October

Agenda for November 2016 CMAC meeting

26 Oct, 2016

Representatives from the International Accounting Standards Board (IASB) will meet with the Capital Markets Advisory Council (CMAC) in London on 3 November 2016. The agenda for the meeting has been released.

The full agenda for the meeting is sum­marised below:

Thursday, 3 November 2016 (09:00-16:30)

  • IASB update
  • Accounting options
  • Post-implementation review of IFRS 13 Fair Value Measurement
  • Digital reporting
  • Primary financial statements

Agenda papers for this meeting are available on the IASB's website.

IFRS Foundation Trustees seek IASB Board members

26 Oct, 2016

The IFRS Foundation Trustees are seeking to appoint up to seven Board Members in July 2017.

IASB members are appointed for an initial five-year term with the possibility of being reappointed for another three years (in exceptional circumstances for another five years). Nominations for IASB board membership close on 25 November 2016. For more information, see the press release and the IASB members application page on the IASB’s website.

FEE responds to EBA consultation on guidance on accounting for expected credit losses

26 Oct, 2016

In July 2016, the European Banking Authority (EBA) launched a consultation on draft guidelines on credit institutions' credit risk management practices and accounting for expected credit losses. The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has responded to the consultation and asks for clarifications regarding the intended interaction between prudential and accounting requirements.

The EBA draft guidelines build on the guidance by the Basel Committee on Banking Supervision (BCBS) in December 2015 on the same matter and feature a detailed section on the application of IFRS 9 Financial Instruments.

FEE states that any alignment at EU level should stay as close as possible to international requirements and the guidance from the BCBS to ensure consistent interpretations of IFRS 9 and achieve a high-quality ECL model across different jurisdictions. As regards the proposed EBA guidelines, FEE fears that their scope is wider than the scope of the BCBS guidelines and stresses that FEE "has the clear expectation that the EBA has not and does not intend to have the authority to establish requirements for financial statements". FEE concludes: "Prudential and accounting approaches cannot be similar and it should be noted that there are important differences".

For more information please access the press release and the consultation response on the FEE website.

FRC annual seminar for audit committee members

25 Oct, 2016

The Financial Reporting Council's (FRC's) annual seminar for audit committee members will take place on 22 November.

Discussions will focus on aspects of the FRC's work of particular relevance to audit committees, regulatory changes in the audit market and the implications of Brexit.

A detailed agenda and details on how to register for the meeting can be found on the FRC website.

Summary of the September 2016 ITCG conference call

25 Oct, 2016

The IASB has published notes to the IFRS Taxonomy Consultative Group (ITCG) conference call held on 14 September 2016.

The ITCG discussed:

  • proposed common practice additions for leisure and agriculture;
  • revised IFRS Taxonomy terms and conditions; and
  • the ITCG review of amendments to IFRS 4 Insurance Contracts.

For more information, see the summary on the IASB's website.

Coincidentally, the ITCG is meeting face to face today in London. Topics discussed today are:

  • Better Communication
  • Update on activities
  • Principle-based reporting and the technological world
  • Entity-specific disclosures – task force progress
  • IFRS Taxonomy content and other areas
  • IFRS Technology
  • the ITCG UK Financial Reporting Lab – Digital Future

Supporting papers for this meeting are available on the IASB website.

Recent sustainability and integrated reporting developments

24 Oct, 2016

A summary of recent developments at the IIRC, IIRC/CIPFA, IIRC/WICI, GRI, and SASB.

The International Integrated Reporting Council (IIRC) Technology Initiative has released a guide for CFOs on using technology to drive multi-capital thinking. Technology for Integrated Reporting offers practical insights to help CFOs collaborate with their Chief Information Officer (CIO) to ensure that technology can enable progressive business management and reporting practice. The publication can be downloaded free of charge from the IIRC website.

Another publication developed by the IIRC, the Chartered Institute of Public Finance and Accountancy (CIPFA), and the World Bank provides guidance for public bodies around the globe to help them think holistically about their strategy and plans, make informed decisions and manage key risks in order to build stakeholder confidence and improve future performance. Focusing on Value Creation in the Public Sector is an introductory guide for leaders on integrated reporting to improve their understanding of the services the public sector delivers and the value they create. The publication can be downloaded free of charge from the IIRC website.

The IIRC and the World Intellectual Capital/Asset Initiative (WICI) have signed a joint statement of collaboration. The statement sets out how WICI and the IIRC advocate for the evolution of the management and reporting of an organization’s value creation story, with a distinctive focus on intellectual and associated capitals. The statement is available on the IIRC website.

The Global Reporting Initiative (GRI) has released a new publication Forging a path to integrated reporting: Insights from the GRI Corporate Leadership Group on integrated reporting. The publication summarises the work done by the GRI Corporate Leadership Group on integrated reporting, revealing challenges, questions raised, and solutions from a group of experienced companies which have chosen to use an integrated approach to reporting. The publication can be downloaded free of charge from the GRI website.

The United States Sustainability Accounting Standards Board (SASB) has announced the founding members of its Investor Advisory Group (IAG). Comprised of leading asset owners and asset managers, the group is committed to improving the quality and comparability of sustainability-related disclosure to investors, thereby enabling investors to develop a more comprehensive view of company performance. Please click for the press release on the SASB website.

The SASB has also released a new technical bulletin on climate risk. designed to help investors better understand, measure and manage their exposure to climate-related risk. The foreword to the guide emphasises the need for better disclosure. The publication can be downloaded free of charge from the SASB website.

Finally, the SASB has launched the 'SASB Navigator', a platform that combines financially material sustainability information with data and analytics to help users understand and analyse industries' and companies' sustainability performance and disclosure. More information is available on the SASB website.

FRC publishes findings on the quality of corporate reporting in 2015/2016

21 Oct, 2016

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting 2015/2016, which provides the FRC's assessment of corporate reporting in the UK based on evidence from a variety of sources, including the work of the FRC's own Corporate Reporting Review (CRR) team.

The report opens by setting out nine characteristics of good corporate reporting, which the FRC believes make for a good annual report. It then discusses the FRC's detailed findings on the overall quality of corporate reporting and in relation to two key elements of the annual report - the financial statements and the strategic report. Overall the FRC has found that the quality of financial reporting is generally good but that companies have room for improvement in some areas. 

Characteristics of good corporate reporting

The nine characteristics identified by the FRC in their report are as follows.

  1. A single story - making sure that the narrative is consistent with the financial statements, with no 'hidden surprises' lurking in the accounts.
  2. How the money is made - clearly explaining the business model and giving a balanced account of the company's performance, good and bad.
  3. What worries the board - making sure that the principal risks disclosed in the report are genuinely those that concern the board, with clear and specific descriptions of the risks themselves and mitigating actions taken, as well as links to accounting estimates and judgements where appropriate.
  4. Consistency - clearly reconcile any alternative performance measures (APMs) to the financial statements and explain why adjusting items have been identified.
  5. Cut the clutter - highlight important messages and remove immaterial detail, using effective cross-referencing to avoid repetition.
  6. Clarity - use precise, clear language, avoiding jargon and boilerplate.
  7. Summarise - aggregate information appropriately, using tables supported by consistent accompanying narrative.
  8. Explain change - properly explain accounting policy changes from the prior period.
  9. True and fair - follow the spirit as well as the letter of accounting standards, assisting compliance with the legal requirement to present a true and fair view. 

The quality of corporate reporting

Overall the FRC believes that compliance with accounting requirements is generally good, particularly by larger public companies, and that the introduction of the strategic report has improved the quality of narrative reporting. However, in its view there is room for further improvement, particularly with regard to the acknowledgement of when things have not gone so well and the erosion of trust caused by inappropriate use of APMs.

In relation to its inspections of annual reports in 2015/16 (a total of 192 annual and interim reports were reviewed), the FRC noted significant findings in relation to the following financial statement areas.

  • Accounting policies.
    For many companies accounting policies still need to be more specific and granular, particularly as regards revenue recognition and the linkage between this and the business model. Accounting for complex long-term contracts is a particular area of concern.
  • Judgements and estimates
    Too many companies give generic descriptions of judgements or estimates that could be replaced by more concise explanations that clearly identify the specific judgment made or how uncertainty could affect next year's accounts. Quantified information regarding estimates, such as sensitivities or ranges of possible outcomes, should be provided.
  • Tax reporting
    The FRC pre-warned 33 companies that they would be conducting a thematic review of the tax disclosures in their 2015/16 accounts, which prompted improvements to the quality of their tax reporting. However, there is still scope for better articulation of how tax uncertainties are accounted for and the FRC will continue to challenge companies that do not make sufficient disclosure in this area.
  • Pension disclosures
    The FRC has written to companies where the disclosure of their pension funding strategy does not adequately explain the risks to which the company is exposed, as well as in relation to the nature and valuation of plan assets.

Regarding the strategic report, the FRC identified the following topics of significance.

  • Whether the report is sufficiently balanced. For example, whether it includes information of interest to investors, such as discussion of effective tax rates or non-financial key performance indicators (KPIs), or whether there is sufficient focus on the balance sheet and cash flow information rather than just financial performance.
  • The approach taken to the new viability statement. The FRC has reviewed 100 FTSE 350 viability statements and found that 75% of them used a three-year lookout period, although this does not mean that three years should be seen as a default. Directors are expected to give adequate thought to their company's particular circumstances and explain how the viability analysis has been carried out.
  • Clear articulation of the business model and principal risks gives valuable insight to users. The ongoing Financial Reporting Lab project on business model disclosures is expected to be published shortly and is likely to confirm the importance of business model disclosures to investors.
  • Giving too much emphasis to APMs or pro-forma non-IFRS financial information and failing to adequately discuss IFRS results. The FRC is currently undertaking a thematic review on the use of APMs in companies' interim financial reports, expected to report in November 2016.
  • Disclosures regarding dividend policy and practice, following on from the report produced by the Financial Reporting Lab in November 2015. The FRC believe that there is room for further improvement in this area.
  • Transparency on a broad range of topics such as increased tax transparency, climate-related matters and culture.

The FRC has also indicated that IFRS reporters should plan well ahead for the implementation of IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases, ensuring that appropriate disclosures are made regarding their expected impact. Any UK GAAP reporters that are yet to transition to the new UK GAAP framework should start planning for this as soon as possible. Finally, all companies should consider the impact of Brexit both in terms of their risk assessment processes and also the potential impact that it could have on the UK corporate reporting landscape.

Alongside the Annual Review of Corporate Reporting 2015/2016, the FRC has also published a slide deck of technical findings (see link below) from the Conduct Committee's Financial Reporting Review Panel during the year, which gives more detail on the areas challenged by the Panel. 

The press releasefull report and Technical findings of the Conduct Committee’s Financial Reporting Review Panel: 2015-16 can be obtained from the FRC website.

IASB updates work plan

21 Oct, 2016

Following its October 2016 meeting, the IASB has updated its work plan. Only little progress or slippage can be traced. Most noticeable is postponing the publication of the discussion paper until February 2017.

Changes to the work plan include:

Major projects

  • No changes (i.e. projects may have slipped by one month each, this cannot be identified)

Implementation projects

Research projects

  • Disclosure initiative — Principles of disclosure: A discussion paper is now expected in February 2017. During this week's meeting, the Staff revised the expected publication date of the discussion paper from mid-December 2016 to February 2017 in order to provide the Board with more time to focus on matters relating to the draft insurance standard.

Post-implementation reviews

  • A decision on the project direction in the post-implementation review of IFRS 13 Fair Value Measurement is now expected 'within 3 months'.

The revised IASB work plan is available on the IASB's website.

FRC issues consultation on improving the Statement of Cash Flows

20 Oct, 2016

The Financial Reporting Council (FRC) has today issued a discussion paper on improving the Statement of Cash Flows with the aim of identifying possible evolutionary improvements to the statement of cash flows as currently required by International International Accounting Standard (IAS) 7 'Statement of Cash Flows'.

The discussion paper notes that "the statement of cash flows is a well-established part of financial reporting" and that it is clear that the information it provides "is valuable to investors and other users of financial statements". However, IAS 7 was originally issued in 1992 and in the FRC's view it would be "surprising" if improvements to it "cannot be identified from the perspective of 2016".

The paper presents some ideas to improve the usefulness of the statement of cash flows, which might be of interest to the IASB as part of their project on Primary Financial Statements.

These suggestions, which are not official positions of the FRC, are "intended to stimulate debate by providing an opportunity for those interested in financial reporting to comment on them".  The feedback will be of interest to the IASB.  The FRC highlights that the issues discussed in the discussion paper "include some of the main issues that should be considered in improving the statement of cash flows" but does not include "a comprehensive discussion of all of the relevant issues" which would require a longer and more complex paper.

The paper is divided into five sections.

  1. The usefulness of information about cash flows. This section reviews the purpose of providing information about cash-flows, as well as questions about how significant non-cash transactions should be reported.
  2. The classification of cash flows. This section looks at the classification of cash flows.  It suggests that operating activities should be positively defined or described, rather than being a residual or default classification and notes that items should not be excluded from operating activities just because they are unusual or non-recurring.  This section also suggests that cash flows from operating activities should include capital expenditure.  This section also covers cash flows relating to interest and tax.
  3. Cash equivalents and the management of liquid resources. This section suggests that the statement of cash flows should report movements in cash, rather than cash and cash equivalents, with cash flows relating to the management of liquid resources presented in a separate section of the statement. It also discusses when the netting of cash flows should be permitted.
  4. Reconciliation of operating activities. This section looks at the presentation of a reconciliation between operating profit and cash flows from operating activities, suggesting that such a reconciliation should always be required as a note supplementing the statement of cash flows; not just in those cases where an indirect method cash flow statement is presented.
  5. Direct or indirect method? This section suggests that preparing the statement of cash flows using the direct method should be neither prohibited nor required but that disclosure relating to certain particularly significant components of cash flows from operating activities should be required.

The discussion paper includes 11 specific questions relating to these sections but also invites any other comments on issues relating to possible improvements to the statement of cash flows.

Responses are requested by 28 February 2017.  Note that on 21 December 2016 the deadline for responses was extended to 31 March 2017.

The discussion paper and associated press release are available from the FRC website.

October 2016 IASB meeting notes posted

20 Oct, 2016

The International Accounting Standards Board (IASB) met at its offices in London on 18–19 October 2016. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

Tuesday 18 October

In April the IASB considered the general feedback it received on its proposed Practice Statement on materiality. In this meeting it discussed some of the specific issues raised. The Board supported most of the staff recommendations, but asked for more work to be done on materiality within the context of the primary financial statements versus notes, and the comparative versus corresponding approaches to presenting financial statements.

The Board continued its discussions on proposed changes to the Conceptual Framework, and is moving ahead with the sections addressing executory contracts, unit of account, asymmetry in treating gains and losses and materiality.

Two issues on the planned amendments to the segment reporting requirements were discussed.

The IASB decided that the comment period for the Discussion Paper on Principles of Disclosure should be 180 days, and noted that the expected publication date had been pushed back to February 2017.

The Board decided not to undertake an interim review of IFRS for SMEs, but will seek more input from the SME consultative group on how best to proceed with reviews.

Wednesday 19 October

The IASB ratified an Interpretation on advance consideration in a foreign currency. It also agreed to proceed with amendments on how proceeds from testing an asset are recognised.

In September the IASB blocked the publication of a draft Interpretation on the interaction between the impairment requirements in IFRS 9 and IAS 28. The Board voted to address the matter through an annual improvement.

The Board continued its discussions on its ongoing project on Financial Instruments with the Characteristics of Equity. It tentatively decided that economic incentives that are likely to compel an entity to settle an instrument in a particular way should not determine whether it is classified as a liability or equity.

The IASB was given a brief update of its research programme.

This was Philippe Danjou’s last meeting of the IASB, having completed 10 years as a Board member.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

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