August

Recent sustainability and integrated reporting developments

17 Aug, 2017

A summary of recent developments at GRI/GSSB CPA Canada, BUFDG and the IIRC.

The Global Sustainability Standards Board (GSSB) of the Global Reporting Initiative has launched a public consultation for draft revisions to GRI Standards 303 Water and 403 Occupational Health and Safety. Running from 10 August through 9 October 2017, this public consultation invites feedback from all stakeholders. Please click for the review page for GRI 303 and the review page for GRI 403.

Chartered Professional Accountants of Canada (CPA Canada) has posted two articles on climate change aspects to its website: It’s time to make climate change a business issue notes that the business cost of climate change is real and growing. But that not everyone is aware of the issues. Planning for climate change and a carbon-reduced economy discusses the impact of climate change on business model and strategy and points out a corresponding online learning on 19 October 2017.

The British Universities Finance Directors Group (BUFDG) has published a report examining Integrated Reporting in four universities.  Further information is available on the BUFDG website here.

The International Integrated Reporting Council (IIRC) has launched two new specialist interest groups under the umbrella of the <IR> Network and is inviting new businesses to join the network to explore and innovate in areas of integrating reporting.  The first group focuses on value creation by financial institutions and will look at how the financial services industry should create net value, what the purpose of the industry is, who value is created for and how it can build trust.  The second group focuses on strategy and integrated thinking.  Those interested should send an email to businessnetwork@theiirc.org. 

FRC proposes amendments to its Guidance on the Strategic Report

15 Aug, 2017

The Financial Reporting Council (FRC) has today published, for consultation, amendments to its ‘Guidance on the Strategic Report’ ("the Guidance").The Guidance remains non-mandatory with a view to encouraging best practice.

The FRC’s Guidance on the Strategic Report was first published in June 2014.  Since the publication of the guidance there has been an increasing focus on the need for businesses to consider their impact on society and report on the broader matters that may impact the sustainability of the business over the longer term.

The FRC is updating its Guidance to:

Reflect changes arising from the UK implementation of the non-financial reporting Directive

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 (SI 2016/1245) ("the Regulations"), which implement the requirements of the EU non-financial reporting Directive in the UK, amend the strategic report requirements as set out in the Companies Act 2006.  The Regulations apply to the financial years of companies and qualifying partnerships, within scope of the Regulations, beginning on or after 1 January 2017.  The new Regulations only apply to certain large entities with more than 500 employees and complement many of the pre-existing disclosure requirements in the strategic report.

The FRC is amending its guidance to reflect the changes brought about by the Regulations.  The FRC, in drafting the amendments, has “taken a pragmatic approach to assist entities with the implementation of the new Regulations in the simplest manner”.  It states that the aim is “to ensure that the strategic report and the annual report as a whole remain cohesive, incorporating financial and non-financial information.  The draft amendments enhance the pre-existing strategic report requirements, integrating additional content from the new Regulations rather than duplicating.

Enhance the linkage between Section 172 and the purpose of the strategic report

The FRC has also proposed changes to enhance the linkage between section 172 of the Companies Act 2006 and the purpose of the strategic report. The purpose of the strategic report as set out in the Companies Act 2006 is to inform members of the company and to help them assess how the directors have performed their duty under Section 172.

Section 172 imposes a duty on directors to ‘promote the success of the company’ and the FRC’s amendments are intended to place a greater focus on how directors’ are fulfilling their duty in this area through narrative in the strategic report. 

Targeted improvements

In addition to the above changes, amendments are also being made to make targeted improvements to certain areas of the guidance to reflect key developments in corporate reporting such as the European Securities and Markets Authority (ESMA) Guidelines on Alternative Performance Measures.

Comments are requested by 24 October 2017.

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IAASB, IESBA, and IAESB outline need for more professional scepticism

15 Aug, 2017

The International Auditing and Assurance Standards Board (IAASB), the International Ethics Standards Board for Accountants (IESBA), and the International Accounting Education Standards Board (IAESB) have jointly published 'Toward Enhanced Professional Skepticism'.

The three standard-setters that operate under the auspices of the International Federation of Accountants (IFAC) note that the importance of enhanced professional scepticism is underscored by the increasing complexity of business and financial reporting, including the greater use of estimates and management judgment, business model changes due to technological developments, and the fundamental reliance of the public on dependable financial reporting.

Please click to access the new publication on the IFAC website.

Recent sustainability and integrated reporting developments

04 Aug, 2017

A summary of recent developments at IFAC, IIRC, AICPA, and SASB.

The International Federation of Accountants (IFAC) and the International Integrated Reporting Council (IIRC) have jointly published Creating Value for SMEs through Integrated Thinking: The Benefits of Integrated Reporting highlighting how SMEs can benefit from integrated thinking and reporting and noting that the IIRC’s principles-based framework is deliberately flexible so that SMEs can apply it to their own specific circumstances. Access to the publication is available through the press release on the IFAC website.

The IIRC has also published its own integrated report pointing to how integrated reporting is becoming more widespread around the world. The 22 page report also demonstrates the organisation’s own learning journey as it has been streamlined and made more concise than last year’s report (50 pages). Please click for access to the report on the IIRC website.

The American Institute of Certified Public Accountants (AICPA) has issued Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions Information) to provide guidance to CPAs who provide assurance on corporate, social and environmental performance information reported by companies. The guide is available through the press release on the AICPA website.

The United States Sustainability Accounting Standards Board (SASB) has released of its 2017 Technical Agenda. Cross-cutting items that have been identified and will be adressed include human capital management, cyber security, water risk, and climate risk. The SASB is also integrating the recommendations of the recently released report by the G20 Task Force on Climate Related Financial Disclosure (TCFD) in each industry where climate risk is a material factor. Please click for access to the technical agenda on the SASB website.

EFRAG final comment letter on proposed improvements to IFRS 8

03 Aug, 2017

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter on the IASB exposure draft ED/2017/2 'Improvements to IFRS 8 'Operating Segments' (Proposed amendments to IFRS 8 and IAS 34)'.

EFRAG broadly agrees with the IASB proposals; however, EFRAG disagrees with the proposal to require an entity to explain in the notes why the reportable segments identified in an entity's financial statements are different to the segments reported outside of the financial statements. EFRAG also believes that the proposed definition of an entity's 'annual reporting package' may prove difficult to apply in practice.

The press release and final comment letter are available on the EFRAG website.

EFRAG issues draft endorsement advice on IFRIC 23

03 Aug, 2017

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of IFRIC Interpretation 23 ‘Uncertainty over Income Tax Treatments’ in the European Union (EU).

In June 2017, the IASB published IFRIC 23 to clarify the accounting for uncertainties in income taxes.

EFRAG recommends the endorsement of IFRIC 23.  EFRAG’s initial assessment is that IFRIC 23 meets 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 IFRIC 23 are likely to outweigh the associated costs to implement them.

Comments are requested by 9 October 2017.

For more information, see the press release, draft endorsement advice and the invitation to comment on the EFRAG’s website.

ICAEW publishes a paper on extended audit reporting

03 Aug, 2017

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a paper to “help preparers and users of extended auditors’ reports in the UK and overseas to implement them and understand them”.

Extended auditor reporting was implemented in the UK in 2013.  The paper recognises “how far the UK has come” from “the short, boilerplate, uninformative report to the extended report covering the Key audit matters over a number of pages”.  As every company and every audit is different, the ICAEW argues that every audit report should be different and hence there is a need to avoid boilerplate content in extended audit reports as much as possible.  To achieve this, the paper indicates that further support for extended audit reports is required. 

The paper highlights that “there is a great deal of appetite and support for making the extended audit reports as insightful as possible” and provides an analysis of the UK experience to date with them.  It also provides guidance on providing insightful reports and sets out a number of calls to action for auditors, regulators, public interest entities, investors, governments, professional bodies and academics “to build on the achievements of extended audit reporting in the UK and implement and maintain it successfully around the world”.

The ICAEW says:

  • Auditors should be “courageous and do their audits justice” by implementing the spirit of extended reporting: transparency in the public interest.
  • Regulators should help by sharing best practice rather than highlighting bad practice,
  • Public interest entities should invest in their reporting as a whole including the audit report so that it tells a clear, concise and consistent story.
  • Investors and professional bodies should promote good practice and professional bodies should also ensure their practitioners are trained in the new requirements.
  • Governments should permit and encourage transparency.
  • Academics should use the data in extended audit reports to “shine a light” on audit quality.

The full report is available on the ICAEW website.

IASB posts webinar on the IFRS 17’s premium allocation approach

03 Aug, 2017

The IASB has posted to its website a two-part webinar, ‘How does IFRS 17 measure insurance contracts with short coverage periods?’

The webinar discusses optional simplified measurement, presentation and disclosure requirements in IFRS 17.

For more in­for­ma­tion, see Part 1, Part 2, and the slides of the webinar on the IASB's website.

FRC removes Tier 3 categorisation for Stewardship Code

03 Aug, 2017

The Financial Reporting Council (FRC) has announced that it has removed the tier 3 category of reporting against the principles of the Stewardship Code (“the Code”).

In November 2016, the FRC, announced a three tier system to assess signatories’ reporting against the Stewardship Code (link to the FRC website).  Signatories were categorised into tiers based upon the quality of reporting in their statements based on the seven principles of the Code and the supporting guidance.  The tiering exercise was undertaken in order to “improve the quality of reporting against the Code, encourage greater transparency in the market and maintain the credibility of the Code”.  Asset managers were categorised into three tiers and asset owner and service provider signatories were categorised into two tiers. 

Since the publication of the tiers, the FRC indicates that “the majority of signatories [have] significantly improved their statements”.  However some of them remained in tier 3 meaning that their reporting required further improvement.  Whilst some tier 3 companies improved their statements to either tier 1 or tier 2, the remaining signatories chose to remove themselves from the list of signatories.  As tier 3 does not demonstrate commitment to the objectives of the Code, the FRC has removed that tier leaving only tiers 1 and 2 which “show those willing to report transparently on their approach”.

The FRC will be undertaking a consultation on the Corporate Governance Code later in the year and this will include questions about its approach to the Stewardship Code including whether the tiers are set at an appropriate level.  A consultation on specific change to the Stewardship Code will also be published in 2018.

The press release is available on the FRC website.

FRC publishes second report on developments in audit

03 Aug, 2017

The Financial Reporting Council (FRC) has published its second report on developments in audit. The assessment of the quality of UK audits is driven by the FRC’s audit monitoring activity.

The report indicates that “the overall standard of audit work being done for the FTSE 350 companies in the UK is improving” and that there is “evidence of continuing improvement, particularly for larger audits”.  However the message is not so positive outside of the FTSE 350 where a higher proportion of the audits reviewed by the FRC required “more than limited improvements”.

The report identifies that the improvements, particularly for the larger audits, are a factor of increased focus by audit firms’ leadership on audit quality and promoting a culture of continuous improvement.  However the report notes that “the picture is not consistent across all firms, market sectors and audit procedures.  High profile accounting failures, as well as the results of our audit monitoring, continue to identify cases where auditors have not met expectations”. 

In order to meet and exceed the target set by the FRC that at least 90% of FTSE 350 audits inspected in 2018/19 will require no more than limited improvement the FRC indicates that “a strong commitment to continuous improvement is vital”. 

Setting out what has been done to promote continuous improvement in audit quality, the report also highlights key areas of FRC future focus which it says it continues to have “concerns” and which “are risks to continuous improvement”.

The report is accompanied by a more detailed report which provides a more in depth report of recent developments in the market and where the FRC fits in as the market regulator.

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