Sir Win Bischoff, Chairman of the FRC, provided an overview of the events of the past year including the vote to leave the European Union, the government’s call on the FRC to reform corporate governance, the “progress” that has been made in improving the quality of audit work including against the FRC target of 90% FTSE 350 audits requiring no more than limited improvements, the FRC enforcement activity and diversity initiatives. 

Sir Win Bischoff also indicated that in 2018/19 the FRC will aim to “build on recent developments” and will aim for further improvements in governance, reporting, auditing and actuarial work. 

Stephen Haddrill, Chief Executive Officer, then spoke about the FRC’s new Mission Statement.  He spoke about corporate governance indicating that the FRC will issue a consultation on the UK Corporate Governance Code in November taking into account the government’s recent proposals for reform of the governance framework.  Stephen Haddrill then spoke about culture which he called as a “key ingredient in delivering long-term sustainable performance”.

He also covered the FRC’s oversight responsibilities, particularly in relation to audit.  Stephen Haddrill highlighted that “the audit quality of FTSE 350 firms is improving” but indicated that “more progress is needed” to meet the 90% target mentioned by Sir Win Bischoff.  He mentioned FRC enforcement and also spoke about what the FRC is doing about Brexit.

Attendants were then given the opportunity to put questions to the FRC. 

Click for (all links to FRC website):

• Slide pack
• Speech by Sir Win Bischoff
• Speech by Stephen Haddrill

The Update reports on the EFRAG Board meeting on 14 September, the EFRAG CFSS and EFRAG TEG meeting on 20 September and the EFRAG TEG meeting on 21 September.

The Update also lists EFRAG publications issued in September:

• EFRAG's reminder regarding its call for evidence from European constituents on information about the significance of their existing investments in equity instruments and the possible effects of IFRS 9 Financial Instruments on their equity portfolios.
• EFRAG's reports summarising the input received at September outreach events held on the IASB's Discussion Paper DP/2017/1 Disclosure Initiative - Principles of Disclosure:
  • joint outreach event with the Lithuanian Ministry of Finance and the Lithuanian Authority of Audit, Accounting, Property Valuation and Insolvency Management held in Vilnius on 5 September 2017.
  • joint outreach event together with the Polish Accounting Standards Committee Accountants' Association in Poland, and National Chamber of Statutory Auditors held in Warsaw on 12 September 2017. 

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

For both agenda items, background notes have been prepared by the UNCTAD secretariat to facilitate deliberations. The papers can be downloaded from the UNCTAD website:

• Enhancing comparability of sustainability reporting: Selection of core indicators for company reporting on the contribution towards the attainment of the Sustainable Development Goals
• The role of disclosure in risk assessment and enhancing the usefulness of corporate reporting in decision-making

General information on the session including a provisional agenda for the meeting is available here.

Below is an analysis of all changes made to the work plan since our last analysis on 21 Juli 2017.

Standard-setting projects

• Conceptual Framework — the revised version of the Conceptual Framework is now expected in the first quarter of 2018 (was: fourth quarter of 2017)
• Disclosure initiative — Materiality — an ED on the definition of materiality and a practice statement on materiality were issued on 14 September; accordingly, the project on the practice statement was removed from the work plan; the ED is open for comment until 15 January 2018

Maintenance project

• Changes in accounting policies and estimates — the work plan reflects that the ED has been published
• Annual improvements 2015-2017 — final amendments are now expected in December 2017
• Clarifications arising from the post-implementation review of IFRS 8 — a feedback statement on the ED is expected in December 2017 (was: Q4 2017)I
• IAS 19 — Remeasurement at a plan amendment, curtailment or settlement — final amendments are now expected in December 2017 (was: first half of 2018)
• IAS 16 — Proceeds before intended use — a feedback statement on the ED is expected in December 2017

Research projects

• Business Combinations under Common Control — a discussion paper is now expected in the second half of 2018 (was: first half of 2018))
• Financial instruments with characteristics of equity — a discussion paper is now expected in December 2017
• Post-implementation review — IFRS 13 — a feedback statement on the PIR is expected in December 2017

Other projects

• IFRS Taxonomy update for IFRS 17 — now expected in December 2017

The above is a faithful comparison of the IASB work plan at 21 July 2017 and at 22 September 2017. For access to the current IASB work plan at any time, please click here.

On Wednesday 20 September 2017, the meeting began with a continuation of the background sessions designed to help the Board understand dynamic risk management. This session focused on prepayment risk and the concept of capacity (whether an entity has enough hedged items against which derivatives could be designated in a hedging relationship).

The Board discussed three implementation projects:

• The Board is moving forward with an Exposure Draft to amend IAS 8 to make it easier to apply a change in accounting policy arising from an agenda decision prospectively.
• The Board decided to finalise its proposed amendments to IAS 19 on plan amendments, curtailment or settlement amendments, but not the proposed amendments to IFRIC 14 in relation to the availability of a refund.
• The Board decided to complete the 2015-2017 Cycle of its Annual Improvements: IAS 12 the income tax consequences of dividends; IAS 23, when specific borrowing remains outstanding after completion of the asset; and IFRS 3 and IFRS 11 the initial measurement when an entity gets control of a joint operation. The IFRS 3 and IFRS 11 amendments were exposed separately, but will be completed as part of Annual Improvements. The IASB expects to issue the amendments in December 2017.

The day concluded with a continuation of the discussions on rate-regulated activities. This session focused on initial measurement when an entity incurs costs in excess of estimates and the regulatory agreement allows the entity to recover these costs over more than one reporting period by increasing the rate charged. The Board supported taking into account the time value of money when measuring the regulatory asset, but there were mixed views about how to account for an entitlement to earn a return.

On Thursday 21 September 2071, the Board discussed business combinations under common control, for the first time since April 2016. The session was a recap of previous discussions. The Board expressed a preference for keeping the scope of the project narrow. The staff plan to bring papers back to the Board with the goal of developing a Discussion Paper for release in 2018.

The Board was given a brief update on the research programme.

The Board continued its discussions on primary financial statements. The Board decided to give priority to developing an EBIT subtotal over developing a management performance measure—they plan to use the term ‘profit before financing and income tax’ rather than EBIT. The Board also supported introducing an investing category into the statement of financial performance, although it would not be the same as the ‘investing activities’ category in the cash flow statement. The Board did not support the staff proposal that cash and cash equivalents should be used as a proxy for cash and temporary investments of excess cash that form part of capital structure. 

The papers also look at the requirement in IAS 1 to disclose expenses by nature or function.  The Board decided that the choice be retained but that more guidance on how to select the most appropriate method should be provided in the Standard. That guidance would suggest that by nature is likely to provide more useful information when an entity is unable to allocate natural components to functions on a consistent and non-arbitrary basis.

The last agenda item was Conceptual Framework. The current draft has been undergoing a fatal flaw review. In that draft, the Basis for Conclusions alludes to the trade-off between relevance and faithful representation, but the Framework does not have an explicit principle, or any guidance on how to assess any such trade-off. This was identified as a weakness by reviewers. The Board decided that the Framework should acknowledge the trade-off but they will not add any guidance on how to make that trade-off when it sets Standards.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

Both, the video and the leaflet, are very general in nature. They can be accessed through the press release on the IASB website.

The updated agenda for the meeting is sum­marised below:

Agenda papers for the meeting are available on the IASB's website.

The TRG members comprise of auditors and preparers. In addition, there are three observers to the group from international security regulators, insurance supervisors and actuarial organisations. The current mem­ber­ship includes:

• Vasilka L Bangeova, Grant Thornton UK LLP, Director, head of insurance technical
• Laurent Cholvy, AXA, Group head of accounting norms and actuarial reporting
• Jo Clube, Aviva plc, Technical accounting director
• Anne Driver, QBE Insurance Group, Group head of finance policy and assurance
• Sai-Cheong Foong, AIA Group Limited, Group chief actuary
• Jens Freiberg, BDO AG Wirtschaftsprüfungsgesellschaft, Partner, head of accounting advisory group
• Kevin Griffith, EY, Partner, global IFRS insurance leader
• Francesco Nagari, Deloitte, Partner, global IFRS insurance leader
• Jeong Hyeok Park, Samsung Life Insurance, General manager
• Roman Sauer, Allianz SE, Head of group accounting and reporting
• Lesley Thomson, Sun Life Financial, Vice president and deputy chief actuary
• Massimo Tosoni, Assicurazioni Generali SpA, Head of group accounting policy and reporting
• Mary Helen Trussell, KPMG, Partner and global leader, insurance change
• Gail Tucker, PricewaterhouseCoopers, Lead global accounting technical partner responsible for insurance
• Ying (Sally) Wang, China Pacific Life Insurance Co., Ltd, Deputy general manager and chief financial officer

Observers

• William C. Hines,  International Actuarial Association
• Thorsten Melcher, International Organization of Securities Commissions
• Kallol Sen, International Association of Insurance Supervisors

The first TRG meeting is scheduled for 13 November 2017.

For more in­for­ma­tion, see the press release on the IASB website.

We believe IFRS 13 has had a positive effect on financial reporting and applaud the IASB and FASB in achieving convergence between IFRS 13 and the US GAAP equivalent. In addition, we note several areas where further guidance would be beneficial and encourage the IFRS Foundation to work with other interested parties to ensure the consistent application of IFRS 13.

Please click to access the full comment letter.

The proposals arise as a result of “significant differences” in the accounting treatment for such payments.  The payments are made during the nine months following the relevant reporting date, and are a distribution to owners but a donation for tax purposes.

For a subsidiary of a charitable parent, FRED 68 proposes that the tax effects of a gift aid payment, when it is probable that it will be made in the nine months following the reporting date, will be taken into account at the reporting date.  It also clarifies that:

1. the gift aid payment, as a distribution to owners, shall not be accrued at the reporting date (unless a deed of covenant is in place) and shall be recognised in equity; and
2. the tax effects of the gift aid payment shall be recognised in profit or loss.

The FRC indicates that the draft amendments will “improve the consistency of reporting between entities and the relevance of information provided to users”.

The FRC intends to finalise the proposals in FRED 68 at the same time as those within FRED 67 which it consulted on in March 2017 as part of the FRC’s first triennial review of FRS 102.

Comments are requested until 20 October 2017.

The press release and full consultation are available on the FRC website.