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FRC issues a briefing setting out current ‘hot topics’ of its Corporate Reporting Review team

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12 Jun 2018

The Financial Reporting Council (FRC) has issued a Briefing setting out the current ‘hot topics’ of its Corporate Reporting Review (CRR) team. The CRR team monitors the quality of corporate reporting in the UK and enforces compliance with accounting standards and relevant company law.

Many of the topics included in the briefing will be relevant to companies preparing their 2018 interim reports. The FRC reminds preparers and auditors that it will be monitoring companies’ disclosure of the effects of IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments – standards that most listed companies will be adopting for the first time in 2018 and for which they will be required to quantify and explain the effects in their 2018 interim reports.

The briefing reminds prepares and auditors about the FRC's expectations in respect of disclosure of the new standards and identifies other areas where its recent activity has identified room for improvement.

New accounting standards

The FRC indicates that materiality should be considered in determining the extent of disclosure in interim reports and disclosures should be clear, concise, company-specific and focused.

Key areas of focus highlighted include:

  • IFRS 9:
    • Impairment for banks.
    • Impact on trade receivables for non-financial services companies particularly where they have long-term balances such as lease commitments, contract assets under IFRS 15 or intercompany receivables.
  • IFRS 15:
    • Full explanation of changes in revenue accounting policies with reference to performance obligations.
  • Disclosure of significant judgements made by the directors in applying the new standards and quantification of the estimation uncertainty.

The FRC will be conducting thematic reviews on the effects of implementation of both IFRS 9 and IFRS 15 based upon a selection of interim reports.

Other areas of focus

Supplier financing arrangements

In response to concerns expressed by stakeholders, the FRC has also indicated that it will focus on the accounting for, and disclosure of, certain types of supplier financing arrangements; for example, reverse factoring. The FRC expects companies to “disclose the nature of any material supplier financing arrangements, the implications for the company’s liquidity and the relevant amounts”. It would also expect any significant accounting judgements to be disclosed and reminds companies of its press release on complex supplier arrangements in December 2014 highlighting that this will be an area of specific FRC focus in 2018.

Asset impairment

The impairment disclosures of companies in the FRC’s priority sectors and market sectors where there have been a number of profit warnings and asset write-downs will be an area that the FRC will pay “particular attention” to.

Issues identified by the CRR’s monitoring activities

The briefing also highlights four areas where the FRC’s recent activity has identified issues and which it draws attention to:

  • Consideration of whether an amount is material;
  • Classification of cash flows between operating, investing or financing activities in the cash flow statement. The FRC reminds companies that only activities resulting in a recognised asset on the balance sheet can be classified as investing activities.
  • Complying with the requirement in IAS 33 Earnings per Share to restate the prior year comparative earnings per share amounts using the new number of shares following a change in the number of a company’s shares outstanding following a share split or consolidation.
  • Potential breaches of the Companies Act 2006 requirements for the payment of dividends. The FRC indicates that companies do not appear to be following the requirements to support a dividend in excess of the distributable profits shown in the relevant accounts by filing interim accounts with the Registrar.

The press release and the briefing is available on the FRC website.

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