We comment on proposed revisions to the UK Corporate Governance Code

28 Feb, 2018

We have published our comment letter on proposed revisions to the UK Corporate Governance Code published by the Financial Reporting Council (FRC) in December 2018.

Overall we are supportive of the broad objectives behind the proposed changes to the UK Corporate Governance Code. We believe that driving board focus on matters such as corporate culture and stakeholder engagement reflects the current demands of broader society for greater accountability from leading UK companies. However, we do have some comments about the way these and other important concepts are being introduced into the Code.

Our key messages are:

  • We support the objective of regular refreshment of board composition and agree that nine years is an appropriate time period to be considered independent for non-executive directors. However, for chairmen we suggest you should consider extending this period to twelve years as we are concerned that the nine year time period could restrict the ability of companies to choose a candidate from the existing board members, i.e. ‘promoting’ an existing non-executive director to the post of chairman.
  • We agree with the broadening of the remuneration committee remit to include setting executive director and senior management remuneration. We also support a move towards remuneration committees having greater access to information on workforce policies, enabling them to make executive pay decisions in the context of reward and conditions across the organisation. Our view is that more guidance is needed around the definition of ‘oversight’, to avoid either a boilerplate response or an over-delegation of responsibility. ‘Oversight’ should focus on the supervision and monitoring of workforce policies, as opposed to input in their design and implementation.
  • At present Provision 7 refers to the need for the board to “identify and eliminate” conflicts of interest. In our view, it would be better, and more realistic, to call for boards to identify and manage conflicts of interest in line with the requirements of the Companies Act.
  • We are supportive of the overall objective to drive greater clarity of a company’s purpose. The revised Guidance includes helpful recommendations on how a board should think about corporate culture but there is, perhaps deliberately, little guidance on how boards should “establish company purpose” as suggested by new Code Principle A. We believe some commentary in the Guidance on how a company should think about company purpose would be helpful.
  • Finally, we would ask that the FRC work with the FCA to review the auditors’ responsibilities in respect of corporate governance. The review responsibility in the Listing Rules is long-standing but the related FRC Bulletins have not kept up-to-date as the Code provisions have changed. Some of the provisions to be reviewed are now subject to specific duties in ISAs (UK) – for example those dealing with risk, going concern and viability – where the Bulletins and ISAs (UK) are now inconsistent. Investors may expect a consistent level of auditor challenge, but the current regime does not necessarily achieve this. We suggest that the FRC and FCA agree to consult together on what the auditor’s responsibilities should be in relation to the revised Code.
  • We have chosen not to respond to each of the Stewardship Code questions individually. We would however like to stress the importance of developing the Stewardship Code to mirror the new areas of focus you are introducing to the UK Corporate Governance Code, i.e. stakeholder engagement and contribution to society.

The full comment letter can be downloaded here.

Paper on the new revenue recognition requirements from the investors' view

27 Feb, 2018

The CFA Institute, a global association of investment professionals, has published 'Revenue Recognition: Top Ten Questions Investors Should Be Asking Regarding the Adoption of the New Standard'.

Effective 1 January 2018, revenue for all companies following IFRSs and US GAAP will be recognised under a new accounting standard – IFRS 15 Revenue from Contracts with Customers or the FASB's equivalent revenue standard, ASU 2014-09 Revenue from Contracts with Customers (Topic 606). Much of the discussion so far has centered around it should be applied by preparers, not on how it should be analysed by analysts and investors. The paper now published by the CFA Institute examines the top 10 questions investors should consider as they review year-end 2017 results and consider first quarter 2018 reporting as it relates to the adoption of the new standard.

Please click to access the full paper on the CFA Institute website.

European Union formally adopts amendments to IFRS 2

27 Feb, 2018

The European Union has published a Commission Regulation endorsing 'Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)'.

The amendments issued by the IASB in June 2016 clarify the classification and measurement of share-based payment transactions as regards:

  1. The accounting for cash-settled share-based payment transactions that include a performance condition;
  2. the classification of share-based payment transactions with net settlement features; and
  3. the accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

The European Union effective date is the same as the IASB's.

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 27 February 2018.

As a result of the EU's adoption, the EFRAG has updated its endorsement status report.

Agenda for March 2018 GPF meeting

26 Feb, 2018

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) in London on 6 March 2018. The agenda for the meeting has been released.

The full agenda for the meeting is sum­marised below:

Tuesday, 6 March 2018 (10:10-16:20)

  • Introduction.
  • IASB and IFRIC update.
  • Principles of disclosure — the staff will discuss feedback from the discussion paper and potential next steps with the GPF members.
  • Primary financial statements —
    • Management performance measures and management-defined earnings per share.
    • Presentation of the share of profit or loss of associates and joint ventures accounted for using the equity method in the statement of performance.
  • Goodwill and impairment —
    • Simplifying the identification of intangible assets acquired in a business combination separately from goodwill.
    • Improving the effectiveness of impairment testing of goodwill by using the unrecognized headroom of a cash-generating unit as an additional input in the impairment testing of goodwill.

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

Report from the December 2017 Emerging Economies Group meeting

26 Feb, 2018

The 14th meeting of the IASB's Emerging Economies Group (EEG) was held in Sao Paulo, Brazil on 4–6 December 2017. The IASB has published a full report from the meeting.

Par­tic­i­pants at the meeting, which was chaired by IASB member Amaro Gomes, discussed business combinations under common control, accounting for micro entities, IAS 12 Income Taxes, initial measurement of payables when payment is deferred, IASB update, and an introduction to IFRS 17 Insurance Contracts.

The next meeting of the EEG will be held 14–16 May 2018 in Kuala Lumpur, Malaysia.

Please click for access to the full report (five pages) on the IASB website.

EFRAG publishes IFRS 17 briefing paper

26 Feb, 2018

​The European Financial Reporting Advisory Group (EFRAG) has issued a background briefing paper on the level of aggregation requirements of IFRS 17 'Insurance Contracts'.

​​The paper discusses the requirements regarding the level of aggregation in IFRS 17. The paper is the first in a planned series of three that are intended to provide simplified information on controversial areas of IFRS 17 to enable constituents to understand the issues and be in a position to comment on EFRAG's draft endorsement advice (currently expected in Q3 2018). The other two papers will address the release of the contractual service margin and transition requirements.

Please click to access the briefing paper through the press release on the EFRAG website.

Agenda for the March 2018 CMAC meeting

26 Feb, 2018

Representatives from the International Accounting Standards Board (IASB) will meet with the Capital Markets Advisory Council (CMAC) in London on 2 March 2018. The agenda for the meeting has been released.

The full agenda for the meeting is summarised below:

Friday, 2 March 2018 (09:00-15:15)

  • IASB Update
  • Primary financial statements
    • Management performance measures (MPMs)
    • Share of profit or loss of associates and joint ventures accounted for using the equity method
  • Discussion Paper — Principles of Disclosure
    • Potential next steps on the project
  • Goodwill and impairment
    • Identification of intangible assets acquired in a business combination separately from goodwill
    • Effectiveness of impairment testing of goodwill
  • Rate-regulated activities
    • Usefulness of possible disclosure requirements for the new accounting model being developed

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

Updated IASB work plan — Analysis

23 Feb, 2018

Following the IASB's February 2018 meeting, we have analysed the IASB work plan to see what changes have resulted from the meeting and other developments in February. Changes are minor.

Below is an analysis of all changes made to the work plan since our last analysis on 27 January 2018.

Maintenance projects

  • Plan amendment, curtailment or settlement (amendment to IAS 19) — This has been removed from the work plan, as an IFRS Amendment was issued on 7 February 2018.

Research projects

  • Principles of disclosure — Discussions on feedback of the discussion paper occurred at the IASB’s February 2018 meeting; the next milestone is now “decide project direction” in March 2018.

Other projects

  • IFRS Taxonomy Update—2017 Annual Improvements — The next milestone has changed from a Feedback Discussion in February 2018 to a Final Update in March 2018.

The above is a faithful comparison of the IASB work plan at 26 January 2018 and at 23 February 2018. For access to the current IASB work plan at any time, please click here.

Charity Commission and OSCR issue consultation proposing amendments to the Charities SORP (FRS 102) as a result of changes to UK Accounting Standards

23 Feb, 2018

The Charity Commission for England and Wales (‘Charity Commission’) and the Office of the Scottish Charity Regulator (OSCR) have issued a joint consultation on proposed amendments to the Charities Statement of Recommended Practice (FRS 102) (‘Charities SORP FRS 102) following amendments to UK accounting standards in December 2017 which formed part of the 2017 Triennial review of the standard by the Financial Reporting Council (FRC).

SORPs issued by the Charity Commission and OSCR apply to charities preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique within the charities sector.

Following amendments to UK Accounting Standards in December 2017, amendments to the Charities SORP FRS 102 have been proposed and are included within ‘Draft Update Bulletin 2’. The amendments are split into:

  • Amendments which are based on clarifications made by the FRC and do not relate to changes to the underlying text of FRS 102. These amendments ensure that the SORP is consistent with the original drafting intention of FRS 102 and align the requirements of the SORP with FRS 102.
  • Amendments which are based on those changes made to the underlying text of FRS 102. These are split between those which are significant and likely to have an impact on the financial statements of charities, and those which are less significant or editorial in nature.

The principal amendments proposed to the Charities SORP FRS 102 that have an impact upon the financial statements are:

  • The introduction of an accounting policy choice for entities that rent investment property to another group entity.
  • The clarification of the accounting treatment for payments by subsidiaries to their charitable parents that qualify for Gift Aid.
  • The clarification of the requirement for comparatives for disclosures required by the SORP.
  • The introduction of a requirement for a net debt reconciliation to be prepared as a note to the statement of cash flows.

It is proposed that the amendments set out in ‘Update Bulletin 2’ apply to all charities in the UK and Republic of Ireland that follow the SORP for reporting periods beginning on or after 1 January 2019. ‘Update Bulletin 2’ also proposes to permit early application provided that all amendments are applied at the same time. Those amendments to the SORP which clarify how existing requirements of FRS 102 must be applied, are effective immediately.

It is expected that the final version of ‘Update Bulletin 2’ will be issued in October 2018 subject to FRS approval.

The consultation closes on 4 April 2018.

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February 2018 IASB meeting notes posted

23 Feb, 2018

The IASB met at its offices in London on Tuesday 20 and Thursday 22 February 2018. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The Board discussed the following topics:

Tuesday 20 February

Disclosure initiative

The Board discussed the feedback received on the Disclosure Initiative—Principles of Disclosure Discussion Paper. There were 12 papers for this session, plus a cover note. No decisions were made.

Primary financial statements

The Board decided that entities should distinguish between cash flows from integral and non-integral associates and joint ventures in the investing section of the statement of cash flows.

However, after a 90 minute discussion the Board did not vote on the proposed clarification of what is meant by a ‘key performance measure’ and a measure that is ‘specified or defined in IFRS Standards’, or the related EPS disclosures. The Staff will reconsider their position and bring back further analysis, including researching how IAS 1.85 and 85A are being applied in practice.

Thursday 22 February

Dynamic risk management

The Board discussed the qualifying criteria for designating an item into the asset profile, which defines which items are managed for interest rate risk and are therefore subject to performance assessment under the DRM model. They also discussed some technicalities about designation and situations requiring de-designation, as well as documentation requirements. Some concerns were raised about how operational the proposals are and whether the proposals will allow entities to reflect how they manage risk.

Business combinations under common control

The Board decided to use the acquisition method in IFRS 3 as the starting point in developing proposals for accounting for business combinations for which all of the parties to the combination are under common control. In doing so it noted that the predominant accounting in practice is the predecessor approach and requiring the use of the acquisition method would be a significant change.


The Board decided to start work in the next few months on variable and contingent consideration; provisions activities; pension benefits that depend on asset returns; and SMEs that are subsidiaries. Work on equity method; pollutant pricing mechanisms; high inflation (the scope of IAS 29); and post-implementation reviews of IFRS 10, 11 and 12; and IFRS 5 should commence in 2019 or early 2020. Most of the discussion centred on extractive activities, the equity method and the timing of the IFRS 10, 11 and 12 PIR. It is possible that the Board will undertake a review of IFRS 11 separately, and ahead of, IFRS 10.


The staff summarised the first Insurance Contracts TRG meeting held on 6 February 2018 and gave an update on the educational activities for investors and analysts conducted from mid-May 2017 to the end of January 2018 on IFRS 17.

Analysis of due process documents

This Staff set out for the Board the different purposes of Discussion Papers (DP) and Exposure Drafts (ED). This Board will soon need to decide whether it should publish a DP or an ED for the projects on primary financial statements, goodwill and impairment as well as rate-regulated activities. It was suggested that the DPs should be more fully developed, with preliminary views, so that the gap between a DP and ED was not as big as it has been.

Rate-regulated activities

The Board decided that the unit of account for the model being developed be specified as the individual timing differences (as opposed to the net of all timing differences) arising from the regulatory agreement. The Board also concluded that rate-regulated rights and obligations will meet the definitions of assets and a liabilities in the revised Conceptual Framework.

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

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