Editorial corrections to stand-alone Standards:

• Exposure Draft IFRS Practice Statement Application of Materiality to Financial Statements.
• IFRS 9 Financial Instruments.
• IFRS 15 Revenue from Contracts with Customers.

The expected credit loss (ECL) approach included by the IASB in IFRS 9 Financial Instruments and also expected to be announced by the US FASB soon will have a significant impact on bank's impairment accounting and the reporting on it. Given the importance of these changes for the industry, the FSB requested the EDTF to consider disclosures that may be useful to help the market understand the upcoming changes (whether under IFRSs or US GAAP) and to promote consistency and comparability. The EDTF used its priciples and general recommendations contained in its 2012 report Enhancing the Risk Disclosures of Banks, considered their applicability on diclosures in the context of an an ECL approach and included additional considerations in two classes: temporary considerations that will cease to apply following the transition to an ECL framework and permanent considerations that will continue to apply following the adoption of the new accounting standards. A special section of the report is devoted to IFRS 9 specific considerations (see pp. 10-11 of the report). Recommendations include additional disclosures on:

• Key concepts of the expected loss approach;
• differences and similarities between IAS 39 and IFRS 9;
• default and whether the 90 day rebuttable presumption is intended to be used and in what circumstances;
• the concept of credit-impaired exposures;
• significant increase in credit risk and the policies and approaches applied;
• initial recognition of exposures where it may be difficult to determine credit risk; and
• treatment of modifications.

Please click to access the full report and a corresponding press release on the FSB website. A press release on the IASB website welcomes the publication of the report.

The second report published today is a follow-up on the implementation on the level and quality of the implementation of all seven fundamental principles for enhancing risk disclosure and the  32 specific recommendations included in the 2012 report. Similar progress reports were already published in 2013 and 2014. The report includes self-assessments by banks, plus assessments by users of financial disclosures, on the extent to which they believe the recommendations have been implemented. Based on results from bank self-assessments 82% of firms say they have fully implemented the recommendations, up from 75% the year before. The report concludes that most progress implementing the 2012 recommendations has been made by Canadian and UK banks. In jurisdictions where efforts to follow the EDTF recommendations are more recent (e.g. China, Japan), implementation rates are lower and differences between the bank and user assessments are wider. Please click to access the 2015 progress report and a corresponding press release on the FSB website.

For more information, see this paper from Deloitte (UK), which discusses how banks should consider the EDTF guidance for their next annual reports.

The Financial Stability Board (FSB) has announced that it will create an industry-led disclosure task force on climate-related financial risks.

The US Sustainability Accounting Standards Board (SASB) has released an implementation guide providing structure and key considerations for companies seeking to implement sustainability accounting standards within their existing business functions and processes. The guide helps companies to select sustainability topics, assess the current state of disclosure and management, embed SASB standards into the financial reporting and management processes, support disclosure and management with internal control, and present information for disclosure. For more information, see the implementation guide on the SASB’s website.

Commissioned by the Dutch Ministry of Foreign Affairs, MVO Nederland (CSR Netherlands) has developed the CSR Risk Check aimed at companies who purchase internationally produced products, export products or produce abroad. The tool analyses the international corporate social responsibility (CSR) risks after a short input of product/service, country, and sector and groups them by kind of risk. The results with further analysis and suggested actions can be downloaded as a customisable PDF file. Please click for more information on the MVO Nederland website.

Paul George will become the Executive Director of Corporate Reporting and Governance and Melanie McLaren will become the Executive Director of Audit.  Both will continue to be members of the FRC Board.

Gareth Rees QC, will lead the Enforcement Division of the FRC’s Executive Counsel and join the Executive Committee.

Anne McArthur will continue as General Counsel and Company Secretary leading the Governance and Legal Team and a member of the Executive Committee.

The FRC will also introduce a new role of Executive Director Strategy and Resources.  It says that this will “ensure the FRC has the resources and processes to support the three year strategy and meet its new responsibilities as the UK’s competent authority, its funding needs and the Government’s deregulatory challenge”. 

The FRC says that the new divisional structure will “bring together responsibilities and harness resources to achieve the FRC’s objectives of; ensuring recent change is embedded to deliver high quality corporate reporting, raising audit quality by making a success of EU legislation on audit, promoting best practice and an ‘improvement culture’, deregulation and better regulation, [and] holding people to account”.

The press release is available on the FRC website.

The consultation was launched by the EFRAG in October 2015 and seeks views on the recent proactive work performed by the EFRAG as well as future proactive activities relevant for Europe.

In its comment letter the FRC highlights the following:

• It is important that the EFRAG remains independent from the International Accounting Standards Board (IASB) “so that it can provide a distinctive European voice in the development of IFRSs”.
• That the EFRAG should undertake more work on areas of the Conceptual Framework that require further development, should develop an impairment model for equity instruments and also continue with its work on its Transactions with Government project.  The FRC also indicates that the EFRAG should commence a project on how the public good is assessed, including the availability of quantifiable measures. 

The full comment letter is available on the FRC website.

The Task Force will develop “voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders”.

It will seek to “develop a set of recommendations for consistent, comparable, reliable, clear and efficient climate-related disclosures, as set out in the FSB’s proposal in November”.

The first stage of work of the Task Force, expected to be completed by end-March 2016, will be to determine the objectives and scope of its work.  The second stage, expected to be completed the end of 2016 and including a public outreach, will focus on delivering recommendations for voluntary disclosure principles.

The press release is available on the FSB website.

*Update 21 January 2016 - the FSB has now announced the initial membership of the Task Force (link to FSB website) which "includes a balance between preparers and users of financial disclosures, and comprises members from both financial and non-financial companies across a range of countries and relevant areas of expertise".  The Task Force has launched a website which can be accessed here.**

The report is a follow up to the ICAEW’s 2010 publication Audit of banks: lessons from the crisis; which was published in response to the global financial crisis and identified a number of practical proposals which it believed would improve bank reporting, auditor reporting and the relationship between auditors and bank supervisors.  The improvements that have been identified are noted since the publication of the 2010 report.

The report highlights the following key areas of improvement:

• A “clear improvement” in bank reporting led by the recommendations of the Enhanced Disclosure Task Force (EDTF) which seek to enhance bank disclosures and presentation of risk information.  Improvements have also been seen as a result of the Financial Reporting Council’s (FRC’s) requirement on boards for the annual reports as a whole to be fair, balanced and understandable, revised Pillar 3 public disclosure requirements issued by the Basel Committee on Banking Supervision and the introduction of IFRS 9 Financial Instruments that has introduced new disclosure requirements in addition to introducing changes to the way that financial instruments are measured.  The report also indicates that initiatives such as the updating of  International Standard on Auditing (UK and Ireland) 260 Communication with those charged with governance (ISA 260) by the FRC has highlighted the importance of clear, two way dialogue between the auditor and audit committee which is important to both good reporting by banks and an effective audit process.
• Significant progress in the reporting about the work of auditors and audit committees.  Most significantly the FRC revision to ISA (UK & Ireland) 700 The auditor’s report on financial statements (ISA 700 revised) which enhanced the audit report by introducing a new requirement for auditors to discuss in their reports the key audit risks they considered, how they addressed them and how they considered materiality.  For audit committees, the changes to the UK Corporate Governance Code require audit committees to provide more details on the work they do including the key risks they considered.  These reports now provide information about the matters and risks considered by audit committees and auditors and the work they have undertaken to address these during the audit process.   
• Better quality and more regular dialogue between bank auditors and supervisors, which had stopped working as effectively as it should have in the run-up to the financial crisis.

Recognising that there has been an improvement in bank reporting and auditing, the ICAEW comments:

The accountancy profession needs to continue challenging itself to ensure that bank stakeholders have the information they want and the assurance they need to instil confidence in the sector. This not only involves looking for continuing enhancements in the quality of reporting and auditing, but also a focus on relevance.

The report acknowledges that there have been improvements in bank reporting and auditing but stresses that continuous improvement should be sought to provide the information that bank stakeholders want and assurance that they need to instil confidence in the banking sector.  This will require responding to the concerns of regulators and also, among other things, addressing challenges such as technological developments.

The full report is available on the ICAEW website.

A large portion of the meeting will be devoted to the clarification of IFRS 15 where the comment period ended in October. This topic will see three hours of discussions by the IASB alone and two hours together with the FASB. Also, the IASB will give some in-depth attention to its research project on discount rates where the staff will update the IASB on their findings regarding the components of present value measurement and measurement methodology.  The IASB is also expected to confirm the indefinite deferral of the amendments to IFRS 10 and IAS 28 that it issued in August 2015. 

In its endorsement advice, EFRAG committed to sending an update on the IASB's progress in addressing concerns relevant to the insurance industry. The final letter to the European Commission, which follows a draft letter in November, has now been made available on the EFRAG website.

EFRAG states that stakeholders have reaffirmed that bringing a solution to the insurance issue should not be a cause of delay of endorsement of IFRS 9, that the solution to the insurance issue should ideally be found in amendments to IFRS issued by the IASB, and that all companies in Europe, including those involved in insurance activities, need clarity as a matter of urgency on how and when they have to apply IFRS 9.

EFRAG goes on to analyse the two approaches the IASB intends to propose shortly (the overlay approach and the deferral approach) and - on basis of the limited information available yet - believes that the deferral approach offers more advantages than the overlay approach but that there potential restrictions in its use. EFRAG notes that it would be worth exploring whether different criteria can be identified that would support the application of the deferral approach to as many relevant entities as possible.

Please click to download the full letter from the EFRAG website.