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ICAEW responds to FRC and BIS consultations on implementation of the EU Audit Directive and Regulation

17 Dec 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has responded to consultations published by the Financial Reporting Council (FRC) and the Department for Business Innovation & Skills (BIS). These consultations deal primarily with the implementation of the EU Audit Directive and Regulation in the UK.

The FRC’s Enhancing Confidence in Audit consultation was published in October 2015. The ICAEW’s response to this consultation questions the wisdom of the FRC's approach of verbatim reproduction of clauses from the EU Regulation with little or no supporting explanation and makes the following points:

  • The proposed approach of combining the new EU requirements with existing standards has resulted in over-complexity particularly in regards to the Regulation relating to Public Interest Entities (PIEs). Furthermore the inclusion of the Ethical Standard for Reporting Accountants (ESRA) within the Ethical Standards (ES) overcomplicates the standard and will be irrelevant for most readers.
  • The FRC’s approach to transposing the Directive is not consistent and there is no justification where phrases have been modified, for example the replacement of ‘immaterial’ with ‘clearly inconsequential' in paragraph 5.57 of the consultation. In some areas the changes proposed go beyond those outlined in the Directive itself, including the removal of words in paragraph 5.113 discussing tax advocacy. The report also questions whether it is necessary to introduce a complete prohibition of contingent fees on tax services for all audits.
  • Certain sections of the proposed amended standards are overly long and, at a minimum, more subheadings should be introduced to assist navigation.
  • The inclusion of additional rules for AIM companies is unnecessary, as there are no further requirements in the Directive for such companies over and above those for the audits of other non-PIEs.

In their response to the BIS consultation paper, the ICAEW highlight the current lack of a specific legislative requirement detailing the ability of the FRC, as the designated single competent authority under the Directive, to delegate particular matters to the Recognised Supervisory Bodies (RSBs). This is crucial to delineate the respective roles of both the FRC and the RSBs and therefore to allow the FRC to concentrate on their responsibility as the designated single competent authority within the UK. The report also notes particular concerns relating to the framework for the FRC’s process for reclaiming tasks from RSBs; the potential over-flexibility in the use of ‘public interest’ criteria; the procedures for recognition of statutory auditors from another Member State and a number of interpretational issues around the allocation of investigation and discipline roles.

The detailed response to the FRC consultation and to the BIS consultation can be obtained from the ICAEW website.

A Deloitte 'Governance in brief' publication on the FRC and BIS consultations is also available.

FRC publishes practical tools to help companies achieve Clear & Concise reporting

17 Dec 2015

The Financial Reporting Council (FRC) has today issued 'Clear & Concise: Developments in Narrative Reporting. This report includes practical tools to help companies achieve Clear & Concise reporting, as well as a study reviewing the influence of the FRC's Guidance on the Strategic Report on the quality of narrative reporting.

This report is the latest product of the FRC's Clear & Concise initiative, which was launched in June 2014 with the publication of Guidance on the Strategic Report.  It is made up of three sections.

  • Clear & Concise reporting: The current picture, which looks at what the Clear & Concise initiative is aiming to achieve, including investor and company perspectives.
  • Study on the impact of the strategic report, which looks at the findings of a number of other organisations on the quality of UK corporate reporting (including Deloitte's Annual report insights 2015 survey), supplemented by a detailed review of a sample of FTSE 350 companies' strategic reports.
  • Emerging developments, which examines the future developments that will impact companies' narrative reports.
Overall, the FRC has found that companies are taking on board the objectives of the FRC's Clear & Concise initiative and the quality of corporate reporting has improved since the introduction of the strategic report, although opportunities for further improvement still exist.  Reporting of principal risks, key performance indicators and companies' business models are all specifically highlighted as areas where there is scope to improve.  In addition, there is scope for companies to take a longer term view in their strategic reports. Companies could also think about how they can better demonstrate linkage in their reports and how to apply materiality to make reporting more concise and reduce 'boilerplate'.  

The report also includes the following tips for companies to consider when looking at how they can achieve Clear & Concise reporting.

  • Starting early - this allows more time for discussion of content with internal teams.
  • Page count - this can be used as a benchmark when seeking to streamline an annual report.
  • Innovation - it can help to start the annual report planning process with a blank sheet of paper to avoid becoming constrained by last year's structure.
  • Materiality - the application of materiality to both narrative and financial information is crucial for Clear & Concise reporting.
  • Considering the audience - thinking about the information needs of the primary users of the annual report (investors) to ensure that communication is appropriately targeted.
  • Collaboration between internal teams - bring together teams from across the organisation to facilitate the identification of linkages between different areas of the report.
  • Board-level engagement - Board support for driving innovative improvements is key, and early engagement is critical to achieve this.
  • Culture - foster a culture that sees the annual reporting process as a continuous improvement cycle, rather than a one-off process.

The full report and press release can be obtained from the FRC's website.

New EFRAG TEG Chairman and EFRAG CEO appointed

17 Dec 2015

On 16 December 2015, the EFRAG Board decided to appoint Andrew Watchman as the new EFRAG TEG Chairman and EFRAG CEO to succeed Françoise Flores whose second term will come to an end in March next year.

The appointment takes effect as of 1 April 2016 and is for a three-year term, renewable once.

Andrew Watchman currently serves as the Global Head of IFRS at Grant Thornton and represents his firm at the IFRS Interpretations Committee. He previously served as Accountancy Advisor at the UK Government’s Department of Trade and Industry.

The press release on the appointment of Andrew Watchman can be found on EFRAG’s website.

IASB defers the effective date of September 2014 amendments to IFRS 10 and IAS 28

17 Dec 2015

The International Accounting Standards Board (IASB) has published final amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures'. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded.



On 11 September 2014, the IASB issued Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) as result of the work on one of the issues in relation to the transfers of assets between an investor and its associates or joint ventures the IASB was considering. Among the issues that were also considered at that time was the elimination of gains or losses arising from transactions between an entity and its associate or joint venture where an exposure draft (ED) had been announced for November 2014 but was never published. A second attempt at progressing with the issues in the November ED was undertaken in February 2015, now combined with addressing an identified conflict of the September 2014 amendments with IAS 28. However, in June 2015 the IASB decided that it wants to deal with the issues in the February ED more comprehensively as part of its research project on the equity method of accounting. To avoid that entities would need to change the way in which they apply IAS 28 twice in a short period of time the IASB decided to defer the effective date of the September 2014 amendments until it has finalised amendments, if any, that result from the research project on the equity method.



The amendments in Effective Date of Amendments to IFRS 10 and IAS 28 defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded. Earlier application of the September 2014 amendments continues to be permitted.


Additional information

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December 2015 IASB meeting notes posted

16 Dec 2015

The IASB met at its offices in London on 15–16 December 2015. We have posted the Deloitte observer notes from all of the sessions held on both days.

Please click through for direct access to the notes:

Tuesday, 15 December 2015

Wednesday, 16 December 2015

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

ICAEW Financial Reporting Faculty publishes thought leadership paper on SME accounting requirements

16 Dec 2015

The Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has published 'SME Accounting Requirements: Basing Policy on Evidence', the first in a new series of Public Policy Papers being produced as part of its Information for Better Markets initiative.

The report focusses on the issue of how, if at all, financial reporting by SMEs should be regulated. It follows the generally accepted view that financial reporting requirements should be set on the basis of a cost-benefit analysis that encompasses not just the costs and benefits to the reporting entity but to society as a whole, and sets out the various parties whose costs and benefits should be taken into account.

However, the main theme of the paper is to highlight the fact that, to date, very little research has been conducted on these costs and benefits and that, without this, it is not possible to develop policies that are based on evidence rather than opinion.  Accordingly, the authors believe that a substantial programme of research into the effects of regulating and deregulating financial reporting by SMEs is needed.

The paper also briefly considers the effect of the IFRS for SMEs on SME financial reporting, although its suitability as a financial reporting framework for SMEs is not considered in detail given that the standard itself makes clear that it is not in fact aimed at SMEs but instead at unlisted companies.

An executive summary and the full research paper are available from the ICAEW website.

Closing out 2015

16 Dec 2015

Welcome to our one-stop guide for all the issues you need to consider as you prepare 2015 accounts and look forward to 2016.

To mention just a few, the new UK GAAP framework is effective for annual reporting periods beginning on or after 1 January 2015 and this is also the last year that companies can apply the FRSSE.  There are no new IFRS Standards of note to be applied in 2015 but one should not forget the disclosure of the effect of the Standards in issue that have not yet been adopted, which applies to IFRS 15 and IFRS 9.

The Financial Reporting Council’s priorities for the coming reporting season provide timely reminders in some key areas where the FRC really wants companies to get it right, including its separate advice for smaller listed and AIM-quoted companies.  Companies seeking to improve their disclosures around dividend policy and distributable profits should look to the recently published report of the Financial Reporting Lab.

A real area of change for listed companies will be the requirement to apply the 2014 version of the UK Corporate Governance Code.  Key changes have been made in relation to going concern, risk assessment and internal control including a requirement for Boards to provide a longer-term viability statement.  The FRC guidance has been issued to help Boards comply.

Our Closing Out 2015 publication covers all of these topics and more.  To complement it, this page provides further links to a collection of our resources in the key areas to help you navigate your way around the increasingly interconnected and complex requirements of corporate reporting.  And if you are seeking inspiration on how to prepare your annual report, our Annual Report Survey provides many examples of best practice and a number of ideas for improvement.

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Guidance issued on donations and endowments for higher education institutions implementing the FEHE SORP

16 Dec 2015

Guidance for higher education institutions in implementing the provisions of the Further and Higher Education Statement of Recommended Practice (FEHE SORP) in respect of donations and endowments has been issued by members of the British Universities Finance Directors Group (BUFDG).

The 2015 FEHE SORP which must be applied by Further Education and Higher Education institutions for accounting periods beginning on or after 1 January 2015, introduces a number of changes from the 2007 version including significant changes to accounting for endowments and donations as a result of the new revenue recognition rules within Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

The guidance aims to assist Further Education and Higher Education institutions in applying the 2015 SORP but does not form part of the SORP itself or represent any additional requirement.  It applies to non-exchange transactions in FRS 102.  It does not cover accounting for government grants.

The full document is available on the BUFDG website.

EFRAG draft comment letter on annual improvements 2014-2016

16 Dec 2015

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2015/10 'Annual Improvements to IFRSs 2014–2016 Cycle'.

In the draft comment letter, EFRAG supports the proposed amendments that would affect three IFRSs: IFRS 1, IFRS 12, IAS 28.

Comments on EFRAG's draft comment letter are requested by 5 February 2016. For more information, see the press release and the draft comment letter on the EFRAG website.

IASB publishes editorial corrections to reflect deferred September 2014 amendments to IAS 28 and IFRS 10

16 Dec 2015

In August 2015, the IASB issued exposure draft ED/2015/7 'Effective Date of Amendments to IFRS 10 and IAS 28'. On 15 December 2015, the staff sought permission to publish the final amendment resulting from the exposure draft which defers the effective date of the September 2014 amendment for an indefinite period.

In the Board meeting the IASB gave a unanimous permission to publish the final amendment. There was no indication of dissent amongst Board members.

Consequently, the staff of the IASB has compiled a document that shows how to adjust the text of the 2016 Blue Book to remove those deferred September 2014 amendments which are not now required for annual reporting periods beginning on 1 January 2016. The Blue Book's publication is expected soon.

Please click to access the editorial corrections on the editorial corrections page of the IASB's website.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.