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December

IASB publishes editorial note

27 Dec 2016

The IASB has published an editorial note explaining that the Preface to International Financial Reporting Standards has been updated.

The updates reflect the results of the 2015 Constitution review and affect the following areas:

  • reduction in the number of members of the IASB from 16 to 14;
  • changed voting requirements in line with the reduced size of the Board; and
  • revised interval between agenda consultations.

The editorial note can be viewed on the editorial corrections page of the IASB's website.

Season's greetings

24 Dec 2016

We wish all our readers a peaceful holiday and all the best for the New Year.

We look forward to seeing you again after the holidays and to continue to be your preferred accounting website in 2017.

EFRAG Board meeting January 2017

22 Dec 2016

The European Financial Reporting Advisory Group (EFRAG) will hold a Board meeting on 11 and 12 January 2017 in Brussels.

The meeting on 11 January will be held jointly with the EFRAG Technical Expert Group (EFRAG TEG).

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

EFRAG publishes December 2016 issue of 'EFRAG Update'

22 Dec 2016

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

The Update reports on the EFRAG Board meeting on 13 December and the EFRAG Technical Expert Group (EFRAG TEG) meeting on 19 - 20 December.

The Update also lists EFRAG publications issued in December:

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

We comment on the FRC consultation on changes to FRS 102 to reflect recent changes in IFRS

22 Dec 2016

We have published our comment letter on the Financial Reporting Council’s (FRC’s) consultation on changes to FRS 102 to reflect recent changes in IFRS.

The Consultation, which was published in September 2016, contains proposals to update Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland to reflect recent changes in International Financial Reporting Standards (IFRSs).

We agree with the overall concept of keeping UK GAAP broadly aligned with IFRS but also would highlight the need to balance stability with improvement, as is set out in the proposed amendments to the principles for developing succinct financial reporting standards for the UK and Ireland. We believe it is important to be able to demonstrate how any proposed amendments to UK and Ireland financial reporting standards are in line with this principle. Bearing this in mind we believe the Phase I Financial Reporting Exposure Draft (“FRED”) should focus on incremental improvements arising from the experience of stakeholders in applying FRS 102.

We agree that it is useful to consider and discuss the proposed more fundamental changes currently proposed to be effective from 1 January 2022. However we feel that publishing detailed proposals in 2017 would be premature when there is currently no practical experience of how UK listed companies have implemented the requirements of IFRS 9 Financial Instruments and IFRS 16 Leases.

Click here to download the full comment letter.

ESMA publishes feedback statement on ESEF consultation

22 Dec 2016

European Transparency Directive requires that issuers listed on regulated markets in the EU must prepare their annual financial reports in a European Single Electronic Format (ESEF) from 1 January 2020. The requirements in the Directive aim at making submission easier for issuers and facilitating accessibility, analysis and comparability for investors and regulators. In September 2015, the European Securities and Markets Authority (ESMA) launched a consultation to determine the most suitable technology to meet the ESEF requirement.

ESMA has now published a feedback statement to the consultation that concludes that Inline XBRL is the most suitable technology for issuers to report their annual financial reports in a single electronic format because it enables both machine and human readability in one document.

Please click to access the press release and the feedback statement on the ESMA website.

EFRAG believes Conceptual Framework should contain guidance on asymmetry

21 Dec 2016

The European Financial Reporting Advisory Group (EFRAG) has written to the IASB asking for the Conceptual Framework to include directions for the use of asymmetry.

As EFRAG notes, the IASB decided unanimously at its October 2016 meeting while discussing the Conceptual framework project that the Conceptual Framework should acknowledge that in financial reporting standards asymmetry may sometimes arise as a consequence of requiring the most useful information.

EFRAG supports the decision but believes that such an acknowledgement by itself is not sufficient and that the Conceptual Framework should also include guidance regarding the use of asymmetry when developing recognition and measurement principles. EFRAG quotes examples and also points out that in some cases potential guidance has already been developed by the IASB staff.

Please click to access the letter on the EFRAG website.

Summary of the CMAC November 2016 meeting

21 Dec 2016

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting which was held in London on 3 November 2016.

The topics discussed at the meeting included:

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

The next CMAC meeting will take place on 16 March 2017.

The full meeting summary is available on the IASB's website.

Regulations implementing EU Non-Financial Reporting Directive published

21 Dec 2016

The Department for Business, Energy & Industrial Strategy (BEIS) has published Regulations which implement the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups in the strategic report. The aim of the EU non-financial reporting Directive (EU NFR Directive) is to improve the transparency of certain EU companies as regards non-financial and diversity information.

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 (SI 2016/1245) (the Regulations) which transpose the minimum requirements of the EU NFR Directive will apply to the financial years of companies and qualifying partnerships, within scope of the Regulations, beginning on or after 1 January 2017.

The EU NFR Directive was approved by the council of the European Union in September 2014. It requires large public-interest companies with more than 500 employees to provide a non-financial statement that discloses relevant and material environmental and social information, employee matters, respect for human rights, and anti-corruption and bribery matters in their annual report. It also introduces disclosures relating to business model, principal non-financial risks and non-financial key performance indicators. Public interest companies are those with securities admitted to a regulated market in the EU together with credit institutions and insurance undertakings.

The EU NFR Directive also requires those within scope to provide further information in the corporate governance statement on 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. In November 2016, the Financial Conduct Authority (FCA) made amendments to the Disclosure and Transparency Rules (DTR) to implement this part of the EU NFR Directive as the requirements for a corporate governance statement are implemented in the UK through the DTR of the FCA.

The new rules complement the narrative reporting regulations in the UK. Through complying with the narrative reporting regulations UK quoted companies will already be disclosing specific information on the company’s strategy, business model, human rights and gender diversity in their strategic report and disclosing information on greenhouse gas emissions in their directors’ report.  The new NFR Directive will extend the level of disclosures required on diversity (for example policies on age, gender, educational and professional background and professional background) and will specifically require reporting on bribery and corruption matters for the first time. 

However, for some large non-quoted UK companies and qualifying partnerships that fall within the definition of a Public-interest entity, the Directive may bring about significant new disclosures in their annual reports that were previously not required by regulation. 

The requirements of the EU NFR Directive have been implemented into company law with the effect that:

  • Large PIEs will apply the requirements of the EU NFR Directive. Large PIEs that are also quoted companies will also apply any existing requirements for the Strategic Report which are not covered by the EU NFR Directive e.g. discussion of community issues.
  • Quoted companies that are not large PIEs (due to having fewer than 500 employees) will continue to apply the existing requirements for the Strategic Report.
  • All other companies and qualifying partnerships will continue to apply the other applicable disclosure requirements in the Strategic Report that are unrelated to the NFR Directive (e.g. disclosure of strategy). 

BEIS had used the consultation to “take a wider, strategic look at reporting in the UK”, particularly focusing on the scope for deregulation for example considering whether non-financial information could be published in solely electronic format on a company’s website and whether any existing UK or EU reporting requirements could be repealed in order to remove any unnecessary reporting. BEIS is not taking forward any of these de-regulatory measures at this time.

The European Commission has recently launched a public consultation to collect views from stakeholders on the form and content of non-binding guidance for reporting non-financial information.

Further information:

FRC’s Financial Reporting Lab issues report as to how companies have responded to investor calls for better disclosure of dividends

20 Dec 2016

The Financial Reporting Council’s (FRC's) Financial Reporting Lab (“the Lab”) has published a report as to how companies have responded to investor calls for better disclosure of dividends as highlighted in its report ‘Disclosure of dividends – Policy and practice’, published in November 2015.

The report includes:

  • A summary of the findings from the November 2015 report;
  • How practice is changing based upon the Lab’s review of dividend disclosures in annual reports published between December 2015 and July 2016;
  • Examples of good practice; and
  • Areas for further improvement.

Findings from the November 2015 report

The key findings from the November 2015 report are: 

  • Good dividend policy disclosures should provide:
    • an understanding of the board’s considerations in setting the policy,
    • the rationale for the approach selected, and
    • sufficient detail to understand how the policy will operate
  •  Good dividend practice disclosures should provide:
    • the key judgements and constraints considered by the board in applying the dividend policy,
    • the availability of dividend resources (cash and distributable profits) to pay dividends, and
    • clear linkage from the disclosed policy to the application of the policy in the period. 
  • Disclosure on the availability of resources - needed to pay a sustainable dividend stream is considered useful information to investors. The report indicates that investors consider that there might be a range of disclosures that a parent company might make depending on whether the resources of the company are ‘Abundant’, ‘Sufficient’ or ‘Insufficient’.  The Lab has prepared an aide to assist companies when making this disclosure. 

How practice is changing

Following the November 2015 report, the Lab undertook a review of FTSE 350 companies’ dividend disclosures to assess how practice might have changed.  177 companies published their annual reports within the scope period (between December 2015 and July 2016) and 120 reports were reviewed in detail with 28 showing improved disclosures.  Improvements included 11 companies providing details of their dividend policy and how it is intended to operate and 16 companies providing greater information as to the relevance of their dividend resources, for example, providing a distributable profits figure for the parent company. 

Areas for further improvement welcomed by investors

The report provides example of good practice disclosures which companies might wish to follow.  Additionally it highlights areas for further improvement including:

  • more detailed disclosure of how dividend policies operate in practice, with more clarity on factors considered in both the setting of the policy and in dividend declaration; and
  • disclosure of risks and constraints where they impact dividend policy and declaration decisions (especially pertinent to concerns around pension deficits, the potential impact of Brexit and other factors that may have a bearing on capital management decisions). 

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Correction list for hyphenation

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