January

Recent EPSAS developments

11 Jan, 2016

The European Parliament has published a feed back report from an October 2015 workshop on European Public Sector Accounting Standards (EPSAS). Also, the German Hessischer Rechnungshof makes available the draft of an EPSAS Conceptual Framework.

The European Parliament workshop was entitled: How to achieve more reliable and transparent accounting systems: "How to design European Public Sector Accounting Standards (EPSAS) for a better implementation of the EU budget in the Member States?" Experts from the European Commission, the European Central Bank (ECB), National Accounting Offices and Ministries presented their views on the state of play and challenges for national administrations related to EPSAS implementation. The aim of the feedback report is to disseminate the information shared among the experts during the workshop. You can access the report on the European Parliament website. The workshop was also webstreamed and a recording is available here.

The draft of first chapters of an EPSAS Framework is presented as an alternative to the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities published by the IPSASB in October 2014. Significant differences are a greater emphasis on the accountability towards citizens, the specification of intergenerational equity and sustainability. Moreover, it is proposed to replace the principle of neutrality by the principle of asymmetric prudence: losses are recognised at an earlier stage than gains are. Further components of the EPSAS framework, such as asset and liability criteria, as well as particularities of public sector accounting will be defined in further chapters. Please click to access the draft here (external link) - please note that this is a dual language version of the document (German and English).

ECON exchange of views with Hans Hoogervorst

09 Jan, 2016

The Committee on Economic and Monetary Affairs (ECON) of the European Parliament will have an exchange of views with IASB Chairman Hans Hoogervorst on Monday, 11 January 2016.

The ECON meeting will be webstreamed. The exchange of views with Hans Hoogervorst will begin at 16.30 Brussels time (GMT+1).

January 2016 IASB meeting agenda posted

09 Jan, 2016

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 19–20 January 2016.

A large portion of the meeting will be devoted to the project on discount rates where a second education session on research results will be held. The IASB will also devote some time to the unit of account and discuss new research results and results of a literature review.

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

Pre-meeting summaries for the January IFRS Interpretations Committee meeting

08 Jan, 2016

The IFRS Interpretations Committee will meet at the IASB's offices in London on 12 January 2016. We have posted our pre-meeting summaries for the meeting that allow you to follow the Committee’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the staff and point out the main issues to be discussed by the Committee and the staff recommendations.

Check out the summaries for the forthcoming discussions on embedded derivatives in a negative interest rate environment, transition issues relating to hedging, classification of a liability for prepaid cards in the issuer’s financial statements, remeasurement of previously held interests, non-current assets held for sale and discontinued operations, recognition of deferred taxes, and payments made by an operator to a grantor in a service concession arrangement. We have added them to our meeting note page and will supplement them with our popular meeting notes after the meeting.

ICAEW comments on the BIS consultation on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive

08 Jan, 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published its comment letter on the Department for Business, Innovation and Skills (BIS) consultation on deregulatory changes for LLPs and qualifying partnerships as a result of the UK implementation of the EU Accounting Directive.

The European Union published the EU Accounting Directive 2013/34/EU (‘the Directive’) on 26 June 2013. The Directive aimed to simplify the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union.

Following a consultation by BIS in August 2014 and government response in January 2015regulations were made (the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015) which implemented the EU Accounting Directive for limited companies.  Changes were also made by the Financial Reporting Council (FRC) to UK accounting standards in July 2015 to implement those changes.  At that time, the Government indicated that it would be consulting separately for LLPs and qualifying partnerships.

The LLPs and qualifying partnerships consultation proposes to introduce similar changes to the regulatory framework for LLPs.

Overall the ICAEW supports the proposals.  It comments that “in our view, having different rules for LLPs and companies represents an additional burden on business and is most unwelcome”.

Within its comment letter the ICAEW also expresses continued concerns over the long term implications of the micro-entity regime and the revised regime for small companies.  It is particularly concerned with the impact of the reduced level of information included in micro-entity accounts (or abridged accounts under the revised small companies’ regime) on the ability of such businesses to raise finance.  It also expresses concerns over the limited disclosure requirements under the revised small companies’ regime in the context of the responsibility of directors to ensure that accounts show a true and fair view.  The ICAEW “continue to urge BIS to monitor the effects of the revised regime over time, particularly in terms of the quality of financial statements produced by small and micro-entities.

The full comment letter is available on the ICAEW website. 

FRC comments on the BIS consultation on a package of measures to implement the EU Audit Regulation and Directive

08 Jan, 2016

The Financial Reporting Council (FRC) has published its response to the BIS consultation on a package of measures to implement the EU Audit Regulation and Directive.

The Directive and Regulation were published in the Official Journal of the European Union in May 2014.  The Directive which amends the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) applies to all audits required by EU law and the Regulation applies to all audits of “Public Interest Entities” (PIEs).

The consultation, published in October 2015, builds on a previous Discussion Paper issued by BIS in December 2014.  It is focused on “identifying legislative, and non-legislative, actions necessary to:

  • strengthen standards for the audit of PIEs;
  • improve confidence in the independence of auditors;
  • avoid excessive concentration in the audit market; and
  • make audit reporting more informative.

The consultation includes draft implementing regulations and draft amendments to the Companies Act to implement changes in a number of areas. 

The FRC welcomes the government’s proposals to designate it as the competent authority for audit and with direct responsibility for regulating the audits of public interest entities (PIEs).  It also supports the proposals that the FRC delegate the task of regulating non-PIE audits to recognised professional bodies, subject to conditions and ongoing oversight.

However, the FRC does have “significant concerns” over some of the proposals including:

  • Designation of the FRC as the Competent Authority (CA) – the FRC are concerned regarding the designation of the CA’s role and responsibilities in the draft regulations, including commenting that that “the draft SI incorrectly describes the CA’s role in Regulation 3 as to “oversee” rather than to have responsibility for the regulatory tasks”.
  • Delegation of tasks by the Competent Authority to the professional bodies -  the FRC comments that it is “generally content” with the arrangements under which it will delegate regulatory tasks to the professional bodies“.  However it states that “greater clarity is needed in the implementing legislation and the Secretary of State Direction as to the circumstances in which it would be appropriate for the FRC not to delegate a task or in which the FRC is able to reclaim a task that has been delegated”.
  • Enforcement and appeals – the FRC comments that, although the Directive “makes clear that the sanctions listed are the minimum sanctions that must be available”, the draft SI implements them as maximum sanctions.  The FRC comments “the effect of this is to remove from our administrative disciplinary systems the more proportionate sanctions that we currently have and leave only the most punitive”.
  • Register of auditors – the FRC comments that the process, as drafted in the SI, is “unworkable”.
  • Enforcement against directors of PIEs – the FRC comments that more clarity is required in the legislation “on the scope of the FRC’s new responsibilities in this area”.

The full comment letter is available on the FRC website.

IIRC makes available two further publications on integrated reporting

08 Jan, 2016

In addition to the publication 'Materiality in Integrated Reporting' published in cooperation with the International Federation of Accountants (IFAC), the International Integrated Reporting Council (IIRC) has has made available two additional new publications on integrated reporting.

The first publication, Creating Value: Integrated Reporting <IR> and Investor Benefits, draws on the latest research and highlight the increasingly compelling evidence on the value of integrated reporting for investors, exploring its benefits for them and the information they deem important. The research compiled largely comprises investor surveys on their views of integrated reporting and wider information that goes beyond pure financial data, although studies are also included that demonstrate the value of integrated reporting in terms of the performance of a company. Please click to access the publication on the IIRC website.

The second publication Reporting on Outcomes: An Information Paper is by the Integrated Reporting Committee (IRC) of South Africa.  The IIRC Framework introduced a requirement to report on outcomes, which are defined as the internal and external consequences (positive and negative) for the capitals as a result of an organisation’s business activities and outputs. While the wording in the Framework is simple, an analysis of South African integrated reports has revealed challenges in reporting on outcomes. The IRC information paper aims to assist report preparers in improving their understanding of what the term outcomes means while offering some considerations for communicating outcomes in an integrated report. Please click to access the publication on the IIRC website.

Our earlier news item on the publication, Materiality in Integrated Reporting, is available here.

IIRC and IFAC publish guidance on materiality in the context of preparing an Integrated Report

07 Jan, 2016

The International Integrated Reporting Council (IIRC) and the International Federation of Accountants (IFAC) have released a publication (“the publication”) which explains materiality and the materiality determination process in the context of preparing an integrated report.

The report indicates that a matter is material, and hence should be included within an integrated report, “if it could substantively affect the organisation’s ability to create value in the short, medium or long term”.  In terms of determining materiality, this will be entity-specific being based on factors such as industry factors.

Only material information should be included within an integrated report.  This, the IIRC says, should “improve internal and external decision-making by limiting extraneous information and focusing disclosures on the core issues managed by the organisation”. 

When preparing an integrated report, organisations will first need to go through materiality determination exercise.  The publication indicates that there is no rule to determine the frequency of this process but advises that previously identified matters should be revisited at a minimum at each reporting cycle to test their continued applicability.

The publication outlines the following key considerations for the preparation of an integrated report and determination of what to include:

Identifying relevant matters

When identifying relevant matters, consider topics or issues that:

Could substantively affect value creation.

Link to strategy, governance, performance or prospects.

Are important to key stakeholders.

Form the basis of boardroom discussions.

May intensify or lead to opportunity loss if left unchecked. 

Evaluating the importance of relevant matters

When evaluating the importance of relevant matters, consider:

Quantitative and qualitative effects.

The nature, area and time frame of effects.

Magnitude of effects and likelihood of occurrence. 

Developing report content

When developing report content:

Consult the guidance provided in Paragraph 4.50 of the [Integrated Reporting]Framework.

Ensure content meets the Completeness principle as described in Paragraphs 3.47-3.53 of the [Integrated Reporting] Framework.

Present information according to the matter’s relative importance.

Demonstrate the connectivity of information per Paragraphs 3.6–3.9 of the[Integrated Reporting] Framework.

Consult Paragraphs 3.36-3.38 of the [Integrated Reporting] Framework for tips on conciseness. 

Deciding the depth and frequency of the materiality assessment

When deciding on the depth and frequency of the materiality assessment, consider:

The timing of the last comprehensive assessment.

The influence of external factors, including changes in economic conditions, resource availability or consumer tastes.

The influence of internal changes to leadership, strategy or business model.

Shifts in the needs, interests or profile of key stakeholders.

The emergence of new techniques for evaluating the magnitude of effects. 

The full publication, Materiality in Integrated Reporting, which expands on these concepts further, is available on the IIRC website.

IFRS Foundation responds to ESMA's consultation paper on ESEF

07 Jan, 2016

The IFRS Foundation has published its comment letter on the European Securities and Markets Authority's (ESMA's) public consultation paper regarding the European single electronic format (ESEF). The IFRS Foundation supports the ESMA's consultation and welcomes ESMA's proposal to use the IFRS Taxonomy for structured electronic reporting in Europe.

The comment letter states:

The IFRS Foundation is fully committed to supporting ESMA and to co-operate with other stakeholders (including users and preparers of structured electronic reports) in implementing the IFRS Taxonomy and the ESEF within Europe.

While the IFRS Foundation's comment letter shows strong support for the ESMA's September 2015 consultation paper, the letter does note that the IFRS Foundation would "prefer that the ESMA does not prohibit the use of XBRL extensions (or any other mechanism) to structure entity-specific disclosures".

The comment letter also specifically responds to various (but not all) of the questions set out in the consultation paper. It covers the ESMA's questions relating to the policy objectives of the ESEF, the proposed use of the IFRS Taxonomy, and XBRL.

The full comment letter is available on the IASB's website.

ICAEW highlights seven questions for preparers to be asking when writing corporate reports

07 Jan, 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published an 'Audit Insights' publication that “offers seven questions for users, preparers and auditors to ask that will provide better information for this reporting season”. The ICAEW says that these suggested questions should be seen as complementing recent publications of the Financial Reporting Council (FRC) including its most recent publication on developments in narrative reporting.

The questions are:

1. Is everything in the report material?

The ICAEW highlights that “too many annual reports are too long and too complex” and that “the needs of the user needs to be at the heart of deciding what to report and how”.  This will ensure that the information is better understood by the user -‘will the user understand it’ will be a good benchmark.  The ICAEW also comments that only material information should be included.

2. Are performance measures credible?

The ICAEW indicates that Alternative Performance Measures (APM), if used, should be used “honestly”, on a consistent basis between periods and should be sufficiently explained so that a user understands what they are measuring, how they have been arrived at and how they tie into the financial information being provided.  This will ensure the credibility of APMs and avoid them distorting the underlying results.  

3. Is tax reporting understandable?

The ICAEW suggests that, given the increased focus on tax transparency, tax disclosures should be made more understandable by removing “technical tax and accounting jargon which is not well understood by readers”.  The ICAEW suggests that preparers should prepare the tax narrative with a “user’s mind-set” and should be challenged by auditors where the narrative is “unclear or incomplete” in explaining the tax charge and the company’s approach to tax.

4. Does the audit committee report on key issues?

The ICAEW indicates that audit committee reports can improve by ensuring that they are clear in describing what the audit committee did during the year to address key issues and also providing an indication of the issues it faced, debated and challenged.  

5. Is the audit report providing insights?

The ICAEW comments that the need to prepare new extended auditors reports have “greatly increased the quality of debate that auditors have with management, audit committees and boards”.  The ICAEW highlights that there are still examples of “boilerplate, less specific or meaningful descriptions” which do not provide specific insights into the specific audit being performed.  It suggests that the audit reports should be considered similarly to how directors consider the annual report – is it fair, balanced and understandable.  The auditor’s responses to identified audit risks should be insightful and specific and the reader should not be left with the “so what” question after reading the responses to them.

6. Does the remuneration report explain high pay?

The ICAEW comments that information contained within the remuneration report should be meaningful, concise and explain clearly why the executive pay is appropriate and justified.  

7. Is the company putting enough resources into reporting?

The ICAEW reminds companies that the overall quality of information contained within the annual reports can affect lending decisions.  It highlights that if companies are not providing the information that investors want then they will lose interest.  For smaller companies, the ICAEW indicates that the preparation of the annual report is probably “the one chance” that those companies have to communicate with the market and, therefore, to potential investors. 

The ICAEW is using this report to initiate a debate over corporate reporting as it believes “a more radical approach should be considered to address the challenges of complexity, fairness, balance and understandability of corporate reporting in the modern world”.  It indicates that these seven questions will form part of a more detailed report into corporate reporting, to be published in 2016, that will “offer recommendations to improve in the short term the quality of information provided in the “front half” of annual reports”. 

The full report is available on the ICAEW website.

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