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April

FRC comments on BIS consultation on disclosure of non-financial and diversity information

05 Apr 2016

The Financial Reporting Council (FRC) has published its comment letter on the Department for Business Innovation and Skills’ (BIS’s) consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.

The EU Non-Financial Reporting Directive was approved by the council of the European Union in September 2014. It requires large public-interest companies with more than 500 employees to disclose relevant and material environmental and social information in their annual report. Public interest companies are those with securities admitted to a regulated market in the EU together with credit institutions and insurance undertakings.

Those within scope will also be required to provide information on their diversity policy, covering age, gender, geographical diversity, and educational and professional background. Disclosures shall set out the objectives of the policy, how it has been implemented, and results.

The BIS consultation was published in February 2016.

In its comment letter the FRC indicates that “it is important to retain the key principles in the Strategic Report” when implementing the EU NFR Directive.  The FRC believes that BIS should extend the scope of the requirement wider than set out in the NFR Directive.  The FRC indicates that the scope should include all those currently required to report non-financial information in the Strategic Report (quoted companies) plus other Public Interest Entities as defined in the Accounting Directive.  It comments that “simply applying the scope set out in the non-financial reporting Directive would result in fewer UK companies being required to disclose non-financial information”.  This, the FRC believes, would “result in a loss of transparency for investors” and would “create complexity in the UK narrative reporting framework as it would result in the introduction of a new reporting threshold”.

The FRC “does not support” the introduction of additional mandatory requirements for verification of non-financial information by an independent assurance service provider.  It comments that “to date we have not seen evidence from investors for a need for further assurance over non-financial information or for other parts of the narrative report”. 

Additional comments are provided on de-regulation where the FRC identifies areas where, in its opinion, there is scope to improve narrative reporting “that would result in more relevant information for investors”.  The FRC also encourages BIS “to explore how best to provide companies with flexibility on where they report information”; noting that if non-financial information is not material to investors (if it is it should be in the Strategic Report) but nevertheless required, there might be flexibility to present this information elsewhere. 

The full comment letter is available on the FRC website.

Committee on Budgetary Control to vote on opinion on the IAS evaluation and on activities of IFRS Foundation, EFRAG and PIOB

03 Apr 2016

In January 2016, the Committee on Economic and Monetary Affairs (ECON) of the European Parliament made available a draft report on IAS evaluation and on activities of the IFRS Foundation, EFRAG and PIOB. The Committee on Budgetary Control (CONT) will vote tomorrow on calling on ECON to incorporate certain suggestions into its motion for a resolution.

Subject of tommorrow's vote are suggested changes to the CONT draft opinion. The main statement "that the implementation of IFRS has contributed to enhancing the overall effectiveness, relevance and quality of financial data and statements, to the benefit of the single market and capital markets" from the draft opinion remains unchallenged, however, there are suggestions to expand this by noting that "IFRS are not fully implemented and not fully endorsed by the Member States which undermines the potential of the standards" and that the Commission should be called on "to develop an EU-wide simplified accounting standard for SMEs".

Interesting is also a suggestion that IFRSs could be included in the current Transatlantic Trade and Investment Partnership (TTIP) negotiations between the European Union and the United States.

Please click for access to the agenda, the draft opion and the proposed changes on the CONT website (agenda at the top of the page, other documents near the bottom under item 54).

IASB begins webinar series on upcoming insurance contracts standard

01 Apr 2016

The IASB has started a weekly webinar series, hosted by IASB member Darrel Scott, which provides an overview of its upcoming standard on insurance contracts.

The series will discuss the following topics related to the upcoming standard:

  • The need for change and the history of the project (issued 1 April).
  • What is an insurance contract?
  • Initial measurement of insurance contracts.
  • Subsequent measurement of insurance contracts.
  • Modifications to the general model: variable fee contracts.
  • Other modifications to the general model.
  • Presentation and disclosure.
  • Applying the Standard for the first time.

For more information, see the webinar page on the IASB’s website.

FSB task force on climate-related financial disclosures publishes first report

01 Apr 2016

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published its first report.

In a first phase, the TCFD has conducted a high-level review of the existing landscape of climate-related disclosures — including current voluntary and mandatory climate-related disclosure regimes — to identify commonalities, gaps, and areas for improvement and highlights these in its first report. The report also defines the scope and objectives of its work for the second phase where the TCFD will target climate-related financial disclosures pertaining to near-, medium- , and long-term physical and nonphysical impacts faced by both nonfinancial companies and the financial sector. Finally, the task force has identified seven fundamental principles that are critical for an effective regime for climate-related financial disclosure and that will underpin the TCFD's recommendations to be developed in phase two for enhancing climate-related disclosures and providing an enduring framework:

  • present relevant information;
  • be specific and complete;
  • be clear, balanced, and understandable;
  • be consistent over time;
  • be comparable among companies within a sector, industry, or portfolio;
  • be reliable, verifiable, and objective; and
  • provide on a timely basis.

Please click to access an executive summary and a full version of the report on the TCFD website. The website has been newly set up to provide the public with access to TCFD materials and offer greater transparency on the TCFD's work. It also features a public consultation on the TCDF's work in the second phase.

IASB Chairman discusses lease accounting

01 Apr 2016

IASB Chairman Hans Hoogervorst has written an article “Shining the Light on Leases” that discusses the problems with current lease accounting requirements and how the IASB addresses these in its new standard IFRS 16 'Leases'.

In his article, Mr Hoogervorst acknowledges that IFRS 16 will result in a substantial change to many companies’ balance sheets and "will not be popular with everyone". However, he notes, the IASB has looked at all possible risks carefully and has concluded that the risks and costs are manageable. He states that:

  • IFRS 16 will not put the leasing industry out of business and leases will remain attractive as a flexible source of finance. 
  • The IASB believes that is is highly unlikely that the improved visibility of lease obligations will lead to significant effects in terms of the cost of borrowing and debt covenants.
  • There will be costs involved in updating systems to implement IFRS 16.
  • The IASB is convinced that the benefits of IFRS 16 will greatly outweigh its costs.

Please click to access the full text of Mr Hoogervorst's article, which first appeared on IFAC Global Knowledge Gateway, on the IASB website.

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