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2015

FRC publishes year-end considerations for larger listed companies

15 Dec 2015

The Financial Reporting Council (FRC) has today published a letter containing year-end considerations for preparers of larger listed annual reports.

The FRC indicates that “in general the quality of corporate reporting in the UK is of a high standard”, highlighting that the letter is intended to highlight “where companies might take steps to continue to improve their reporting”.

The year-end advice covers the following key areas:

Clear and concise reporting

The FRC indicates that the annual report should be a “clear and concise communication of a company’s story” as opposed to its compilation just being seen as a compliance exercise.  Boilerplate disclosure should be avoided and only material information to investors should be included.  The FRC highlights that materiality should not be used to conceal errors or achieve a particular presentation.  It cites that its Guidance on the Strategic Report provides the considerations that boards should apply in this area and the importance of the strategic report to investors.

Risk Reporting

The FRC encourages companies to disclose how risks specifically affect them and the mitigating steps to address such risks.  Companies should also avoid long lists of risks and should consider risks relating to data protection in IT systems, cyber risk and risks from climate change within their risk assessment and include them as principal risks if appropriate.

The FRC highlights the changes to the UK Corporate Governance Code around risk and internal control reporting and the requirement to produce a longer-term viability statement for accounting periods beginning on or after 1 October 2014.  The FRC indicate that it expects the longer-term viability assessment to be “significantly longer” than 12 months.

Disclosures

The FRC comments that “effective disclosure remains a topical area and there is an ongoing drive for improvement”.   The FRC letter contains advice around the disclosure of:

  • Accounting policies and impact of new standards including that companies should disclose the likely impacts of both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments in the accounts.
  • Alternative performance measures – the disclosure of these should be clear and consistent in their use including explanations and reconciliations of how they relate to GAAP measures.
  • Dividends -the FRC highlights that the recently published Financial Reporting Lab (“the Lab”) report will assist companies seeking to improve their disclosures around dividend policy and distributable profits.

The UK GAAP Reduced Disclosure Framework – Financial Reporting Standard (FRS) 101

The FRC reminds companies that FRS 101 Reduced Disclosure Framework is applicable for accounting periods beginning on or after 1 January 2015 and the amendments made in July that provide greater flexibility in primary statement formats and reduce disclosures on first-time adoption of the Standard.

Digital communication

The FRC reminds companies of the Lab report Digital Present which, among other things identified that investors prefer PDF as their preferred format for receiving and reviewing the annual report.

A letter to preparers of smaller listed and AIM quoted company annual reports was published in November 2015

The press release and full letter to audit committee chairs are available on the FRC website.

ICAEW webinar on FRS 102 - practical challenges and emerging issues

15 Dec 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar in January 2016 on some of the practical implementation issues businesses are facing when transitioning to Financial Reporting Standard (FRS) 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

The webinar will cover the following topics:

  • Presentation requirements
  • Disclosures on transition
  • Intragroup property rentals
  • Software development costs
  • Classification of loans – basic vs. non-basic
  • Intragroup loans
  • Foreign currency and forward contracts 

Further details as well as registration details are available on the ICAEW website.

The Bruce Column — From headlines to trendlines: How integrated reporting is gathering pace

15 Dec 2015

In a new Robert Bruce video interview Paul Druckman, chief executive of the International Integrated Reporting Council, talks of how the system of integrated reporting is expanding globally and becoming mainstream. Here Robert Bruce, our regular, resident columnist, assesses the progress of the system.

Integrated reporting, the system for connecting all of the strands of an organisation’s reporting, has now moved from ‘headlines to trendlines’, according to Paul Druckman in the interview, by which he means that the shock of the new has become something much more mainstream. 

It is not just about the uptake and publication of reports, he says, it is now also about how integrated reporting has a place on government and business agendas around the world. It has become a settled and largely accepted business system and is also bringing about changes at the macro level. ‘The fact that it is in so many countries and so broadly understood and acknowledged is remarkable’, he says. 

But there is much still to do. The quantity of reports being published may be impressive, but often the quality lags behind. Many reports, as Druckman readily admits, are a combination of other reports with an integrated reporting tag holding it all together, or simply, as he puts it ‘a story being told well’. The future is about patience and letting integrated reporting, as it expands its reach around the world, bed down. He is also keen to do it differently. The corporate temptation to simply pull together the old systems and declare it to be integrated reporting is still strong. 

That needs, he says, to be challenged. And people need to be very wary of slipping back into old ways. ‘We need to be very careful not to use the techniques of the old system and just duplicate them’, he says. ‘We have to be very careful of that when we think about integrated reporting and a new system of corporate reporting’. 

A new training initiative will help. In the year ahead what is called a training competency matrix will be rolled out within corporates and by outside organisations. This should, he feels, boost quality and it will also focus companies on looking for outcomes rather than just at the content. 

And this will continue to ensure that companies and other organisations move ever further away from a silo mentality. This will gradually happen as people look for purpose as well as performance. ‘If you are looking at purpose as well as performance’, he says, ‘you can’t have silos’. It is about releasing people from what he refers to as ‘the shackles’ by explaining more rather than simply measuring. ‘People need to get together and work it out’, he says. Now the view is that while financial reporting is essential it is only one piece of the whole. And he thinks that change in attitude has been a fundamental shift over the last couple of years and integrated reporting has been a significant factor in it. ‘It is’, he says, ‘changing the way that everyone looks at corporate reporting’. It is a different thought process. 

Druckman emphasises the growth and reach of integrated reporting around the world, from Japan to Africa and from the Netherlands to China. ‘Some of the best integrated reports you will see are in Japan’, he says. And he extols the virtues of the stewardship code in Japan. But the overall message globally is one of steady growth and understanding. In the UK, he says, the strategic report used by companies is very much aligned with integrated reporting. And to strengthen the advance of integrated reporting in the US they are to create a US group that Druckman thinks will help significantly. And amongst the recent changes to the new board overseeing the IIRC the chief executive of the AICPA has come on board. 

Ultimately it needs to be fired up by investor demand. And Druckman sees a significant change here with markets now expecting investors to behave more, as he puts it, as shareholders rather than simply as traders. And academic evidence is starting to come through which shows that where companies had a higher integrated reporting score they also had a lower cost of capital and a higher intrinsic value. 

The story of integrated reporting still has a way to go. Druckman and his team have hopes that it is building into the successful, transformational, connected system that they have long advocated.

Roundtable events on Integrated Reporting

14 Dec 2015

The Albert Luthuli Centre for Responsible Leadership (ALCRL) will be hosting two roundtable events on Integrated Reporting in association with the British High Commission or Pretoria, UK Values Alliance, Old Mutual and the Institute of Chartered Accountants in England and Wales (ICAEW). The purpose of the roundtable events is to critically interrogate the concept of value.

The roundtable events will consist of two separate events but should be considered as Part 1 and Part 2 as one follows the other.

In Part 1, on 18 January 2016, attendants will explore the importance of Integrated Reporting and learn about what should be reported and why it matters.  Attendants will also get a basic frame of reference as to how value systems inform decision making and link it to integrated thinking.

Specifically it will cover:

  • Setting the scene of the importance of value systems in value creation.
  • Exploring and identifying individual value systems.
  • Exploring and identifying organisational value systems.
  • Roundtable discussions contrasting individual and organisational value systems. 

In Part 2, on 1 February 2016, attendants will critically interrogate the concept of value within the context of Integrated Reporting and explore the application of a values-based approach with thought leaders and multinational companies.  Attendants will learn how values are the blueprint for value creation. 

Specifically it will cover:

  • Group discussions around the value systems expressed through an organisation’s vision, mission and strategic objectives.
  • How different value systems can help to inform decision making of complex trade-offs.
  • Concluding with considerations how thinking around value systems should inform value creation as contemplated within the Integrated Reporting framework. 

Further details as well as registration details are available on the ICAEW website.

FRC seeks to improve reporting against the principles of the Stewardship Code

14 Dec 2015

The Financial Reporting Council (FRC) has announced that it is to introduce a public tiering of signatories to the Stewardship Code (“the Code”) in July 2016 in order to improve reporting against the Code and to assist investors.

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 FRC will make public its assessment of signatories’ reporting against the Code.  Signatories will either be assessed as being:

Tier 1 - meeting reporting expectations in relation to stewardship activities. Additionally, asset managers will be asked to provide evidence of the implementation of their approach to stewardship. The FRC will look particularly at conflicts of interest disclosures, evidence of engagement and approach to resourcing and integration of stewardship; or

Tier 2 – not meeting those reporting expectations.

Before making its assessment public, the FRC will contact firms with feedback to allow time for improvements.

The press release is available on the FRC website.

IPSASB publishes 2015 Handbook of pronouncements

14 Dec 2015

The International Public Sector Accounting Standards Board (IPSASB) has published its 2015 Handbook of International Public Sector Accounting Pronouncements.

In two volumes, the Handbook contains all current IPSASB pronouncements, including the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, which was published in October 2014. It can be downloaded free of charge in PDF format from the IPSASB website.

The IPSASB points out that he 2015 edition of the handbook is available only in electronic format. The 2016 Handbook of International Public Sector Accounting Pronouncements, scheduled to be available in 2Q 2016, will be available in print and electronic versions.

PLSA issues Policy and Voting Guidelines 2015/16

12 Dec 2015

The Pensions and Lifetime Savings Association (PLSA, formerly the National Association of Pension Funds (NAPF)) has issued its Corporate Governance and Voting Guidelines for 2015/16.

The Guidelines “aim to assist investors, and their proxy voting agents, in their interpretation of the provisions of the Corporate Governance Code and in forming judgements on the resolutions presented to shareholders at a company’s AGM”.

A copy of the press release and guidelines are available on the PLSA website.

FRC consults on amendments to FRS 101 and FRS 103

11 Dec 2015

The Financial Reporting Council (FRC) has today issued, for comment, two Financial Reporting Exposure Drafts (FREDs) proposing limited amendments to FRS 101 ‘Reduced Disclosure Framework’ and FRS 103 ‘Insurance Contracts’.

Amendments to FRS 101

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups.  FRED 63 Draft Amendments to FRS 101 Reduced Disclosure Framework 2015/16 cycle is the third of these proposed annual updates.

In FRED 63 the FRC proposes amendments to FRS 101 to provide certain disclosure exemptions in relation to IFRS 15 Revenue from Contracts with Customers and clarify a legal requirement relating to the order in which the notes to the financial statements are presented.

Specifically FRED 63 proposes that disclosure exemptions from paragraphs 113 to 115, 118 to 127 and 129 of IFRS 15 are available to qualifying entities.

The proposed amendments are expected to be available from when an entity applying FRS 101 first applied IFRS 15.

Comments on FRED 63 are requested by 31 March 2016.

Amendments to FRS 103

FRED 64 Draft amendments to FRS 103 Insurance Contracts proposes updating the terminology and definitions used in FRS 103 as a result of the implementation of Solvency II.  The main changes that have been made are:

  • Removal of references to the PRA realistic capital regime and the Prudential Sourcebook for Insurers (INSPRU) which will be replaced with the commencement of Solvency II.
  • Clarification that entities should be permitted to continue to apply established accounting practice in their financial statements under the Solvency II regime and hence are not required to change their accounting policies.
  • Clarification of the scope of the Standard for with-profits businesses and with-profits funds in paragraph 3.1b.   

It is proposed that the amendments are effective for accounting periods ending on or after 1 January 2016, the same effective date as Solvency II.

Comments on FRED 64 are requested until 28 February 2016. 

The press release, FRED 63 and FRED 64 are available on the FRC website.

EFRAG draft comment letter on transfers of investment property

11 Dec 2015

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2015/9 'Transfers of Investment Property (Proposed amendment to IAS 40)'.

In the draft comment letter, EFRAG supports the proposed amendments and believes they will reduce divergence in practice and improve the quality of financial reporting under IFRS.

Comments on EFRAG's draft comment letter are requested by 15 March 2016. For more information, see the press release and the draft comment letter on the EFRAG website.

Hans Hoogervorst discusses IASB developments

10 Dec 2015

During the annual American Institute of Certified Public Accountants (AICPA) Conference on Current SEC and PCAOB Developments in Washington, D.C., IASB Chairman Hans Hoogervorst spoke about the IFRS developments during 2015 and what to expect in the upcoming year.

Mr Hooger­vorst discussed im­prove­ments made to IFRS over the past year which included the use of the joint Tran­si­tion Resource Group to modify the revenue guidance, but maintain "a Standard with strong prin­ci­ples and suf­fi­cient guidance for preparers to make sound accounting judge­ments". He further noted that the leasing project was finalised during the past year and will result in a new standard in the second week of January, which is converged with the FASB standard in its core objective (to move most operating leases to the balance sheet).

Next, Mr Hooger­vorst went on to talk about the expanded use of IFRS in Asian countries, specif­i­cally outlining progress made in Japan, India, and China, and provided an example of how far the acceptance of IFRS has come in the US. However, he noted that “the next several years are unlikely to bring big progress toward domestic use of IFRS in the United States. Still, there are substantive American interest at stake. IFRS strips out significant costs for American investors, multinational preparers and global accounting networks. More generally, the US has a big interest in a strong infrastructure for the global economy, of which IFRS is an important part.”

In dis­cussing the future of IFRS, Mr Hooger­vorst noted that it is important to make "financial reporting easier to digest, without sac­ri­fic­ing the quality and rigour of our standards" and he noted that there are many issues to consider to improve financial reporting and make dis­clo­sures more effective.

The full transcript of the speech is available on the IASB’s website.

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