (EC) No 2015/2113 of 23 November 2015 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council published in the Official Journal on 24 November 2015 adopts Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) issued by the IASB in June 2014. The EU effective date is the same as the IASB's effective date (annual periods beginning on or after 1 January 2016 with earlier appication permitted).

Agenda for the December 2015 ASAF meeting

24 Nov, 2015

The International Accounting Standards Board (IASB) has released an agenda for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held at the IASB's offices in London on 7-8 December 2015.

The agenda for the meeting is summarised below:

Monday, 7 December 2015 (9:30-17:30)

  • AASB/KASB joint research project on IFRS implementation — Accounting judgments on terms of likelihood in IFRS: Korea and Australia
  • Disclosure initiative — Materiality practice statement
    • ASAF members’ preliminary views on the exposure draft
    • if and how ASAF members plan to implement the practice statement in their region
  • Conceptual Framework — recognition criteria in the Conceptual Framework
  • Post-employment benefits — possible approaches that might address the issue of hybrid plans
  • Goodwill and impairment — ASAF members’ views on the IASB’s initial discussions at its meetings in October 2015 and November 2015
  • Different effective dates of IFRS 9 and the new standard on insurance contracts
    • explanation of the overlay approach and request for ASAF members’ views on that approach
    • how ASAF members can support the project outreach


Tuesday, 8 December 2015 (9:00-15:00)

  • Business combinations under common control (BCUCC)
    • HKICPA paper on how BCUCC have been accounted for in Hong Kong and presentation on Hong Kong investor analysts' views on what information is useful when a BCUCC takes place
    • ASAF members’ views on how predecessor method should be applied when a BCUCC takes place
  • Role of post-implementation reviews — ASAF members' views on the PiR process, its benefits and possible improvements
  • Disclosure initiative — next steps
  • Equity Method — EFRAG is seeking the ASAF’s view on the proposed scope of the equity method project
  • Project updates and agenda planning
    • Primary financial statements
    • Changes in accounting policies

Agenda papers for the meeting are available on the IASB's website.

IASB updates work plan

23 Nov, 2015

Following its November 2015 meeting, the IASB has updated its work plan. As mentioned before, directly tracing the Board's progress on the individual projects has become impossible since the change of the work plan format in July, unless the Board makes definite progress or has to make larger corrections. Of these, a few can be identified in the November work plan.

On major projects, the Board notes no changes, which means that for all of these projects the next project steps may or may not have been pushed back by one month since the last work plan update.

Updates regarding the implementation projects are several:

Regarding interpretations, the projects on uncertainty over income tax treatment and foreign currency transactions and advance considerationwill now see decisions on the project direction within three months (was within six months).

Finally, two research projects have been updated:

The revised IASB work plan is available on the IASB's website.

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