Although EFRAG has preliminarily concluded that IFRS 16 meets the relevant qualitative characteristics, raises no issues regarding prudent accounting, is not contrary to the true and fair view principle, would improve financial reporting, compared to the standard and the interpretations it replaces, and would not put European entities at a competitive disadvantage taking into account the lack of convergence with the equivalent US GAAP Standard, EFRAG has not yet assessed whether it would reach an acceptable cost-benefit trade-off. Furthermore, during the consultation period, EFRAG will be conducting additional work on the impact of IFRS 16 on SMEs, views of users of financial statements, and the effect analysis of IFRS 16. 

EFRAG is expecting significant additional input into its assessment from this additional work and has not yet reached a preliminary conclusion as to whether IFRS 16 is conducive to European Public Good. Therefore, EFRAG encourages constituents to provide views on any matters that may be relevant to its endorsement advice, which need not be limited to the specific questions included in the consultation document. Comments are requested by 8 December 2016. EFRAG expects to issue a complete draft endorsement advice for an additional short consultation period in 2017.

Please go to the press release on the EFRAG website to access the consultation document and various supporting douments. EFRAG has also updated its IFRS endorsement status report.

The event will provides a forum for those teaching IFRSs to:

• discuss the development of new and amended IFRSs (especially on those IFRS Standards that have been issued but that are not yet effective) with the IASB technical staff;
• discuss the development of recent interpretations and amendments to IFRSs resulting from the annual improvements project with the IFRS Interpretations Committee technical staff;
• be updated by senior IASB technical staff on the main principles being considered in developing major new IFRSs that are on the IASB’s active agenda;
• participate in a workshop on Framework-based IFRS teaching by exploring case studies with the IASB Education Initiative staff; and
• provide feedback to the IASB on providing support to those teaching IFRSs.

Participation in the workshop is free of charge, however, since places are limited there is an application procedure. Please click for more information on the IASB website.

The year-end advice covers the following key areas:

The strategic report

The FRC indicates that “companies should consider whether information in the strategic report is presented in a clear and concise manner” and should ensure that there is a fair review of the business that is “balanced and comprehensive”.  In particular the FRC notes that there is “room for improvement in the strategic reports of many smaller companies, including the need to consider whether they have adequately discussed their financial position and cash flows as well as their company’s performance”.  Areas covered include:

• Business model reporting

The FRC indicates that this is a key area for investors and highlight that the biggest areas for improvement are “the clarity of the explanation of how the company makes money and what differentiates it from its peers”.  A report from the FRC’s Financial Reporting Lab is due out in October which will suggest practical ways that companies might consider meeting investor needs in this area.

• Alternative performance measures (APMs)

The FRC highlights that “there is an increasing regulatory focus on the use of APMs” and notes that the use of APMs should not replace of obscure IFRS or UK GAAP information.  The FRC draws attention to the European Securities and Market Authorities’ (ESMA’s) ‘Guidelines on Alternative Performance Measures’, providing best practice guidance in this area, which companies should consider and its frequently asked questions on those guidelines published in May 2016.  A thematic review of APMs will be published by the FRC in November.

• Risk reporting and viability statements

The FRC encourages companies to fully consider the principal risks and uncertainties facing their businesses, including areas such as cyber security and climate change.  It also notes that “companies should consider how solvency, liquidity or other principal risks affect the long-term viability of the business”.  With respect to the longer-term viability statement introduced with the 2014 UK Corporate Governance Code, the FRC also indicates that companies should make it on how they have chosen their period of assessment and why this is appropriate.

• UK referendum result

The FRC indicates that companies should consider the “consequential risks and uncertainties in the political and economic environment” and the impact of these on their business stemming from the UK’s decision to leave the European Union (EU).  It draws attention to its ‘Reminders for half-yearly and annual financial reports following the EU referendum’, published in July, which highlighted areas for boards to consider in this regard.

Financial statement disclosures

Aside from the above points around the strategic report, the year-end advice also contains a number of additional points related to financial statement disclosures including:

• Tax

Improvements are expected in tax disclosures.  Key areas for improvement include disclosures around companies’ explanations of their effective tax rates especially around factors affecting the tax rate and their sustainability, disclosures around how companies account for material tax uncertainties and greater disclosure around the amount of companies’ tax provisions including disclosures of estimates and judgements.   Additionally the FRC highlights that “companies’ tax arrangements are an area of increasing public focus which can give rise to significant risk” and notes that companies should consider any further disclosures that are required in relation to any material risks that these create.

• Dividends

Although the FRC notes that it has seen “examples of improved disclosure” in this area, it expects to see further improvements around dividend policy in the coming reporting period.  The FRC draws attention to the FRC Lab report in this area. 

• Low interest rates

The FRC indicates that “companies should consider the impact of low interest rates on the amounts reported in their financial statements” with particular consideration to the valuation of long-term assets and liabilities.

• Critical judgements and estimates

The FRC highlights that disclosures of critical judgements should “explain clearly the specific judgements the Board has made and their effect on the financial statements” and that disclosure of estimates should be sufficient to enable users to fully understand their potential effects.

• Accounting policies

The FRC identify that “there continues to be room for improvement in the disclosure of accounting policies particularly in relation to revenue recognition”.  It expects that disclosures are company-specific.

• Developments in IFRS

The FRC expects companies to provide information on the progress that they have made in implementing, and the likely effects of, new IFRSs especially IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments.  The FRC also identifies that investors “continue to have an interest” in cash flow disclosures especially in the area of net debt reconciliations.

Additionally the letter indicates that investors expect to see “more clarity and brevity” in remuneration reporting and that they would like to see “more informative reporting about the specific actions taken by Audit Committees” in the audit committee report. 

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

In June 2016 the International Accounting Standards Board (IASB) published Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) which clarify the classification and measurement of share-based payment transactions. The amendments address several requests that the IASB and the IFRS Interpretations Committee received and that the IASB decided to deal with in one combined narrow-scope project.  The amendments address:

• the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
• share-based payment transactions with a net settlement feature for withholding tax obligations; and
• a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

EFRAG supports the adoption of the amendments and recommends their endorsement.  EFRAG’s initial assessment is that the amendments 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 amendments are likely to outweigh the associated costs to implement them. 

Comments are requested by 10 November 2016. 

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

The EFRAG press release regarding this, including draft endorsement advice and the invitation to comment, is available on the EFRAG website.

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

Again, the meeting is only two days, however, the agenda for the meeting is quite full. Focus of the meeting will be the Disclosure initiative project on materiality (over four hours of discussion split between Tuesday morning and Wednesday morning) and the Conceptual framework (over three hours of discussion split between Tuesday afternoon and Wednesday morning).

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.

The webcast will feature a panel discussion with

• Tarun Jamnadas Ghia, Chairman of the ICAI's Ind AS Implementation Committee,
• Chinnasamy Ganesan, Member of the Committee,
• Sue Lloyd, IASB Member,
• Hugh Shields, IASB Executive Technical Director, and
• Henry Rees, IASB Director of Implementation and Adoption Activities.

Topics will be IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, and IFRS 16 Leases, as well as the Agenda consultation 2015 and the IASB's future priorities. It will be possible to submit questions to the panel during the webcast.

• Date and time of the webcast: 14 October 2016, 11.30—12.45 IST (07.00—08.15 BST)
• Link to the webcast: http://icai.estv.in/14102016/

The topics discussed were:

• The role of accounting for sustainable development – recent trends and challenges;
• Practical implementation of compliance monitoring and the enforcement of accounting and audit requirements for high-quality reporting;
• Enhancing the role of reporting in attaining the Sustainable Development Goals: Integration of environmental, social and governance information into company reporting; and
• Follow-up on the previous sessions of ISAR:
  • Accounting Development Tool implementation update;
  • Capacity-building for financial inclusion and access of small and medium-sized enterprises to finance; and
  • Updates by international and regional organisations.

Speakers included IASB member Philippe Danjou, representatives from EFRAG, PAFA, ACCA, PIOB, and World Bank, as well as representatives from different sustainability organisations such as A4S, SASB, and CDSB.

All presentations are available on the UNCTAD website.

Please see our earlier news item on the ISAR workshop on IFRS 15 and IFRS 16 on 3 October for the presentations given there.