Uncertain times need constructive thinking which can hold the hope of change and strength ahead. And in particular there is a need for public trust to help the process. IFAC, representing the global accountancy profession, has put together the thinking that it hopes will help. A new report, ‘Build Trust. Inspire Confidence’ (link to IFAC website), puts forward a call to action by G20 countries. In a joint statement its President and its CEO say that: ‘Governments must promote coherent public policy and a consistent, transparent regulatory environment that inspires confidence while enabling progress. Professional accountants continue to play a crucial role enabling capital flows, economic activity, and higher standards of living’. They call for a series of actionable recommendations, a policy consensus backed up by tangible implementation and cooperation amongst G20 countries. 

One of these recommendation is the use of integrated reporting.  ‘Integrated reporting’, says the report, ‘is an opportunity to focus on long-term value creation, and improve on a largely fragmented, complex, and compliance-driven system’. The way forward, says the report, is through harnessing the techniques of integrated thinking. ‘Integrated reporting’, says the report, ‘is founded on integrated organisational thinking and more likely to align capital allocation and corporate behaviours to the wider goals of financial stability and sustainable development’. It urges the G20 to action.

The report cites a recent survey carried out by the South African Institute of Chartered Accountants to illustrate how integrated thinking can improve decision making. 74% of executives, the report says, and 93% of non-executive directors were of the view that integrated thinking had improved decision-making at management level. And 72% of executives and 86% of non-executive directors thought integrated thinking had improved decision-making at board level.

Introducing the changes IFAC is advocating would, it says, ‘bring about a more coherent corporate reporting system, relevant to today’s business environment, that aligns outcomes with the G20 priorities of building resilience, improving sustainability, and assuming responsibility’.

The newsletter includes:

• The Lab stakeholder survey in April
• The Lab’s report setting out a framework for future digital reporting
• The Lab’s risk and viability reporting project
• An update on developments in dividend disclosures

The full newsletter is available here.

The consultation, published in September 2016, formed part of the first triennial review of FRS 102 and proposed:

• incremental improvements and clarifications to FRS 102. These have since been published as Financial Reporting Exposure Draft (FRED) 67 Draft Amendments to FRS 102 - Triennial Review 2017 with comments invited until 30 June 2017.
• more significant amendments to FRS 102 to be effective from 1 January 202 including consideration of;
  • whether, and if so how, to incorporate elements of the expected loss model of IFRS 9 Financial Instruments;
  • IFRS 15 Revenue from Contracts with Customers; and
  • IFRS 16 Leases

It was proposed that, subject to the responses to the September 2016 consultation, these more significant amendments would be consulted on ‘towards the end of the third quarter of 2017” as phase 2 of its triennial review.

However, following respondents comments, the FRC has decided not to issue an exposure draft of containing proposals for these more significant updates.  Although respondents’ feedback showed support for a long‑term aim of broad consistency with IFRSs, they questioned the proposed timetable and suggested more IFRS implementation experience is needed before an assessment of whether, and if so, how and when requirements based on the expected loss model of IFRS 9, IFRS 15 and IFRS 16 should be considered for incorporation into FRS 102. In addition, IFRS 17 Insurance Contracts has been issued since the FRC's consultation took place and the FRC has previously stated that “FRS 103 [Insurance Contracts] would be reviewed once the International Accounting Standards Board (IASB) had completed IFRS 17”.

The FRC has indicated that, at present, there is no target effective date for any changes to FRS 102 or FRS 103 and detailed proposals will be consulted on in due course.

The press release and feedback statement are available on the FRC website.

The conference will cover topics on:

• Overview of the new requirements
• Definition of a lease
• Transition to IFRS 16
• Exemptions
• Measurement
• Other issues

More information on the conference is available on the ICAEW website.

The Update reports on the EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) and EFRAG TEG meeting on 28 June.

The Update also lists EFRAG publications issued in June:

• EFRAG's feedback statement following the publication of its final comment letter on the IASB Exposure Draft ED/2017/3 Prepayment Features with Negative Compensation (proposed amendments to IFRS 9);
• EFRAG's draft comment letter in response to the IASB's Discussion Paper DP/2017/1 Disclosure Initiative - Principles of Disclosure; and
• EFRAG's Discussion Paper Goodwill Impairment: Can it be improved?.

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

The new discussion paper completes EFRAG's current research activities on goodwill, which also saw a discussion paper on accounting treatment for goodwill published in July 2014 and a quantitative study on goodwill and goodwill impairment published in September 2016.

The scope of the publication is limited to impairment testing and it does not seek to address broader topics such as identification and measurement of acquired intangible assets in a business combination or the extent to which these should be separated from or subsumed into goodwill. Ideas presented in the paper focus on how to allocate goodwill to CGUs, when to determine the recoverable amount, and how to determine the recoverable amount. EFRAG asks European constituents for their views on the advantages and disadvantages of the potential amendments presented in this context.

The discussion paper and a press release are available on the EFRAG website. The deadline for comments is 31 December 2017.

On 14 March 2018, the EFRAG issued a feedback statement that summarises the responses received from constituents. In general, the constituents believed that the goodwill impairment test can be improved in certain areas. For more information, see the press release and feedback statement on the EFRAG's website.

ESMA will now conduct field tests that will consist of transforming annual financial reports by issuers to Inline XBRL. ESMA is seeking participation from issuers on European regulated markets from all industries preparing IFRS consolidated financial statements. Participating issuers will receive free support to transform their annual financial report to Inline XBRL and thus be able to learn how the Inline XBRL format can be applied.

Plesae click for more information in the press release on the ESMA website.

Mr Hoogervorst began by noting that although fostering financial stability is not the primary goal of accounting standards, the transparency of financial statements resulting from the accounting standards is a "crucial ingredient for achieving financial stability". He discussed the work of the IASB in recent years to issue standards that lead to high-quality accounting, which then leads to better insights of a company's performance, the ability to discover problems more timely and an early warning system to detect changes in a company's risks and performance, amongst other benefits.

In addition, Mr Hoogervorst talked about IFRS 17 Insurance Contracts that was issued about one month ago and how it is finally an international standard that will reduce the incomparability between national GAAPs for insurance. He also noted that IFRS 17 will improve financial stability in six areas:

In his remarks about the IASB's role in improving communication through finacial reporting, Mr Hoogervorst noted that this will be a central theme in the IASB's work plan. Instead of working on major cross-cutting Standards, the Board will focus on improving the primary financial statements, making disclosures more effective and improving the comparability and use of non-GAAP measures.

A full transcript of Mr Hoogervorst's remarks is available on the IASB website.

There is a time when everything suddenly comes into focus. This is what appears to be happening in the field of social and human capital accounting. The business benefits are becoming clear and the practical ways to achieve them are moving into the mainstream. Social and human capitals are, inevitably, seen as more subjective than other capitals like financial, natural and manufactured capitals. It was always going to take more time before they reached broad acceptance and ease of practical usage. But the launch and publication of the CFO Leadership Network’s Essential Guide to Social and Human Capital Accounting, under the aegis of the Prince of Wales’ Accounting for Sustainability project, looks to be the long-awaited catalyst. It provides the tools and the guidance but, more importantly, it details case studies of what businesses have already achieved. This is the body of practical experience that organisations and business need. 

It is a question of recognising the role of social and human capital accounting, measuring its effects, and bringing it forward into decision-making. Done properly this creates a revolution. In the words of Judith Batchelar, Director of Sainsbury’s Brand: ‘This is not the icing on the cake. It is the cake’. It deals with risk. It deals with reputation, cost savings, stronger stakeholder relationships, better access to and retention of talent, staff and workforce. It deals with how the core skills of finance teams are essential for the integration of social and human capital information into decision-making. At the launch of the guide Sabina Nealon, Finance Director, Sustainable Business at Unilever, described how her role was ‘a bridge’ between the finance and sustainability teams. ‘By putting social and human capital into the heart of our strategy we are building a stronger platform for long-term sustainable value creation’, she said. 

It can work at a simple and logical level. Judith Batchelar outlined the Sainsbury’s ‘Greenest Grocer’ programme, which led to energy savings of £1.7m in electricity in under a year. The company has just under 200,000 people. Over 2,000 people went through training programmes and what started as leadership from the CFO spread wide through the company. ‘It became’, as she said, ‘the leadership and judgement of many’. A simple but well thought through and implemented action brought lasting change. ‘That is the value your people can bring to the business’, she said. 

It is also about risk. It is the simple risk of not doing something or not taking something into account. What would that something cost? And how would it impact on reputation? Connect that with the figures which show that market value is overwhelmingly made up of intangibles and you have changed the way people think. When the power company SSE first calculated the value of its human capital in 2014 it came out at £3.4bn. ‘It is so important to monetise it as that drives decision-making’, said George Cobb, SSE’s Group Sustainability Accountant. ‘We are uncovering new insights into our workforce that are leading to real business benefits,’ he said. And it works outside the business as well. ‘It has been a real eye-opener to our investors’, he said. ‘It is showing that we have invested in people’. 

Previously unseen figures and factors change the thinking around a business. Examples abound in the guide. British Land tackled skill shortages. National Grid invested in employee wellbeing and found that for every £1 invested it was getting back more than £2 return in reduced sickness absence costs. The Crown Estate set up a partnership to help jobseekers into sustainable employment. It produced some £40m of societal value through savings on welfare and tax credits, increased tax and national insurance payments, and boosting local economies.  All of these came from looking at the business from a different standpoint, through a new lens. 

In the words of Kate Bowyer, CFO at the Crown Estate, and a member of the A4S CFO Leadership Network, they have seen ‘many benefits from investment in social and human capital and realised how investment in one capital often helps to transform others’. It is this transformation in the thinking that has brought about the changes which are still only the beginning of what can be achieved.

In the introduction to the final report, TCFD Chairman Michael R. Bloomberg notes:

The risk climate change poses to businesses and financial markets is real and already present. It is more important than ever that businesses lead in understanding and responding to these risks — and seizing the opportunities — to build a stronger, more resilient, and sustainable global economy.

The final report follows on a consultation document published in December 2016. The consultation document saw 320 unique responses from respondents in 30 countries, including 15 of the G20 jurisdictions. The four widely adoptable recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions were widely supported and remain unchanged:

• Governance: Disclosure of the organisation’s governance around climate-related risks and opportunities
• Strategy: Disclosure of the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
• Risk management: Disclosure of how the organisation identifies, assesses, and manages climate-related risks
• Metrics and targets: Disclosure of the metrics and targets used to assess and manage relevant climate-related risks and opportunities

Key features of the recommendations are that they are adoptable by all organisations, should be included in mainstream financial filings, are designed to solicit decision-useful, forward-looking information on financial impacts, and have a strong focus on risks and opportunities related to the transition to a lower-carbon economy. The TCFD also recommends the disclosure of potential impacts of climate-related risks and opportunities under different potential scenarios, including a 2° Celsius scenario.

The following additional information is available on the FSB website:

• Final report Recommendations of the Task Force on Climate-related Financial Disclosures
• Press release
• Summary of the feedback received on the consultation document

Also see Deloitte's Need to know on the final report.