November

CIPFA seeks comments on paper exploring accounting for the cloud

22 Nov, 2016

The Chartered Institute of Public Finance and Accountancy (CIPFA) has, in response to a request from its members and their employers, begun a process of looking at issues raised by ‘accounting for the cloud’.

As a first step, it has produced a paper which explores some of the accounting issues involved and invites comments from interested parties to see if additional guidance would be helpful. 

The paper is available on the CIPFA website.

The Bruce Column — Impact, collaboration, and integrated thinking

22 Nov, 2016

This year’s Finance for the Future Awards was the most successful ever, with a wide range of entrants from all around the world, and new categories for Communicating Integrated Thinking and Investing and Financing. Our regular, resident columnist, Robert Bruce interviewed all the contenders, and then the eventual winners again, and wrote the case studies. Here he sums up the main themes of this year’s winners’ success.

If there was a theme running through the stories of all the winners of this year’s Finance for the Future Awards it was surely the focus on the impact that the efforts of the organisations concerned was creating. Bridges Ventures, which triumphed in the investment and financing category, was all about impact investing, bringing together social investors wanting to foster social impact with social enterprises wishing to grow. The success of water and waste water company United Utilities, which won the newly established Communicating Integrated Thinking award, was all about how the company was reaping the benefits from all the ways that integrated thinking had transformed both its processes and performance. The award for Innovative New Idea went to the Public Services Lab, (PSL), a consortium of organisations on Merseyside which were bringing their different but complementary skills together to create a collaborative approach to rethinking the way that public services could be delivered. Everywhere the world was being turned upside down.

‘It’s really hard’ said Bridges’ investment director, Caroline Tulloch, ‘to combine traditional financial structures and models of socially-focused businesses, and entrepreneurs’. ‘We changed the way we were working’, said United Utilities CFO Russ Houlden, ‘and we needed to communicate that to all of our stakeholders, particularly our investors, our customers and the society around us’. ‘This is a partnership between a number of different organisations’, said Chris Wright, CEO of Catch22, one of the organisations in the consortium, PSL, ‘and the idea is that we bring our collective expertise, energy, drive, and imagination to the fore to encourage others to step up and come up with solutions around the future of public service delivery’.

And this theme stretched across all of the winners. The Climate Disclosure Standards Board, CDSB, was a good example. Collaboration, for them, became the solution. ‘There was this gap in the market’, said managing director, Mardi McBrien. ‘We had climate change. We had investors who said they couldn’t use the information in the market. We had companies saying there were way too many ways to report that information and what did we want them to do. We had Governments saying: “We can’t regulate that yet”. So CDSB’s objective was to harmonise all these different interests into one place, our framework, and try and reconcile all those different objectives’. Collaboration was the only way forward. ‘It’s all about collaboration’, said McBrien. ‘It’s about bringing different disciplines and different ideas together, sharing experiences, testing things out, putting it onto the market, accepting the feedback, and trying again’. This lesson also shone through the highly commended award for HM Treasury in the public sector category. This was all about how the accounts of over 6,000 entities in the public sector were brought together to create one set of consolidated accounts for the whole of the public sector. This was a unique challenge which will create an impact which has profound consequences. ‘One of the big benefits of pulling all of the assets and liabilities into one place’, said Vicky Rock, head of government financial reporting at HM Treasury, ‘is that you can use that to assess the long-term sustainability of the public finances. So we have been working with the Office for Budget Responsibility on this and going wider than their definitions by putting in provisions, putting in guarantees, putting in contingent liabilities, to start to say how the Government’s balance sheet is going to evolve over time. What are the scale of these liabilities? How are they going to be paid for? And this is leading to changes in how policies are made in Government’.

And the range and the geographic reach of the finalists around the world emphasised how ideas of sustainability, integrated reporting and thinking, and collaborative efforts between the old silos of information within organisations are being brought together. From the social and environmental outcomes of the expansion of Auckland Airport to the way mobile banking was overcoming financial exclusion amongst the 110 million people of Pakistan, from the transformative integrated thinking at global healthcare company Novo Nordisk to the ultimate winner of the large business award, Coca-Cola Hellenic Bottling, the story was the same. ‘It really teaches you lots of lessons about collaborative working and collaborative thinking’, said Basak Kotler, director, investor relations at Coca-Cola.

ICAEW consults on assurance over bank capital ratios

22 Nov, 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a consultation paper setting out a proposed framework for providing assurance (both internal and external) over bank capital ratios and risk-weighted assets.

The consultation paper follows a Discussion Paper published by the ICAEW in July 2015.  Its purpose is not to create any new requirement for assurance over bank capital ratios and risk-weighted assets but to provide a framework that firms might choose to adopt when undertaking such assurance activity. 

Comments are invited until 13 February 2017.

The consultation paper is available on the ICAEW website.

Report on the October/November 2016 IFRS Advisory Council meeting

22 Nov, 2016

The IFRS Advisory Council met in London on 31 October and 1 November 2016. Significant topics on the agenda included (1) the scope of the Primary Financial Statements research project, (2) implementation support for the new insurance contracts standard, (3) key performance indicators for the IFRS Foundation, and (4) any implications of the Brexit for the IFRS Foundation.

The report — prepared by the Chair of the IFRS Advisory Council, Joanna Perry — notes the following discussions:

  • Scope of the Primary Financial Statements research project — The Members of the Council agreed that there is a tension between flexibility and comparability, and although they supported providing more guidance they warned against that guidance being too descriptive. Alternative performance measures were discussed as a topic the Board cannot ignore.
  • Implementation support for the new insurance contracts standard — The Members of the Council agreed that the use of a transition resource group is appropriate; however all of the available tools for implementation support should be used.
  • Key performance indicators for the IFRS Foundation — The Members of the Council considered and provided advice in relation to potential key performance indicators that could be used by the IFRS Foundation to monitor certain aspects of its work. The main message was that the Foundation should focus on the quality of the standard-setting process and outreach and that it will be important to keep the key performance indicators simple and focused.
  • Implications of the Brexit for the IFRS Foundation — The Members of the Council agreed that although there is a lot of uncertainty there are no immediate matters that the IFRS Foundation needs to address.

The next meeting of the IFRS Advisory Council is scheduled for 4–5 April 2017, in London. The full report on the council’s October/November meeting is available on the IASB's website.

IASB issues 'Investor Update' newsletter

21 Nov, 2016

The IASB has issued the eleventh edition of its newsletter 'Investor Update', which provides investors with quick access to information about current accounting and financial reporting topics.

This issue features:

  • Views from Dennis Jullens, Lecturer at Rotterdam School of Management, Erasmus University and a Capital Markets Advisory member.
  • A look at the amendments to IFRS 4 arising from the implementation of IFRS 9.
  • An update on the IASB work plan.
  • In­for­ma­tion on current events and investor feedback.

The Investor Update newslet­ter is available on the IASB’s website.

FCA amends the DTR to implement the new EU Non-Financial Reporting Directive

21 Nov, 2016

The Financial Conduct Authority (FCA) has made amendments to the Disclosure and Transparency Rules (DTR) to implement the new EU Non-Financial Reporting Directive (2014/95/EU) requirement for issuers to disclose their diversity policy in the corporate governance statement. Other aspects of the EU NFR Directive are to be implemented through changes to company law.

The EU NFR Directive was approved by the council of the European Union in September 2014.  It requires large public-interest companies (those with securities admitted to trading on a regulated market in the EU) to describe 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.  If a company does not have a diversity policy it must explain why this is the case. 

The EU NFR Directive states that this information should be included as part of the corporate governance statement although UK companies often incorporate that statement into the directors’ report or strategic report by cross reference.  The requirements for a corporate governance statement are implemented in the UK through the DTR of the FCA.

The FCA has now introduced a new rule, DTR 7.2.8AR to implement the NFR Directive requirements on board diversity for UK companies with securities admitted to trading on a regulated market in the EU.  These are implemented through the Disclosure guidance and transparency rules sourcebook (miscellaneous amendments) instrument 2016 which came into force on 4 November 2016. 

Companies that meet the size criteria to qualify as small or medium-sized under company law are exempt from the new DTR requirement as indicated in the original consultation CP 16/17 (link to FCA website) in July 2016.  Additionally the new rules do not apply to issuers which do not have shares admitted to trading on an EU regulated market, unless the issuer has issued shares which are traded on an EU multilateral facility.  Listed companies which are required to comply with DTR 7.2 as if they were an issuer by LR 9.8.7AR, LR 14.3.24R or LR 18.4.3R(2) and who would qualify as small or medium if they were a company are also not in scope.

The Disclosure Guidance and Transparency Rules Sourcebook (Miscellaneous Amendments) Instrument 2016 (FCA 2016/70) and Handbook Notice No.38, which contains feedback on the consultation, are available on the FCA website.

We comment on HM Treasury consultation on distributable profits of long-term (life) insurers

21 Nov, 2016

We have published our comment letter on HM Treasury's consultation seeking views on technical changes to the legal definition of life insurers’ distributable profits.

Overall we support the proposal to revise the calculation of distributable profits for long-term insurers.  Our key comments, which we expand on in the appendix to our comment letter are as follows:

  • We believe that in a number of instances the amounts determined based on a formula in section 843A may be higher than the amount determined under section 831. In such situations section 831 would provide a restriction for public companies capping the amount of reserves that can be distributed. We believe this operation of section 831, which stems from an EU legislation, to be a useful protective mechanism complementing the application of section 843A.
  • We believe there are potential unintended consequences from including as deductions both the amounts of illiquid or regulatory restricted assets and the amounts of capital items such as share capital and other undistributable reserves, as this may result in double counting. We ask for clarification that application of section 843A (6) would avoid double counting in such instances.
  • We recommend the development of an allocation criteria, or at least a general principle, to apportion the amount of the deductions under the new approach for items that cannot be fully allocated to the life insurance business (such as a surplus from investments in the qualifying undertakings or a defined benefit pension plan surplus).

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

Communiqué from the November 2016 Emerging Economies Group meeting

19 Nov, 2016

The 12th meeting of the IASB's Emerging Economies Group (EEG) was held in Johannesburg on 3-4 November 2016.

The meeting was chaired by IASB member Darrel Scott and discusssed:

  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets;
  • Post-implementation review of IFRS 13 Fair Value Measurement; and
  • IAS 27 Separate Financial Statements - Financial statements of subsidiaries.

Members also expressed their sadness at the passing of former Chair Wayne Upton and acknowledged his contributions to the establishment and continuing success of the EEG.

Please click for access to the communiqué on the IASB website.

The Bruce Column — Paul Druckman looks back over five years of achievement

18 Nov, 2016

Five years can bring about an immense amount of change. Paul Druckman has just stepped down as chief executive of the International Integrated Reporting Council.

And in a video interview with Robert Bruce he has reflected on what has been achieved in that time under his leadership. 

Probably his most important achievement over those years is how the concept of integrated thinking is now moving towards being a mainstream benefit of an integrated reporting system. Under Druckman’s vigorous encouragement the reporting system which companies operate has evolved into something which is not just a means of communicating what a company has done and how it has done it but a lead motivator for change within companies. He sees it as part of what he calls ‘a new information architecture’ which will sit well alongside and within changing attitudes in the corporate governance world. Once everything was geared around the financials, he says. Now we are seeing a broader form of value creation with integrated reporting, a multi-capital system, which will drive a more inclusive and responsible capitalism. It is no longer simply about trust and KPIs, or about delivering a broader based prosperity. It’s about all three. And, he underlines, the momentum is probably unstoppable.

Druckman’s five years as chief executive have all been about that momentum. He feels that at the outset they had the right idea at the right time. And bringing about a coalition of ideas around a common aim meant that early adopters of integrated reporting provided the encouragement and example. And off the back of that the cumulative effect of its growth has been influential. He argues that the implementation of the concept of a Strategic Report in the UK would not have been as successful without the ideas that the growth of integrated reporting had brought into the mainstream. And the influence has been worldwide. He points to the strength and success of integrated reporting in, for example, Japan, in Singapore, and in Germany.

One of the great strengths of the integrated reporting model is, he says, the fact that the integrated reporting framework is not a product. It is a mission-driven system. It has not relied on regulatory imposition of any sort. And, as he repeatedly said during his five years as Chief Executive the process has been an evolution, not a revolution. It is a shift to a world of trust, transparency, credibility and understanding. It needs regulatory support but the jury is out whether it needs reporting standards to encourage a degree of uniformity in its practice.

But he does feel some disappointment from his five years that at times development, momentum and innovation were partly blunted by ownership issues. Organisational egos sometimes got in the way, he said, and efforts could be stifled by organisations doing great things but not connecting up.

And as Druckman stepped down there were three areas he drew attention to as being both successful but needing further attention. The recently established Corporate Reporting Dialogue is one. This has been, he says, one of the biggest achievements of the IIRC. It too has been about bringing the standard-setting, financial and sustainability worlds together after years, as he points out, of being very siloed communities.

The second is the need for the accounting profession to embrace the changes integrated reporting is bringing about and to embed them in the educational processes of accountants. He sees the profession as being at a point of great soul-searching at the moment. Are they primarily compliance people? Will much of their work eventually be done by robots? Or will accountants go back to earlier days when they fulfilled the role of trusted advisor to business? He sees integrated reporting and integrated thinking as being fundamental to the role of being a trusted advisor, a professional accountant.

And the third part of the great changes he identified is simply in the transformational power of integrated thinking. Integrated thinking, he says, is articulated by an integrated report but value creation cannot be achieved by only a report. It has to be embedded in the business. Producing an integrated report changes behaviours. It really makes you think, he says. It asks what value you have created. It enables companies to make changes in their structure and their management. But it also acts as a tool which encourages people to challenge their strategy and what they are doing. It is a very different way of embedding and bringing about change.

And as for Druckman’s future he envisages a bit more golf and reducing the almost constant travelling around the world to exhort, encourage, and build momentum. Instead he sees himself in a role of looking at the broader areas of corporate reporting and the development of the capital markets system. For him it is all about delivering a broader based prosperity. Hardly a modest goal.

 

IASB updates work plan

18 Nov, 2016

Following its November 2016 meeting, the IASB has updated its work plan.

Standard-setting and related projects

Narrow-scope amendments and IFRIC Interpretations

IFRS Taxonomy

  • The proposed updates for Common Practice — Agriculture, leisure, franchises and retail and Common Practice — Banks are now expected in December.

Agenda consultation

  • IASB Work Plan 2017–2021: Feedback statement on the 2015 Agenda Consultation was added to the work plan.

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

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