ECON votes to confirm EC proposal for role of EFRAG president

30 May, 2016

The Committee on Economic and Monetary Affairs (ECON) of the European Parliament (EP) agreed today with the candidate proposed by the European Commission for the role of President of the European Financial Reporting Advisory Group (EFRAG).

In his opening remarks, the candidate, Mr Jean-Paul Gauzès, described the role as EFRAG president as he saw it as one of liaison and reflection. He stressed that that the European Union does not have its own standard-setter and therefore has to make its voice heard directly and prominently with the IASB to make sure IASB standards do not conflict with European regulations and needs.

Mr Gauzès hearing was rather a home game - he is a former member of the ECON and stressed that the EP voice needs to be given more consideration. He offered regular meetings with ECON to discuss technical matters and praised the ECON report on current accounting standard-setting. He stated that the new EFRAG leadership "won't be held captive by previous practice" and admitted that while EFRAG is a body to advise the European Commission "the institution close to my heart is the EU Parliament". In response, the ECON congratulated itself that the fact that a former ECON member was proposed as EFRAG president showed the wisdom the European commission and growing influence of the EP and asked the candidate to reverse the role where EFRAG was an advocate of the IASB standard-setting to one where the IASB would listen to EFRAG.

On technical issues, the hearing briefly touched on IFRS 9, prudence, simplifications for SMEs, and the financial crisis. However, Mr Gauzès stressed that technical matters should be discussed in the regular meetings he offered.

In the final vote, 36 ECON members voted for the candidate, 5 against and 2 abstained.

The European Parliament has issued a press release and the recording of the session is available here (hearing begins at 17:49h, please note that you can choose the language you want to listen in).

Research report published into human capital narrative reporting amongst FTSE 100 companies

27 May, 2016

Valuing your Talent partnership has published a research report that looks at the current standard of human capital narrative reporting amongst FTSE 100 companies. The partnership brings together the Chartered Institute of Management Accountants (CIMA), the Chartered Institute of Personnel and Development (CIPD) and the Chartered Management Institute (CMI).

As well as seeking to understand the current practice of human capital reporting, the research sought to understand whether the 2014 Financial Reporting Council (FRC) Guidance on the Strategic Report had improved current practice.  Analysis was performed of the annual reports of FTSE 100 companies in both 2013 and 2015.  The analysis performed was of key human capital terms included within the annual reports.  Key human capital elements were grouped together under the categories of: knowledge, skills and abilities (KSA), human resource development (HRD), employee welfare/stability and employee equity.   

To understand whether those companies were reporting human capital issues accurately within their annual reports, a comparison was made between the narrative reported in the annual reports and any human capital issues that might have been reported in the media.

Key findings show:

  • There has been an “overall increase” in the reporting of human capital issues particularly in the area of human resource development. 
  • Specifically there was a 127% increase in human rights reporting under the employee equity heading.
  • Within KSA the two largest increases were the key terms of ethics (22%) and employee well-being (21%).
  • In the employee equity category, equality had increased by 34% and diversity by 29%.
  • Companies working in the areas of property and recreation saw largest increases in human capital reporting.
  • The review of the media highlighted that whilst some company’s annual reports were referring to stories appearing in the media others left out important details or did not report adverse incidents at all.
  • There was “clear evidence” that companies are focusing on workforce and succession planning and the research indicates that there were good practice examples in this area.
  • Companies are attaching a “high importance” to illustrating how they care for the well-being of their employees.  Findings also highlighted that many companies are focused on understanding the capabilities of their workforce and “frequently” illustrate in their reports how their approach to skills development is linked to risk issues such as skills shortages.

The report concludes that overall the quantity and quality of human capital reporting has increased across FTSE 100 companies between 2013 and 2015.  The report also concludes that “the majority of FTSE 100 companies are doing more than simply fulfilling their statutory duties in terms of reporting”.   However the report does warn that even though there has been an improvement in reporting, investors might still struggle to make informed decisions based upon the information reported.  It highlights: 

Even though it would appear that there has been an overall increase in HC reporting, it is debatable whether investors and other stakeholders will be able to make informed decisions based on what are, on the whole, generally positive reports on a variety of HC issues.

The report recommends that companies continue to focus on the reporting of human capital issues but seek to adopt a “broadly consistent terminology to describe human capital items” as this would allow easier comparison between companies.  However, the report is clear that this does not mean a boilerplate approach to reporting.

A press release is available on the CIPD website.  The full report, Valuing your Talent: Illustrating your company’s true value, is available on the Valuing your Talent website.

Council of the European Union adopts rules on the exchange of tax-related information by large multinationals

27 May, 2016

The Council of the European Union has adopted a directive on the reporting by multinational companies of tax-related information and exchange of that information between member states. The directive will implement Action 13 from the OECD Base Erosion and Profit Shifting (BEPS) project, on multinational country-by-country reporting, into a legally binding EU instrument.

Companies with total consolidated group revenue of at least €750 million will be required to report information, detailed country-by-country, on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees. 

The information must be reported for the first time for the 2016 fiscal year.  Information must be reported to the tax authorities of the member state where the group’s parent company is tax resident.  If the parent company is not EU tax resident there is an option to disclose information through “secondary reporting” via its EU subsidiaries.  Such “secondary reporting”, although optional for the 2016 fiscal year, will be mandatory from 2017 onwards.

The reports will have to be filed within 12 months of the end of the relevant fiscal year.

Note that the directive is related to tax information exchange between competent tax authorities and reporting by companies to those tax authorities.  It is different to proposals made by the European Commission in April to require large multinationals to report publicly on the tax that they pay and where they pay it

Click for press release and directive on the European Council website.

FRC issues amendments to FRS 103 as a result of Solvency II

26 May, 2016

The Financial Reporting Council (FRC) has today issued amendments to FRS 103 ‘Insurance Contracts’. The amendments update the terminology and definitions used in FRS 103 as a result of the implementation of the Solvency II Directive.

The main changes that have been made, following a consultation in December 2015, are:

  • Acknowledgement that different entities would be subject to different regulatory frameworks. Revision of definitions referring to the PRA realistic capital regime and the Prudential Sourcebook for Insurers (INSPRU) have been made to the extent that the entity’s regulatory framework has changed with the commencement of the Solvency II Directive. A mention is also made that with the changes in regulatory framework most entities will not be required to recognise an equalisation provision from 1 January 2016.
  • Clarification around establishing a benchmark accounting practice for long term insurance business as at 1 January 2015 before considering changes in accounting policies. The benchmark accounting practice can be the requirements of Section 3 of FRS 103, the Regulations and relevant parts of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Any changes from these policies must result in information that is either more relevant not less reliable or more reliable not less relevant. Alternatively, the benchmark accounting policies can be based on the Solvency II rules, but the entity then would need to make appropriate adjustments to ensure the resulting information is both reliable and relevant. The Accounting Council’s advice makes suggestions of the factors the entity may need to consider.
  • Clarification that entities that have changed their accounting policies in accordance with the standard, so that the new policies are not consistent with the requirements of Section 3, need not apply those requirements of Section 3 that are not consistent.
  • Clarification that entities should be permitted to continue to apply established accounting practice in their financial statements by referring to the realistic value of liabilities measured under INSPRU rules as at 31 December 2015 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.  

The amendments are effective for accounting periods ending on or after 1 January 2016.

The press release and amendments are available on the FRC website.

ECON report on current accounting standard-setting now in the public domain

26 May, 2016

The report on the activities of the IFRS Foundation, EFRAG and the PIOB that the Committee on Economic and Monetary Affairs (ECON) of the European Parliament (EP) voted on at the end of April is now publicly available.

As explained before, the report will not be legally binding but has been submitted as motion for a EP resolution and would serve as guidance and reference in future EU law-making processes.

Please click to access the report on the EP website.

FRC publishes frequently asked questions on the ESMA APM Guidelines

25 May, 2016

The Financial Reporting Council (FRC) has today issued responses to some frequently asked questions on the European Securities and Markets Authority's (ESMA's) 'Guidelines on Alternative Performance Measures'. The responses have been developed to "assist directors in their consideration of the Guidelines'. — Alternative performance measures: A practical guide

In June 2015, ESMA published its final Guidelines on Alternative Performance Measures (APMs) for listed issuers that are effective from 3 July 2016.  Through these Guidelines, ESMA aims to promote the usefulness and transparency of APMs presented to investors.  

The publication covers:

  • What is an APM?
  • Are APMs prohibited or required?
  • Do the Guidelines apply to all APMs?
  • What APMs should be provided?
  • How should APMs be presented?
  • What disclosures should be given about APMs?
  • How will the FRC monitor compliance with the Guidelines?

The Financial Conduct Authority (FCA) and the FRC are the UK Competent Authorities responsible for monitoring the compliance with the Guidelines.  The FRC has indicated that it will consider the Guidelines when reviewing company reports and accounts in assessing whether they are fair, balanced and comprehensive. 

Please click to access the questions and answers on the FRC website.

Our Need to know — Alternative performance measures: A practical guide is also available to assist you.

CIPFA update their 'how to tell the story' publication

24 May, 2016

The Chartered Institute of Public Finance & Accountancy (CIPFA) have issued an updated version of 'how to tell the story', its publication intended to help CFOs and other senior staff present local authority financial statements in a way that provides clear information for members and other key stakeholders.

This publication aims to assist the preparers of local authority financial statements to prevent the main messages of local authority financial statements being obscured by the detail required by International Financial Reporting Standards (IFRSs). It focuses on how clarity can be improved in four specific areas:

  • comparisons with budgets;
  • general Fund and HRA performance;
  • reserves position; and
  • cash flows.
It also includes a section covering reminders and frequently asked questions about the IFRS-based Code of Practice on Local Authority Accounting and an article entitled 'clear out the clutter', first published in April 2014, advising public sector bodies on how to apply materiality to their financial statements.

CIPFA have updated this publication following a consultation by CIPFA/LASAAC (made up of CIPFA and the Local Authorities (Scotland) Accounts Advisory Committee) last year.

The full version of how to tell the story is available on the CIPFA website.

FRC publishes feedback statement on its Discussion Paper on board succession planning

24 May, 2016

The Financial Reporting Council (FRC) has published a feedback statement on its Discussion paper on board succession planning for both executives and non-executives.

The Discussion Paper, published in October 2015, aimed to “look at the key issues, to identify suggestions for good practice and, more specifically, to examine how the nomination committee can play its role effectively”.  It was published in response to calls from stakeholders and also to address the recommendations of the Parliamentary Commission on Banking Standards which provided recommendations to the FRC around director nomination.

The Discussion Paper explored six areas that the FRC considers are important to succession planning:

  • how effective board succession planning is important to business strategy and culture;
  • the role of the nomination committee;
  • board evaluation and its contribution to board succession;
  • identifying the internal and external ‘pipeline’ for executive and non-executive directors;
  • ensuring diversity; and
  • the role of institutional investors.

The feedback statement summarises the responses received under these six areas.   The FRC comments:

An active nomination committee is key to promoting effective board succession. Committees should consider carefully the future membership of their boards and ensure that this is aligned to company strategy, both current and future.

Feedback indicated that there was “some support” for further guidance, particularly in the areas of the role of the nomination committee and reporting on succession planning.  The FRC, as part of its Culture Coalition Project, will consider providing such guidance as part of the revision of the Guidance on Board Effectiveness.  The FRC will also provide comments on its reviews, performed during the current reporting season, of nomination committee disclosures (including board evaluation reporting for the FTSE 350) in its 2016 Developments in Corporate Governance and Stewardship report.

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EFRAG TEG meeting May 2016

23 May, 2016

The European Financial Reporting Advisory Group (EFRAG) will hold a TEG meeting on 26 and 27 May 2016 in Brussels.

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

Former French MEP to be heard as EFRAG President

23 May, 2016

An agenda for the next meeting of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament reveals that Jean-Paul Gauzès, Member of the European Parliament from 2004 until 2014, will be heard as candidate proposed by the European Commission for the role of President of the European Financial Reporting Advisory Group (EFRAG) on 30 May.

The agenda is available here; it does not reveal more than that there will be a hearing followed by an exchange of views and a vote.

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