July

FRC makes limited amendments to FRS 101 and consults on further changes

11 Jul, 2016

The Financial Reporting Council (FRC) has made limited amendments to FRS 101 ‘Reduced Disclosure Framework’ and has issued Financial Reporting Exposure Draft (FRED) 65 that proposes further amendments to remove the requirement for a qualifying entity to notify its shareholders in writing that it intends to take advantage of the disclosure exemptions in FRS 101. A similar consequential amendment is proposed for FRS 102.

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups.  The amendments to FRS 101, following FRED 63, arise as a result of the 2015/16 annual review of the standard.    

The amendments provide certain disclosure exemptions in relation to IFRS 15 Revenue from Contracts with Customers and clarify a legal requirement relating to the order in which the notes to the financial statements are presented.  Specifically there are disclosure exemptions from the second sentence of paragraph 110 and from paragraphs 113(a) to 115, 118, 119(a) to (c), 120 to 127 and 129 of IFRS 15 for qualifying entities. 

Comments on FRED 65 are invited until 14 October 2016. 

Click for: (all links to FRC website)

Former FSB adviser joins the IFRS Foundation as Director for Trustee Activities

11 Jul, 2016

The IFRS Foundation has announced that Richard Thorpe, former Adviser on Accounting and Auditing at the Financial Stability Board (FSB), has been appointed Director for Trustee Activities at the IFRS Foundation.

Mr Thorpe replaces David Loweth, who will step down from his full-time position to take up a part-time role, as off 1 September 2016. He will support the Trustees in developing and executing their work programme and will report to Yael Almog, IFRS Foundation Executive Director.

Please click for the press release on the IASB website.

July 2016 IASB meeting agenda posted

09 Jul, 2016

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 18–19 July 2016.

The meeting will includes sessions on the Conceptual Framework, Agenda Consultation, IFRS implementation issues, financial instruments with characteristics of equity, and research programme.

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

ECON scrutiny slot on Wednesday to focus on IFRS 9 and amendments to IFRS 4

08 Jul, 2016

The monthly slot for scrutiny of delegated acts and implementing measures of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament on 13 July 2016 will focus on International Financial Reporting Standards (IFRSs).

It will focus particularly on the endorsement of IFRS 9 Financial Instruments and the forthcoming amendments to IFRS 4 regarding the different effective dates of IFRS 9 and the new insurance contracts standard. Representatives from the EU Commission, EFRAG, and the IASB will participate in the meeting. It will be webcast here (slot is scheduled to begin at 11:00 Brussels time).

Latest figures released highlight further increases in the proportion of women on boards but more needs to be done to achieve 33% target

07 Jul, 2016

A report published by Cranfield School of Management shows that the proportion of women on UK boards has increased since its last report in March 2015. The report ‘The Female FTSE Board Report 2016 – Women on Boards – Taking Stock of Where We Are’ (“the Cranfield report”) highlights however that “progress needs to accelerate” in order to achieve the target of 33 per-cent female representation by 2020 as set by Lord Davies in his final report into women on boards in October 2015.

The key findings in the Cranfield report are:

  • The percentage of female-held directorships in FTSE 100 Boards has increased to 26%, up from 23.5% in March 2015.  The figure of 26% is similar to the 26.1% figure reported by Lord Davies in his final report on women on boards in October 2015.
  • In order to achieve the 33% target set by Lord Davies, there would need to be an average annual increase of 1.6% women across FTSE 100 boards and would require “approximately 27% of women on FTSE 100 boards in 2016”. 
  • The percentage of female-held directorships on FTSE 250 boards has increased to 20.4%, up from 18% in March 2015 and 19.6% in the final Lord Davies report.
  • There are now no all-male boards in the FTSE 100 – this figure was 21 in 2011.  The number of all-male boards for FTSE 250 companies stands at 15; down from 23 in March 2015.  

The Cranfield report indicates “steady progress compared to March 2015 but to a relative stagnation of the pace of change since October 2015”.  It also indicates that based upon current trends of new appointments going to women and board turnover rates the target of 33% female representation on FTSE 350 boards by 2020 will only be met “if the pace of change increases to former levels”.  Currently “progress among executive ranks and in the executive pipeline remains very slow”.  The Cranfield report indicates that “this shortage of women in top senior roles will make it difficult to reach and sustain the new target of 33% women on boards by 2020”. 

Due to what the report calls a “concerning trend of stalled progress”, the Cranfield report identifies a number of areas for consideration to increase momentum in the future: 

  • Refocus attention on boards.  Board turnover rate should return to 14% with a larger share of new appointments going to women. 
  • Greater attention should be paid to the female pipeline.  The report indicates that “future action should consider how organisations can develop talented women more effectively and how they can encourage more of them to take up operational roles”.
  • There should be greater robustness and transparency in reporting gender composition at Executive Committee level and below.
  • Companies should consider how metrics and targets might help them achieve progress towards gender balance in senior management ranks and below.

It is hoped that the recently announced government-backed Hampden/Alexander review will provide a springboard for renewed progress in this area to achieve the 33% target.  The review will “focus on ensuring the very best of female talent make their way up the pipeline by removing barriers to their success, and continue to drive forward the momentum from Lord Davies’ work”.  The findings of the review are expected to be presented to the government by the end of 2016. 

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ICAEW Financial Reporting Faculty publishes report on the principal factors affecting financial reporting outcomes

07 Jul, 2016

The Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has published a Public Policy Paper on ‘Incentives and institutions in accounting: thinking beyond standards’, as part of its Information for Better Markets thought leadership initiative.

The report examines the principal factors that affect financial reporting outcomes at the level of the individual enterprise, above and beyond the requirements of financial reporting standards. It identifies two commonly recognised types of factor that affect financial outcomes at such a level; the incentives of those involved in the accounting process, especially the managers responsible for the accounts preparation, and the impact of surrounding institutions, which both help shape incentives, and facilitate and constrain managers’ actions.

The report then goes on to:

  • consider some of the institutional changes involved in globalisation and how they affect accounting; and
  • report some key findings of research on how variances in incentives and institutions affect financial reporting outcomes and discuss the challenges posed by these findings.

An executive summary and the full research paper are available from the ICAEW website.

EFRAG@15

07 Jul, 2016

On 6 July 2016, the European Financial Reporting Advisory Group (EFRAG) held a celebration event and seminar to mark its 15th anniversary and welcome its new leadership: the incoming EFRAG Board President Jean-Paul Gauzès and Andrew Watchman, EFRAG TEG Chairman and CEO. Our notes from that event that featured several speeches and round-tables are now available.

The hyperlinks below will take you to the notes from the different parts of the programme or you can continue reading to be taken through the afternoon's discussions in chronological order:

 

Welcome speech

In his welcome address, Mr Watchman, who became EFRAG TEG Chairman only three months ago, gave a brief overview of the history of EFRAG and most recent developments. He introduced the programme for the afternoon with the theme ‘EFRAG moving forward’ and indicated that the topics chosen for the round-tables would give a hint as to where EFRAG might be active in the future. The effect analysis round-table reflected that while for most of EFRAG’s history endorsement advice was based mainly on a technical assessments it would now take a much broader perspective with EFRAG expressing a view on whether a new standard is conducive to the European public good. The second round-table would consider the financial reporting needs of smaller listed companies, an important issue in Europe and beyond that has arisen in the context of the EU’s Capital Market’s Union programme. Concluding his introduction, Mr Watchman commented on EFRAG relationship with the IASB. He stated:

I’d also like to comment briefly on how EFRAG seeks to influence the development of IFRSs. In my early days at EFRAG I have particularly enjoyed meeting many of our stakeholders, and some have asked whether I expect EFRAG to take a more aggressive relationship with the IASB. Let me tell you that I don’t see it that way at all. […] EFRAG has demonstrated that we can and will exercise robust influence when an issue is a pressing concern to Europe. […] But EFRAG’s influence comes mostly from our continuous, constructive participation in the debate: our comment letters, our proactive work and our day-to-day interactions with the IASB.

 

Keynote speech

Given the outcome of the recent EU referendum in the UK and Commissioner Lord Hill’s announcement of stepping down from his post, the key note speech on behalf of the EU Commission was delivered by Matthew Baldwin, Head of the Cabinet of the Commissioner. Mr Baldwin also looked backed over the history and noted with pride that the 2002 decision to adopt IFRSs for all listed companies listed in regulated EU markets has made the EU a leader of the IFRS movement. He called the experience a good one and pointed to the IAS evaluation of the Commission that had concluded that IFRSs were indeed conducive to the public good. Looking to the future, Mr Baldwin noted that the Commission has now expressly asked EFRAG to include effect analyses of new standards or amendments to standards into their endorsement considerations with IFRS 16 Leases being the pilot case. He also stated that he wished for better representation of some EU member states on EFRAG – especially from the East and South.

 

"Testing your knowledge of EFRAG after the Maystadt reform"

In a more entertaining yet nonetheless serious contribution to the event, former EFRAG (TEG) Chair Françoise Flores tested the knowledge of the audience regarding the effects of the Maystadt reform on EFRAG bodies and activities. Topics were the objective of the Maystadt reform, the key changes that were implemented, the consensus-based model, and the role of EFRAG TEG. The last question Ms Flores put to the audience was not a question with a right or wrong answer, but a question of what the audience thought EFRAG should see as priority for structural reform next. The possible answers were:

  • EFRAG should extend its membership to achieve better geographical and stakeholder representation. 29% of the audience believed that this was the most important option.
  • EFRAG should increase the visibility of the organisation and its actions. 33% of the audience saw this as the highest priority.
  • EFRAG should do more to increase the gender balance (only 2 of the 17 EFRAG Board members are currently women, EFRAG TEG has no female members). 12% of the audience believed this should be the highest priority.
  • EFRAG should expand the scope of its work to wider corporate reporting and/or SMEs. 26% voted for this as the highest priority.

 

Round-table “Developing effect analyses for IFRS”

The round-table discussion on the focus, merits and challenges of effect analyses was led by Claes Norberg, Acting Vice-President of the EFRAG Board. Panel members were Hans Hoogervorst, Chairman of the IASB, Erik Nooteboom, Acting Director Investment and Company reporting, DG FISMA, Kris Peach, Chair & CEO of the Australian standard-setter AASB, Patrick de Cambourg, EFRAG Board member and President of the French standard-setter ANC, and Joachim Gassen, Professor at Humboldt-Universität zu Berlin. They discussed how important effect analyses are in the standard-setting process and at what level they should be done, how costs and benefits can be assessed, as well as other aspects of the issue. Mr Hoogervorst pointed out how important it was to begin analysing problems and possible solutions right at the very beginning, substantiated by as much data as available, to avoid taking impossible projects onto the agenda, to avoid getting stranded on a project and to avoid running off into too many directions at the same time. He agreed with Mr Nooteboom that effect analyses must be an ongoing process to keep projects on track and that impact assessments after finalising a standard (the post-implementation reviews of the IASB) are indispensable. Mr Nooteboom stated that IASB options as a consequence of effect analyses that also include changing certain aspects of a project are not available as a result of effect analyses at EU level where the only options are to endorse or not to endorse. Ms Peach agreed and commented that in Australia non-adoption of a single standard is considered the “nuclear option” as standards are not stand-alone products but always part of the larger framework called IFRS. And while she clearly stated that IFRS does not meet unfettered love in Australia, she maintained that there simply is no alternative available. She pleaded for contributing to the IASB’s work further upstream to make sure that the product that one ends up with is one one can accept. Mr Gassen brought the discussion back to a scientific level, clearly distinguishing between effect analysis and impact assessment, and also making clear that implementation cost as the cost side of the argument could be measured, to a degree, at a rather early point of time while transparency and comparability as the benefits would be very difficult to quantify and would become visible only much later. He also added that the question of whether effects and impacts should be measured at standard level or at the level of the package as a whole depended on what you wanted to measure. “Public good” could not be measured at standard-level while individual aspects (eg. effects of IFRS 16 on the business models in the leasing industry) could well be measured at standard-level.

 

Conversation reflecting on EFRAG’s past, present and future

In the conversation with Stig Enevoldsen, first Chairman of EFRAG, and Andrew Watchman, newly appointed EFRAG TEG Chairman, Peter Walton asked them about the good things that had been achieved in EFRAG’s past and the good things that are yet to come. Mr Enevoldsen stressed as one past achievement the invention of the EFRAG draft comment letters that have helped to make EFRAG an influential voice in the world of international accounting by offering thorough technical analysis early in the IASB’s consultation periods. He also pointed at EFRAG’s pro-active work, the increased budget and funding that has helped EFRAG to grow from an initial set of four members without staff, and the Maystadt reform that had helped to achieve a better balance between regional and national interests. Mr Watchman saw a better mix of geographical background and better gender balance as one of his goals. He also stressed the already launched closer cooperation with other standard-setters beyond the EU and mentioned projects with the FASB and ASBJ and first exchanges with the KASB as examples. He also hoped to cooperate even more closely with the European national standard-setters and to integrate them even more into the EFRAG work.

 

Round-table “Financial Reporting by Small Listed Companies”

The round-table discussion on the merits and challenges of IFRS financial statements for small listed companies was led by Olivier Boutellis-Taft, CEO of the Federation of European Accountants. Panel members were Michel Prada, Chairman of the Trustees IFRS Foundation, Valérie Kinon, Associate Partner with Clairfield Benelux, Roger Marshall, former acting EFRAG Board President and Chairman of the FRC AC, Peter Malmqvist, Chairman of the Swedish Society of Financial Analysts, and Andrew Watchman, EFRAG TEG Chairman. The discussion of whether smaller listed companies should apply simplified financial reporting standards compared to larger ones (i.e. not full IFRS) came off to a rather slow start with panel members explaining their experience with small company financial statements from different viewpoints: consultant, analysts, standard-setter. They all agreed that greater harmonisation would make their lives easier, but whether this harmonisation should be voluntary, how far it should go or whether full IFRSs should be common framework was left open. However, an interjection from the audience turned the discussion very lively with almost emotional contributions both from the panel and the audience. Most impressive was Mr Prada’s fervent statement in favour of IFRSs. His, several times repeated, argument was it was not IFRSs that were complex, it was business models that made accounting complex. A simple business model would make the application of complex accounting solutions unnecessary. Full IFRSs would strip themselves of all complexity with reduced size of a company and reduced complexity of its business model. He also did not believe that there was such a thing as a company not internationally active in a Capital Market Union. Sooner or later, Mr Prada stated, even smaller companies would attract foreign investment, so a harmonised system of accounting standards should be chosen from the beginning and “the best ones are IFRSs”. He also warned against blaming IFRSs for investments gone wrong: “Accounting does not provide all the information that is needed to make an investment decision.” There was little to say after such fervent statements. Panel members agreed that IFRSs were “the Rolls Royce of accounting standards” and in a last round of comments from panel members offered the hope that digital developments might make application of full IFRSs easier form smaller companies by somehow stripping the red, blue or green volumes of provisions not needed by them, and Mr Marshall conceded that despite the UK having moved to local accounting standards based on the IFRS form SMEs might end up with full IFRSs in the end.

 

Closing speech

Mr Gauzès, who was appointed EFRAG president just five days ago, concluded the meeting. His main technical comments regarded the effect analyses EFRAG is going to include into its endorsement advice process and the importance of considering financial stability and economic growth. On his plans for the future of EFRAG he first of all admitted that he was very young to his new role and that he still had to learn a lot about EFRAG's functioning and its activities. However, he also offered that he has something to contribute EFRAG’s work - good relations to the European Parliament and especially ECON:

You will not be surprised that one of my first initiatives will be to enhance the relationships with my former colleagues in the European Parliament. […] I envisage a regular dialogue with them. This dialogue will give EFRAG the possibility to give more consideration to the European Parliament views, earlier in the process.

And as the main message he stated: “It is important that EFRAG makes sure the European voice heard – loud and clear – at the IASB.”

We thank the EFRAG Secretariat for inviting IAS Plus observers to the event.

EFRAG issues endorsement advice on Clarifications to IFRS 15

06 Jul, 2016

The European Financial Reporting Advisory Group (EFRAG) has issued its endorsement advice letter to the European Commission for the use of the Clarifications to IFRS 15 'Revenue from Contracts with Customers' in the European Union (EU).

In April 2016 the International Accounting Standards Board (IASB) published Clarifications to IFRS 15 'Revenue from Contracts with Customers'.  The objective of the amendments is clarify the requirements of the standard in certain areas (identifying performance obligations, principal versus agent considerations and licensing) and provide some transition relief for modified contracts and completed contracts.

EFRAG supports the adoption of the Clarifications and recommends their endorsement.  EFRAG’s assessment is that the Clarifications meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.   

EFRAG also considers that the overall benefits of the Clarifications are likely to outweigh the associated costs to implement them

EFRAG has also updated its endorsement status report to reflect the issuance of the endorsement advice.

Click for (all links to EFRAG website):

Report on the June 2016 IFRS Advisory Council meeting

06 Jul, 2016

The IFRS Advisory Council met in London on 13–14 June 2016. Significant topics on the agenda included (1) feedback received on the proposed changes to the IFRS Foundation’s Constitution, (2) the draft work plan and related communications following the 2015 Agenda Consultation, and (3) the proposed social media strategy.

The report — prepared by Vice-Chairs of the IFRS Advisory Council, Gavin Francis and Goro Kumagai — notes the following discussions:

  • Disclosure Initiative — The Council noted the increasing risk of a gap between expectations for the project and its actual delivery.
  • Trustee activity — A review of findings from the May 2016 Trustees' meeting in Jakarta.
  • Agenda Consultation — An in-depth discussion of the Board's draft work plan, and support for the emphasis placed on future implementation support activities.
  • Draft work plan — Council members supported the draft work plan and provided suggestions on how the Board could better support its fewer priority projects.
  • Technological disruption — The IT Faculty of the Institute of Chartered Accountants of England and Wales (ICAEW) held a presentation on technological disruption, including a discussion among members on (1) how technology is changing the preparation and use of accounting standards and (2) the effect of such changes on the IFRS Foundation.
  • IFRS Foundation social media strategy — In a private session, the council received a presentation on expanding the IFRS Foundations social media presence.
  • Leases timeline — Council members received a presentation about the timeline for the development of IFRS 16 Leases and the lessons learned from the project.
  • Member presentations — Two council members discussed their respective member organisations and how they work with IFRSs.

The next meeting of the IFRS Advisory Council is scheduled for 31 October–1 November 2016, in London. The full report on the council’s June meeting is available on the IASB's website.

EFRAG publishes June 2016 issue of 'EFRAG Update'

05 Jul, 2016

The European Financial Reporting Advisory Group (EFRAG) has published an 'EFRAG Update' summarising public technical discussions held and decisions made during June 2016.

The Update reports on the EFRAG Board meeting on 16 June, the EFRAG Technical Expert Group (EFRAG TEG) meeting on 30 June and the EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) meeting 0n 29 June.

The Update also lists EFRAG publications issued in June:

Please click to download the June EFRAG Update from the EFRAG website.

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