The Exposure Draft proposes updates to the LLP SORP as a result of amendments made by the Financial Reporting Council (FRC) to UK accounting standards in July 2015.  A number of changes are also proposed as a result of amendments made to the Limited Liability Partnerships (Accounts and Audit) Regulations 2016 (SI 2016/575) and the consequential amendments to FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime that were issued in May 2016 to align the standard with recent changes to UK company law and make the micro-entities regime available to LLPs and qualifying partnerships.

Overall we believe that the proposed revisions are appropriate.

Our full comments to all questions raised in the invitation to comment are contained within our comment letter.

Nominations are requested by 31 January 2017. For more information please see the following information on the IFAC website:

• Press release
• Call for Nominations

In September 2016 BEIS launched an inquiry on corporate governance that focused on executive pay, directors’ duties and the composition of boardrooms, including worker representation and gender balance in executive positions. In their response to the BEIS inquiry the FRC make a number of key recommendations:

• Closer attention should be paid by boards to their responsibilities under s172 of the Companies Act 2006 (duty to promote the success of the company) as regards both shareholders and wider stakeholders and reporting should cover how they have discharged these responsibilities.

• A code or guidance directly applicable to the governance arrangements of large private companies should be developed.

• A future review of the UK Corporate Governance Code should consider the role of the remuneration committee in having responsibility for a wider remit including the pay and conditions of the company workforce and reporting on the link between the company’s remuneration structure and its strategy.

• The Government should review the current enforcement framework in order to establish an effective mechanism for holding directors and others in senior positions to account when they fail in their responsibilities.

Click here to access the related press release (link to FRC website).

Click here to access the FRC Response (link to FRC website).

Update 30 November 2016.

The FRC has written to BEIS to provide proposals as to how its recommendations on corporate governance, contained within its response indicated above, could be taken forward.  In its letter the FRC indicates that many of the changes that it is proposing will require changes to the UK Corporate Governance Code which the FRC can put into effect without additional powers.  However it does indicate that some regulatory reforms will need the Government to implement.  The full letter is available on the FRC website.

In July 2016 the FRC issued a consultation paper addressing plains to adopt ISA 800 and ISA 805 in the UK. This was in response to the Prudential Regulation Authority’s (PRA’s) proposed requirement for mandatory external audit of elements of Solvency II public reporting in the insurance sector.

Following the feedback received, the FRC now propose the adoption of ISA 800, with one modification, and ISA 805, with no modifications, for periods beginning on or after 1 January 2017. Early adoption is permitted and there is a transitional provision in place to allow auditors carrying out audits of regulatory returns for periods commencing prior to 1 January 2017 to use ISAs 800 and 805 in conjunction with the ISAs UK and Ireland (which they would be using for the statutory audit of financial statements for those periods). The modification to ISA 800, in response to feedback received from stakeholders, is to insert a requirement for audit reports to make an explicit statement about the applicable financial reporting framework in place for engagements of this type.

Click here to access the FRC’s Feedback Statement and Impact Assessment (link to FRC website).

Click here to access ISA 800 (link to FRC website).

Click here to access ISA 805 (link to FRC website).

PN20 provides guidance on the application of auditing standards to audits of statutory financial statements in the insurance sector and was last updated in 2011. The revisions proposed in the consultation are to reflect significant changes to the regulatory environment, including the Solvency II prudential regulation regime, in addition to 2016 revisions to UK auditing standards. The consultation has been launched alongside the adoption in the UK of two international auditing standards, ISAs 800 and 805, which are relevant to the opinions that auditors must now give in respect of Solvency II public disclosures.

The FRC also proposes to withdraw PN24 as a significant proportion of the material contained in the practice note was identical to that contained in PN20. The FRC has now incorporated material specific to the audit of friendly societies into the new version of PN20 and therefore proposes to withdraw PN24.

The FRC is seeking views on whether stakeholders believe the revised guidance is fit for purpose, and provides the necessary support to auditors in the insurance sector. The consultation period is open until 5pm on 16 December 2016.

Click here to access the FRC Consultation Paper (link to FRC website).

Click here to access the FRC Exposure Draft of the revised P20 (link to FRC website).

Background

In the Request for Views published in August 2015 the Board asked broad questions on the balance of its activities, its research programme, its standard-setting projects, its maintenance activities and implementation support, the level and pace of change, and the frequency of its agenda consultations. The Board received 119 comment letters. Main respondent groups were preparers and industry organisations (31%), standard-setters (23%), and auditors and accounting bodies (22%). 49% of responses were from Europe and 23% from Asia and Oceania.

General messages

As the IASB's agenda already was very full as a result of the 2011 agenda consultation, the 2015 agenda consultation process was not as detailed as the previous process was. Nevertheless, the IASB identified four clear messages to inform its work programme 2017-2021:

• Completion of the remaining standard-setting projects. As in the agenda consultation 2011, stakeholders strongly called for the completion of the remaining major projects. At the launch of the agenda consultation these were leases, insurance contracts, and the Conceptual Framework. Leases has by now been concluded, the IASB notes that it will make the other two projects top priorities. Respondents have also stressed that it is important that IFRSs continue to be principle-based.
• Better communication in financial reporting. "Better communication" is the theme IASB Chairman Hans Hoogervorst has chosen for his second term. Under this theme he summarises such projects as the disclosure initiative and the primary financial statements project that receive wide support. In this context, respondents noted that the Board should prioritise projects that are important to users of financial statements.
• Continued development of implementation support. Under this heading the IASB discusses improved support for stakeholders when they are implementing new IFRSs but also the fact that stakeholders have requested that the Board should focus on fewer standard-setting projects to allow stakeholders to focus on implementing recently issued standards. Respondents also noted that the Board should not develop too many narrow-scope amendments and suggested that many of the minor amendments the Board has issued in the past could easily have been included in omnibus annual improvements or (if regarding the same standard) in a broader review of that standard. Generally, post-implementation reviews are considered helpful.
• A more focused research programme. Given the limitations of the 2015 agenda consultation, the research programme was the main focus. Although respondents expressed general support for an evidence-based approach to setting standards, many were confused about the strategy, objectives, and processes of the research programme or the relationship between research and the Board’s other technical activities. They also noted that the Board seemed to have too many research projects on its agenda. The Board has already taken first steps to focus his research programme (see below) and the feedback statement offers a detailed description of the objective, the processes, and the criteria applied in the research programme.

The reorganised research programme

Given the responses on the research programme - that research itself was supported but the structure and processes were unclear and that there were too many research projects on the agenda - the Board decided to refocus it research programme. It has abandoned the former categories of long-term and short-term research projects and it does no longer distinguish between the assessment phase of a project and the development phase.

In April and May 2016, the IASB discussed all research projects on the agenda and assessed each of it against the feedback received in the agenda consultation. As a result, the Board decided to:

• retain eight projects on the research programme, including two that were nearing completion, and develop them actively as a priority;
• transfer the remaining four projects to a newly created research pipeline; and
• do no further work on four topics.

The Board also added to its research pipeline a further four topics, newly identified in the 2015 consultation. Projects in the pipeline will not become active immediately, however, when sufficient capacity becomes available, these projects will be taken up. It is expected that work on these projects can be started before the next agenda consultation.

The current situation is:

Other topics

As part of the agenda consultation, the IASB also asked respondents whether a three-yearly agenda consultation process was appropriate in view of the fact that the time frame for developing and issuing standards is a long one. The IASB proposed that a five year interval between agenda consultations is more appropriate than the three year interval currently required. Respondents supported this approach, and the Due Process Handbook was already amended accordingly in June 2016.

The IASB also received a lot of comments that took a broader perspective on corporate reporting questions or commented on processes. This other feedback is summarised in a table at the end of the feedback statement together with the IASB responses.

Additional information

Please click for the following documents on the IASB website:

• Press release
• Feedback statement
• Short video with an overview of the IASB's key priorities

Regulation (EU) No 258/2014 of the European Parliament and of the Council of 3 April 2014 established a programme of EU co-financing of the International Financial Reporting Standards (IFRS) Foundation, the EFRAG, and the Public Interest Oversight Board (PIOB). The regulation formed the legal basis for the continuation of financing the IFRS Foundation and PIOB for the period 2014-2020 and of EFRAG for the period 2014-2016. The agreement limited the financing period of EFRAG to three years in view of prospective reforms that might arise from the Maystadt Report. In April 2016, the EC concluded that the governance reform of EFRAG has been successfully implemented on 31 October 2014. Consequently, the EC proposed to extend the European Union co-financing of EFRAG for the period 2017 - 2020 under the programme established by the regulation.

ECON, acting on behalf of the EP, has voted in favour of several more amendments to the EC proposal. One of them is adding the following paragraph:

One resolution expressly mentioned is the June 2016 EP resolution that stresses that EP members see shortcomings in the governance of the IFRS Foundation and the IASB, notably in terms of transparency, prevention of conflicts of interest and diversity of Board members. The resolution also calls for a more diversified and balanced financing structure also based on fees and public sources. The resolution is backed by the feeling that the high degree of funding of the IASB's budget (14%) and of EFRAG (60%) by the European Union should mean that both organisations have to follow the European Parliament standards of democratic legitimacy, transparency, accountability and integrity.

As regards EFRAG, the report also suggests that at some future point of time it might be appropriate that the Commission submits a legislative proposal to transform EFRAG into a public agency in the long term.

Please click for additional information below (historic information included to understand references in the newer documents):

• Regulation (EU) No 258/2014 establishing a Union Programme to support specific activities in the field of financial reporting and auditing for the period of 2014-2020 (3 April 2014)
• EC proposal of amendments to the regulation to extend the financing of EFRAG (13 April 2016)
• ECON report on the vote on amendments to the EC proposal (14 October 2016)

This remuneration guidance sets out its members’ views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured. 

Updates to the Principles, which have been made to reflect the IA’s response to the Executive Remuneration Working Group Final Report include:

• Slimming the Principles down to a set of high level issues and updating them to reflect the recommendations of the Executive Remuneration Working Group.
• Amending them to acknowledge the need for increased flexibility of remuneration structures.
• Updating them to ensure that they do not promote a single remuneration structure.
• Updating them to ensure that the level of remuneration has appropriate focus and that companies should disclose pay ratios between the CEO and median employee, and the CEO and the Executive team, to provide the context of the remuneration provided.
• Including a new section on the importance of improving shareholder consultation, ensuring that it is based on the strategic elements of remuneration and leads to consultation rather than affirmation of the company’s position.

Additionally the IA has issued a letter to Remuneration Committee chairmen highlighting key aspects of the Principles that its members have asked to be re-emphasised to companies.  These include:

• Levels of remuneration – the level of remuneration awarded to Executive Directors continues to be an area of particular concern for members. The letter indicates that “it is essential that companies adequately justify the level of remuneration awarded to Executives”.  In particular, the letter indicates that salary increases or increases to variable remuneration “should be justified with clear and explicit rationale”.
• Bonus disclosure – Shareholders require the retrospective disclosure of bonus targets so that they can ensure that there is an appropriate link between pay and performance. For 2017 the letter highlights that members will expect:
• Financial targets – Full retrospective disclosure of the threshold, target and maximum performance targets, the level of performance achieved against these targets and the resulting bonus outcome. Members now also expect Remuneration Committees to provide an overview of how the performance targets have been set.
• Personal and Strategic Performance Targets – the letter highlights that members expect a thorough explanation as to why personal or strategic targets have paid out, not just a description of non-financial performance indicators.
• Pensions - There is a concern with the size of pension increases and the complex pension arrangements for Executive Directors. The letter indicates that where there is a disparity between the contribution rates of the Executive Directors and the general workforce, then these differences should be clearly justified.

The revised Principles of Remuneration and letter to Remuneration Committee chairmen are available from the IVIS website.

The guidance explains the different accounting and reporting requirements for different sizes and types of charity for financial years beginning on or after 1 November 2016.

The guidance can be accessed on the Charity Commission website here.

Additionally

• for accounting periods ending on or after 31 March 2015, see Charity reporting and accounting: the essentials March 2015 (CC15c) (link to Charity Commission website).
• for accounting periods ending on or after 1 April 2009 but before 31 March 2015, see Charity reporting and accounting: the essentials (CC15b) (link to Charity Commission website).