March

Finance for the Future Awards - launched today

29 Mar, 2016

The Finance for the Future Awards are now open for entries to all organisations, globally, whether listed, small or public sector.

New this year is an award for ‘Communicating integrated thinking’, open to organisations that are demonstrating clearly, through communicating to their providers of financial capital, how sustainability is embedded into their overall strategy and decision making process, and how this integrated thinking is contributing to a sustainable business model which delivered longer term value.

Founded by Institute of Chartered Accountants in England and Wales (ICAEW) and The Prince’s Accounting for Sustainability Project (A4S) and this year in partnership with Deloitte, the global awards recognise financial leadership in developing sustainable business models that deliver long-term shareholder value.

Finance for the Future’s key ambition is to share best practice as well as create and develop a community of thought leaders and recognised experts in this field.  The programme spans a year of activity with opportunities for linking with a community of sustainable finance leaders, sharing ideas and best practice through case studies, and culminating in an awards celebration evening and interactive networking reception.

For further information on the Awards and how to enter by 13 May click here.  A4S has also published a press release on their website.

ESMA publishes report on the activities of accounting enforcers and their findings within the EU in 2015

29 Mar, 2016

The report provides an overview of the activities of the European Securities and Markets Authority (ESMA) and the accounting enforcers in the European Economic Area (EEA) when examining compliance of financial information provided by issuers listed on regulated markets with the applicable financial reporting framework in 2015.

Overall, enforcement actions have been taken against a quarter of the issuers included in the sample of 189 issuers. In many cases, enforcement actions cover several areas of the same set of IFRS financial statements. In relation to the application of the new consolidation package, ESMA and the European enforcers acknowledge the good quality of application of IFRS requirements in the 2014 financial statements. ESMA believes that there is still room for improvement in the application of the IAS 12 requirements related to recognition, measurement and disclosures of deferred tax assets arising from tax losses. Therefore, in light of the economic environment as well as of the fact that the examination is performed on a sample basis, where material, these areas will continue to be analysed in 2016.

Please click to access the full report on the ESMA website.

Investment Association publishes action plan to boost the UK economy and end short-termism

24 Mar, 2016

The Investment Association (IA) has published an industry-wide Productivity Action Plan to boost the UK economy through long-term investment and end short-termism. The report is “the result of a six month review of the role of the investment industry in supporting productivity improvements with long-term investment”.

The plan, which consists of five principles, indicates how the investment industry can “play its part” and contribute to productivity improvements with long-term investment.  Each objective is underpinned by a series of recommendations and measureable actions to achieve these.  The five investor productivity principles are:

Enhance company reporting for efficient capital allocation: through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.

Enhance investor stewardship and engagement: the investment industry will engage with companies to help them achieve sustainable value creation over the long term and support investments in improved productivity.

Simplify behavioural incentives and the investment chain: the investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.

Develop efficient and diverse capital markets: as key capital market participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets.

Overcome tax and regulatory impediments to the provision of long-term finance: the investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients.

The report highlights a number of shortcomings in company reporting that “significantly impede the ability of investors to understand, and support, a company’s long-term strategy and capital investments”.  Without this understanding, the report indicates that investors will not be able to focus investment on those companies which are focusing on the longer-term and are not able to allocate capital efficiently.  The report says:

The analysis of the annual report is a fundamental part of the investor’s research process.  However, they have significant concerns over how companies are reporting on their long-term strategy and capital management.  While investors set out to assess a company’s likely return on invested capital, and understand how the overall balance of expenditures will support productivity over the long term, senior portfolio managers reported that this is very difficult in practice

Highlights in the report include:

  • Quarterly reporting is seen as a “distraction that shifted company resources away from longer-term strategic considerations”.  The Action Plan expresses concern that “quarterly reporting can distort management behaviour by channelling its focus on short-term fluctuations in performance, resulting in the risk of senior management increasingly focusing on managing the market rather than the business”.  The report cites examples where management has delayed investment in R&D and capex if they believe it will stop them achieving short term performance targets and meeting market guidance.  The IA would “like to see companies move away” from quarterly reporting “in favour of long-term metrics”.   The IA intends to publish a position statement calling for companies to cease quarterly reporting.  Any companies that continue to reporting quarterly will be asked to explain why they do so and how it is relevant to their long-term strategy.
  • There is a lack of clarity on a company’s management of capital.  Disclosures do not allow investors to assess the effectiveness of capital allocation strategies.  The measurement of return on invested capital is “difficult” and there is no articulation of the company’s overall capital management policy and practice.  Investors would welcome more meaningful commentary on future expenditure plans, how these will improve the business and how the plans are linked to strategy and will support productivity over the long-term.  To address this the report indicates that the IA will develop proposals for the articulation and measurement of the long-term drivers of productivity and key performance indicators.  The IA will issue Long-Term Reporting Guidance which will set out investors’ views on how to re-focus reporting on the longer-term strategic drivers of performance.
  • There is insufficient reporting on human capital management.  The report indicates that “a key driver of improving corporate productivity is a company’s workforce and whether the workforce is deployed efficiently, including the development of skills and competencies”.  Investors would like to see reporting on how a company manages its workforce into their investment decision-making process.  Without this, “an important factor for improving company productivity is neither being reported on by companies nor sufficiently integrated into analysis by investors”.  The IA has indicated that it will work with other stakeholders to outline the approach to company reporting of human capital management which would be most beneficial to investors.

Additionally the report looks at enhancing investor stewardship and engagement.  It indicates that there continues to be a disproportionate amount of engagement time spent on executive remuneration at the expense of a focus on wider fundamental factors. 

The report highlights that the Stewardship Code’s principles “do not make a sufficiently explicit connection between shareholder engagement and promoting medium- to long-term value and capital efficiency”.  It continues that “there remains a disproportionate focus on AGM-related governance matters at the expense of companies’ strategy for long-term, sustainable value creation”.  In response the IA will develop a set of guidelines, the Stewardship Reporting Framework, “to assist members when they publicly report on their stewardship activities”.  The IA will also seek wider support and financing for the work of the Investor Forum.  

Other areas considered in the report include the relationship between owners and companies, capital markets, and the legal and regulatory framework. 

The press release and the full report are available on the IA website.  Our related Governance in brief publication is available here.

Chief Accountant of the SEC comments on revenue recognition

24 Mar, 2016

At an accounting and reporting congress in Philadelphia, Jim Schnurr, Chief Accountant of the US Securities and Exchange Commission (SEC), shared some of his thoughts and perspectives on the continuing transition activities for the new revenue standard.

One of the aspects Mr Schnurr elaborated on was the status of the revenue transition resource group (TRG) formed jointly by the IASB and the FASB to keep the standard-setters informed on interpretive issues occurring during implementation of the converged revenue recognition standard and to assist in determining what action may be needed to resolve diversity in practice.

In January this year, the IASB announced that it will no longer attend TRG meetings and stated: "The Board is now of the view that stakeholders need to know that they can continue their implementation process with the confidence that IFRS 15 will not be subject to further changes." The FASB declared in February that it will continue to address implementation issues and has scheduled three TRG meetings for 2016.

On this development, Mr Schnurr commented:

While I am optimistic that the key practice issues that require standard setting have been identified through the implementation activities of preparers, auditors and standard setters, I am concerned that there are still a number of questions that would benefit from the TRG process. [...] Without joint participation of the IASB’s TRG in the coming scheduled FASB TRG meetings, there is a concern that IFRS 15 may be interpreted through a U.S. GAAP lens without the perspective of IFRS preparers.

He even went as far as suggesting that IFRS preparers could "provide input to the FASB staff and the FASB TRG participants to the extent they believe they have important factors that should be considered for discussion by the FASB TRG". At a minimum, he noted, he expected SEC registrants to monitor the TRG discussions and meeting minutes to inform their selection and implementation of reasonable policies.

Please click to access the full text of Mr Schnurr's speech on the SEC website.

IPSASB concludes interview series

24 Mar, 2016

The International Public Sector Accounting Standards Board (IPSASB) has released the final instalment of its interview series with Ian Carruthers who took office as new IPSASB Chair on 1 January 2016. In the fifth instalment, Mr Carruthers looks ahead and identifies key priorities for the IPSASB.

Please click to access all interviews on the IPSASB website. They are:

  • What are IPSAS?
  • Why is IPSAS Adoption Important?
  • What are the IPSASB's Key Achievements?
  • What are the IPSASB's Current Areas of Focus?
  • What are Your Key Priorities as IPSASB Chair?

IASB updates editorial corrections

24 Mar, 2016

The IASB has published an updated version of the editorial corrections made available on 9 March 2016.

The editorial corrections affect the following individual pronouncements:

  • IAS 39 Financial Instruments: Recognition and Measurement

The updated editorial corrections can be viewed on the editorial corrections page of the IASB's website.

FRC consults on proposals for the Audit Enforcement Procedure

23 Mar, 2016

The Financial Reporting Council (FRC) has today issued a consultation on proposals for the Audit Enforcement Procedure, developed to implement its forthcoming responsibility for audit enforcement.

Proposals to implement the EU Audit Directive (2014/56/EU) (‘the Directive’) and Audit Regulation (537/2014) (‘the Regulation’) in the UK were consulted on in October 2015 by the Department for Business, Innovation and Skills (BIS).  The consultation included draft implementing regulations and draft amendments to the Companies Act to implement the changes required.  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).  They come into force on 17 June 2016.

The BIS consultation indicated that the FRC will be the “single competent authority” – with ultimate responsibility for most matters of audit regulation and oversight.  The Audit Regulation requires that the competent authority conducts audit inspections, investigations and disciplinary cases in relation to Public Interest Entities (PIEs).  It can then delegate the conduct of inspections and investigations and application of sanctions for non-PIEs to the Recognised Supervisory Bodies (RSBs) (for instance the Institute of Chartered Accountants in England and Wales (ICAEW)).

In order to implement its mandatory responsibility for audit enforcement in relation to PIE and any specific non-PIE matters, the FRC has developed a new Enforcement Procedure upon which it is consulting on.  The consultation includes, within an appendix, the draft procedure.  Also included are supporting policy and guidance documents.

The FRC seeks responses by 4 May 2016.

The press release and full consultation are available on the FRC website.

ICAEW webinar on distributable profits

23 Mar, 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar on distributable profits on April 27.

The webinar will recap the law for distributable profits and also include a discussion of the key changes proposed by the ICAEW and the Institute of Chartered Accountants of Scotland (ICAS) in their recently issued joint exposure draft TECH 05/16BL.  

TECH 05/16 BL will, when finalised, replace TECH 02/10 Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006 (link to ICAEW website) which requires updating as a result of changes to International Financial Reporting Standards (IFRSs) and UK Accounting Standards (notably the introduction of Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland) and the need to provide additional guidance on a number of areas that have arisen in practice. 

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


March 2016 IFRS Interpretations Committee meeting notes posted

23 Mar, 2016

The IFRS Interpretations Committee met in London on 22 March 2016. We've posted Deloitte observer notes for the technical issues discussed during this meeting.

FRC comments on government consultation on mandatory gender pay gap reporting regulations

22 Mar, 2016

The Financial Reporting Council (FRC) has published its response to the Government Equalities Office (GEO) consultation on draft regulations that will introduce mandatory gender pay gap reporting for private and voluntary sector employers in England, Scotland and Wales with at least 250 employees.

The consultation was published in February 2016 and ran until 11 March 2016.

The FRC believes that the draft regulations should give further explanation to the term ‘relevant employer’ in the context of companies as, currently drafted, “there is a risk that the reporting requirements could apply to all companies (legal entities) with more than 250 employees”.  The FRC recommends that, for groups, disclosures should be provided at a consolidated level.

Further comments are provided in relation to the definition of pay which the FRC believes “does not sufficiently take into account different pay structures” and does not consider total remuneration.  It further comments that “it is difficult to make comparison between pay gap figures between male and female employees and with other organisations without considering the total remuneration package”. 

A number of comments are provided in relation to the calculation of the gender pay gap including the view that calculating the median will not provide relevant information and that companies should be provided with the flexibility to determine the appropriate reporting period.

Additionally the FRC comments that it is important for the GEO “perhaps through guidance” to encourage companies to include narrative information to explain the published figures.  It also supports disclosure on a company website.

The full comment letter is available on the FRC 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.