February

ESMA comment letter on tentative agenda decision on IFRS 9 and IAS 39 — Derecognition of financial assets

04 Feb, 2016

The European Securities and Markets Authority (ESMA) has commented on the IFRS Interpretations Committee's publication in the November IFRIC Update of the tentative decision not to take onto the Committee's agenda a potential narrow-scope project to clarify the circumstances in which a modification or exchange of financial assets results in derecognition of the original asset.

ESMA highlights that IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9 Financial Instruments “do not provide sufficient guidance on accounting for the exchange or modification of financial assets” and is of the view that “more guidance is necessary in order to avoid diversity in accounting for this type of transactions, especially in relation to equity instruments”. 

ESMA therefor recommends that this project is added to the IASB’s active research agenda.

The full comment letter is available on the ESMA website.

CDSB publishes review of environmental reporting by FTSE 350 companies

04 Feb, 2016

The Climate Disclosure Standards Board (CDSB) has published a review of the annual reports of FTSE 350 companies, looking at how these companies incorporate environmental issues into their strategic reports. The publication identifies reporting trends and showcases examples of best practice from published reports. It also sets out the CDSB's views on how regulators can enhance the enabling environment for disclosure. At the launch of the report, Stephen Haddrill, CEO of the Financial Reporting Council (FRC), gave his perspective on the CDSB's findings.

Key findings

In their report Comply or explain: A review of FTSE 350 companies’ environmental reporting in annual reports, the CDSB identify four key characteristics of best practice in corporate environmental reporting. The best reports exhibit the following qualities.

  1. They demonstrate a strong relationship between environmental matters and overall corporate strategy, performance and prospects. Applying the concept of connectivity in this manner helps to show a holistic picture of the factors that affect the organisation’s ability to create value over time, including the interrelatedness and dependencies between them. One common disconnect identified by the CDSB in their survey is that a much higher proportion of companies identify one or more environmental matters as a principal risk (41%) than identify at least one environmental measure as a key performance indicator (KPI) (27%).
  2. They clearly set out the purpose of KPIs and consider the characteristics necessary for these measures to be useful to users. The report identifies five common characteristics that could be applied to KPIs to enhance the consistency and comparability of disclosures, recommending that they should be:
    1. connected with financial information;
    2. consistent over successive periods and with internal indicators;
    3. focused on material matters;
    4. presented with qualitative information to provide context; and
    5. consistent with accepted industry benchmarks.
  3. They recognise that environmental reporting is more than emissions reporting. Leading companies are also considering wider natural capital impacts and dependencies, such as risks and opportunities associated with waste, biodiversity, air pollutants, water security and soft commodities.
  4. They consider the environmental impact of the business throughout its value chain, not just within its legal boundaries. One example of this is reporting 'Scope 3' greenhouse gas emissions (those which arise from sources outside the entity's control but are a consequence of their activities, other than purchases of electricity, heat, steam or cooling - for example, emissions from business travel). This is not required by law but doing so can help readers to understand the actions a company has taken to minimise its environmental impacts. The CDSB found that only 26% of reports currently include this information.

 

Enhancing regulation

The report also sets out four ideas for regulators as to how the enabling environment for disclosure could be enhanced. These are as follows.

  1. Building on emerging practice. Regulators should agree shared definitions of terms (such as business model) to encourage reporting on the same content to develop consistently across different jurisdictions.
  2. Balancing flexibility, consistency and comparability. Currently there is considerable variation in reporting practice within and between sectors that is not wholly explained by the unique nature of businesses - further guidance that describes the expectations of reporting companies might help to reduce this.
  3. Establishing and strengthening mandatory reporting requirements. Where information is measurable, objective, auditable, capable of standardisation across companies and widely used for decision-making, the CDSB believes that the case for mandatory reporting of material activities is strong.
  4. Understanding the international landscape and opportunities for alignment. The structure provided by the existing strategic report requirements means that the UK is well positioned to lead the development of non-financial reporting and the implementation of the EU Non-Financial Reporting Directive.

 

Mr Haddrill's speech

In his speech, Mr Haddrill congratulated the CDSB for its contribution and the quality of its report. He also commended its timeliness, noting that:

"Most major companies now recognise that the environment presents risks to and opportunities for their business that they and their investors need to understand.  So the willingness to report is growing rapidly and the question is how best to do it."

He welcomed the report's recognition that materiality should be applied in environmental reporting, as in other areas, ensuring that disclosures made are relevant to shareholders. However, he also acknowledged that the public, including shareholders, want to know that environmental matters have been properly considered and so, where directors have concluded that environment matters are not material, they should include disclosures in the annual report explaining why.

Finally, he sounded a note of caution regarding the report's calls to action for regulators, expressing the view that while this is an area in which regulators should work together, it is too early for standardisation of reporting requirements. He noted that:

"Standardistaion helps comparability but it also encourages boiler plate reporting and that undermines the exercise of judgement.  Narrative reporting is in transition and at the FRC we are keen within legal requirements to let the best ideas emerge."

 

Find out more

The press release and full report are available from the CDSB website. The full text of Mr Haddrill's speech is available from the FRC website.

EFRAG Board conference call February 2016

04 Feb, 2016

The European Financial Reporting Advisory Group (EFRAG) will hold a Board conference call on 5 February 2016 to discuss EFRAG’s final comment letter on the IASB Exposure Draft (ED) 2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

An agenda with supporting papers and details on how to register can be found on the EFRAG website.

EU endorsement of IFRS 9 now expected in the second half of 2016

04 Feb, 2016

The European Financial Reporting Advisory Group (EFRAG) has published an updated endorsement status report indicating the EU endorsement of IFRS 9 'Financial Instruments' is now expected in the second half of 2016.

So far, the report had stated that endorsement of IFRS 9 is expected in the first half of 2016. The deferral is a result of deadlines within the European endorsement process and is not primarily technically motivated.

Please click to access the updated status report.

IFAC report on global regulation

04 Feb, 2016

The International Federation of Accountants (IFAC) has issued a report calling for political leaders and governments around the world to follow ten principles for consistent, high-quality global regulation, to aid global economic growth.

While business and finance are increasingly global, the report warns that important regulation is not. Instead, it is frequently focused on national interests, which can create barriers and impediments to inclusive growth and jeopardise global financial stability. It states:

In the years since the financial crisis, regulation — and, as a result, the work required to manage global investment, finance, and financial reporting — has increased exponentially. Recent reforms [...] have often taken a prescriptive approach, focusing on detailed procedures, processes, and compliance rather than outcomes — and uniformly applying sometimes inappropriate solutions to a broad range of companies.

The ten principles for high quality financial regulation state that regulation needs to be evidence-based, proportionate, appropriately resourced, collaboratively developed/implemented, consistent, subject to active oversight, systematically reviewed, have clear objectives, and be properly targeted and enforced to address intended issues.

Please click to access the report From Crisis to Confidence: A Call for Consistent, High-Quality Global Regulation and a corresponding press release on the IFAC website.

EFRA TEG meeting February 2016

04 Feb, 2016

The European Financial Reporting Advisory Group (EFRAG) will hold TEG meetings on 24 and 25 February 2016 in Brussels.

An agenda and details on how to register for the meeting can be found on the EFRAG website.

IPSASB proposes revisions to the cash basis IPSAS

04 Feb, 2016

The International Public Sector Accounting Standards Board (IPSASB) has released for comment Exposure Draft ED 61 'Amendments to Financial Reporting under the Cash Basis of Accounting'.

The IPSASB's cash basis standard Financial Reporting Under the Cash Basis of Accounting (unnumbered, January 2003) establishes requirements for the preparation and presentation of a statement of cash receipts and payments and supporting accounting policy notes. It also includes encouraged disclosures that enhance the cash basis report. The primary role of the standard in the IPSASB’s overall standard-setting strategy is to work as a stepping stone to adoption of accrual IPSAS.

ED 61 proposes to revise certain requirements and to recast them as encouragements. The ED also proposes amendments to ensure that the existing requirements and encouragements of the standard are better aligned with the equivalent accrual IPSAS, unless there is a reason to deviate as a result of adopting the cash basis of accounting.

Please click to access the press release and ED 61 on the IPSASB website. Comments are requested by 31 July 2016.

ESMA comment letter on tentative agenda decision on IAS 20 — Recoverable cash payments

04 Feb, 2016

The European Securities and Markets Authority (ESMA) has commented on the IFRS Interpretations Committee's publication in the November IFRIC Update of the tentative decision not to take onto the Committee's agenda a request for clarification of whether a cash payment made by government to fund a research project that is repayable only if the entity decides to commercialise the project's output should be characterised as a financial liability (on the basis that it is a forgivable loan as defined in IAS 20 'Government Grants') or a government grant.

ESMA agrees that arrangements described in the submission give rise to a financial liability but “considers that an analysis of the fact pattern, as described in the submission, should include an assessment whether there is a benefit of a government loan at below market rate”.  ESMA notes that paragraph 10 of IAS 20 indicates that a forgivable loan should only be treated as a government grant “once there is reasonable assurance for forgiveness”.  However it also highlights that paragraph 10A of IAS 20 states that government grants at below market rates of interest are treated as government grants. 

Based upon staff analysis (in their paper on the draft agenda decision) ESMA indicates that it could be argued that forgivable loans, as described in the submission, “are loans from the government at below market rate of interest”.

ESMA recommends that the analysis in the agenda decision is amended and that the IFRS IC clarify whether the forgivable nature of a loan should be taken into account when determining the fair value of the loan at initial recognition (i,e. whether the benefit provided by the government's recoverable cash payments compared to a financing arrangement from other sources with similar terms and conditions (but without forgivable character) should be accounted for as a government grant under IAS 20).

The full comment letter is available on the ESMA website.

IASB website available again

03 Feb, 2016

The IASB website, which had been down for three days as a result of a major hardware failure at its hosting provider, is available again.

The eIFRs section and the web shop are fully functional again, the news section has been restored to the state of 19 January 2016 and will be available in full shortly. We are proud that the IASB used IAS Plus to communicate with their readers when their website was down.

EFRAG issues feedback statement on the 2015 IASB Agenda Consultation

03 Feb, 2016

The European Financial Reporting Advisory Group (EFRAG) has published its feedback statement summarising the main comments received from constituents invited to respond to its draft comment letter in relation to the International Accounting Standards Board’s (IASB’s) Request for Views, “2015 Agenda Consultation”.

On 11 August 2015, the IASB launched its second public consultation to seek broad public input on the strategic direction and overall balance of its future work programme.

EFRAG published its draft comment letter in October 2015 and its final comment letter in January 2016.

The feedback statement summarises the main comments received by EFRAG in relation to the draft comment letter and explains how those comments were considered by EFRAG in reaching its final position on the IASB ED set out in their final comment letter to the IASB.

The press release and full feedback statement are available on the EFRAG website.

IASB website currently not available

01 Feb, 2016

The IASB has asked us to post the following information.

"The IFRS Foundation website (including all IASB matters) is currently down as a result of a major hardware failure at its hosting provider. They are working to restore the system as quickly as possible, but this is likely to take at least 24 hours."

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