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July

EFRAG publishes July 2018 update of 'EFRAG Update'

31 Jul 2018

The European Financial Reporting Advisory Group (EFRAG) has published an 'EFRAG Update' summarising public technical discussions held and decisions made during July 2018.

The Update reports on the EFRAG Board meeting on 3 July 2018, the EFRAG TEG meetings on 5 July 2018 and 25 July 2018, the EFRAG TEG and EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) meeting on 4 July 2018 and the EFRAG and the Accounting Standards Board of Japan (ASBJ) meeting on 11 July 2018.

The Update also lists EFRAG publications issued in July which consisted of the draft endorsement advice and a separate invitation to comment relating to the endorsement for use in the EU of International Accounting Standards Board (IASB) publication Amendments to References to the Conceptual Framework in IFRS Standards.

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

The Bruce Column — Going for the ambitious goals of sustainable business

31 Jul 2018

In a wide-ranging video interview, with our regular columnist Robert Bruce, Rodney Irwin, Managing Director of Redefining Value and Education with the World Business Council for Sustainable Development, (WBCSD), explains the importance of making businesses more sustainable.

For Rodney Irwin his mission is clear. The WBCSD is a global CEO-led organisation of over 200 leading businesses working to accelerate the transition to a sustainable world. It is his role to advance corporate reporting and take sustainable development into the mainstream reporting of organisations. For him the redefining value programme ‘seeks to help businesses measure value and understand their impacts and dependencies on nature and society’. ‘Sustainability’, he says, ‘is not a department. It is not a report. It is not a job title. It is the end result of a strategy that understands impacts and dependencies’. ‘We have a very strong relationship with the accounting profession and CFOs of our member companies’, he says, ‘who take these issues seriously, manage them, measure them, and ultimately make the world a better place’.

Irwin is pragmatic. ‘We have taken a very simple pragmatic approach and that is that businesses already take decisions every day and those decisions are perhaps not being informed by all the information that is needed to make an informed choice. So we made a decision as part of the redefining value programme to integrate, where possible, concepts of environmental, sustainability and governance, (ESG), issues into existing business practices’.

There is a logic here. If these issues are material for a business then they should be in the mainstream filing and not just in a separate sustainability report. Irwin, in any case, is sceptical about how widely read such reports are. ‘Sustainability reporting is big business’, he says, ‘and there are a lot of sustainability reports being produced. The question is, however: are they having any impact? Are they actually being read is an even more fundamental question and one would be concerned that perhaps that’s not a large number of people’.

So the redefining value programme is trying to ensure that ESG issues move into mainstream decision-making models, and in particular in the field of risk. ‘We decided that if we were going to look at sustainability as a risk opportunity or a risk prevention then we needed to embed this into risk management processes. By bringing these issues into the mainstream we are going to get the attention of the decision-makers who will ultimately change decisions accordingly’.

‘Business really needs to understand its impacts and dependencies on nature and on society’, he says. ‘If you are a drinks manufacturer you have a dependency on water’, he says, ‘but you also have an impact on, perhaps, obesity, and so being able to acknowledge that these issues exist, being able to measure and quantify, and then ultimately form strategies to mitigate or improve that situation is really desirable for all stakeholders, investors, employees, and society at large’.

All this needs thought and understanding. Irwin’s view is that companies need to do their integrated thinking first and the integrated reporting later. ‘Businesses are slowly realising that you do need to do the thinking before you do the reporting’, he says. This brings change. ‘The companies that I know that have really embraced integrated thinking are showing dramatic changes across all aspects of the business,’ he says. ‘It’s included in all aspects of the business from finance to human resources to sales and marketing through to production. What I am seeing is that they have completely understood the impact and dependencies that their products have on nature and society as a starting point. They have made decisions as to which products they wish to continue selling and have incentivised the sales force to double-digit growth whilst in the case of other products which perhaps have a negative impact on society or the environment, production is being stepped down’. And it is changing the ability of companies to attract higher calibre talent as well. ‘We know that companies that are authentic in the way in which they describe their sustainability journey and outputs and impacts and interdependencies are attracting a better calibre of candidates when it comes to the war for talent’, he says.

All this is having an effect not just on the bottom line but also on a lower cost of capital. And when asked what he sees the investor community as homing in on he answers in one word: ‘risk’. ‘They want to see that you acknowledge and understand the risks that your company faces with respect to the large environmental and social issues that are out there. They also want to see effective governance over the way in which the business is run. And they want to see, where possible, this put into numbers’, he says. ‘And that is a bit of a journey for many companies where sustainability has been perhaps more of a narrative than a qualitative journey, so they are looking for more robust data so they can compare and contrast’. It is this that is driving investors. ‘It is every investor’s intention to ensure their investment is protected and that it grows’, he says. ‘There is a growing realisation and acknowledgment that issues relating to ESG can be value-destroying if not managed but can also be value enhancing. So there is a growing shift of mainstream investors getting interested in this space’.

And that takes him to the integrity of the information. ‘Investors say they are interested but could they have less reporting and more concise information and, where possible, can they have it in numbers’, he says. And that means assurance. He feels that here the image being put across is mistaken. ‘I think we are deluding ourselves if we think this is voluntary’, he says. ‘We tend to think about the large voluntary initiatives that exist’, he says. But a recent database of reporting obligations, involving 61 countries representing 93% of global GDP that the WBCSD helped to put together, shows that of the 1,784 provisions that existed in those countries 82% were enshrined in company law. ‘So assurance has a very important role to play’, he says. The WBCSD, in partnership with the IAASB, the global auditing and assurance standards board, is developing guidance for the profession on how to address emerging forms of reporting. An exposure draft is promised for the end of the year. ‘Investment grade information needs to be assured by an objective and qualified professional’, he says.

One issue that is also felt to discourage efforts in this field is the alphabet soup of frameworks and regulators. ‘But the main organisations that have been involved in both sustainability reporting and financial reporting are starting to meet under the auspices of the Corporate Reporting Dialogue’, he says, and good progress is being made.

Another area where progress needs to be made is in the accounting profession itself. ‘We need to not only be educating our future professionals as to the financial reporting standards and the accounting and auditing standards, the company law and all the other great stuff that we learn,’ he says, ‘but we also need to be educating them about the emerging forms of reporting and the role that the accountant plays going forward and the role that accountants play in society’. And financial reporting needs to play its part. ‘We need to put pressure on the financial reporting standards to also address some of the issues that are starting to emerge with respect to forward-looking information and how to assure it. Our research shows there is a disconnect, and the role of the accountants could be stepped up when it comes to some very simple basic stuff. The role of the accountant in looking holistically at a company’s reporting could also be enhanced’. He comes back to his central point. ‘What gets measured gets managed is often said and unfortunately it is true. And the accounting profession is the profession that does the measuring so one would hope that they should step up and go beyond what they are already doing’.

Irwin also looks to the UN’s Sustainability Development Goals, (SDGs). Here he sees collaboration between governments and business as the most important element. ‘The SDGs provide an opportunity for business to partnership with government’, he says, ‘and to pursue win-win outcomes not only for society and the environment, but also for the economy at large’. Research suggests that if the goals are realised by the deadline of 2030 then the global economy would be boosted by around $12 trillion. ‘One of the exciting things about the SDGs is that it really creates this concept of opportunity for both investors and business’, he says. ‘We are starting to see that investors, Dutch and US pension schemes in particular, are starting to look seriously at how they are going to screen for SDGs involvement by businesses going forward’. Irwin’s mission lacks nothing in ambition.

IASB issues podcast on latest Board developments

31 Jul 2018

The IASB has released a podcast featuring Chair Hans Hoogervorst, Vice-Chair Sue Lloyd, and education director Matt Tilling to discuss the deliberations at the July 2018 IASB meeting.

The podcast features dis­cus­sions of the following topics:

  • Goodwill and impairment.
  • Composition of the Management Commentary Consultative Group.
  • Transaction involving commodities and cryptocurrencies.
  • Rate-regulated activities.
  • Narrow-scope amendments to IAS 37.

The podcast can be accessed through the press release on the IASB website. More in­for­ma­tion on the topics discussed is available through our com­pre­hen­sive notes taken by Deloitte observers of the July 2018 meeting.

IASB releases additional FICE DP webcasts

30 Jul 2018

The IASB has released two additional webcast in a series of web presentations related to Discussion Paper, ‘Financial Instruments With Characteristics of Equity’.

The webcasts discuss the Board’s preferred approach when addressing the classification of (1) de­riv­a­tive on own equity and (2) the classification of compound instruments and redemption obligation arrangements.

Future webcasts in the series will cover:

  • Pre­sen­ta­tion of equity in­stru­ments.
  • Pre­sen­ta­tion of financial li­a­bil­i­ties.

For more in­for­ma­tion, see the following:

  • Press release for classification of derivatives on own equity on the IASB’s website and the webcast on the IFRS Foundation’s YouTube channel.
  • Press release for classification of compound instruments and redemption obligation arrangements on the IASB's website and the webcast on the IFRS Foundation's YouTube channel.

FRC publishes ‘Key Facts and Trends in the Accountancy Profession 2018'

26 Jul 2018

The Financial Reporting Council (FRC) has published the sixteenth edition of its annual ‘Key Facts and Trends in the Accountancy Profession’ publication.

The publication provides key data on the accounting profession, its member bodies and practising firms. The publication illustrates the size and shape of the accounting profession and shows how it has evolved over the years. It brings to together information about the major audit firms and seven accounting bodies including both those who offer audit qualifications and those who register and supervise audit firms.

The publication includes:

  • information related to membership, students, income, costs and staffing of the seven accountancy bodies;
  • information related to the supervision of statutory auditors;
  • information on the 36 registered audit firms with public interest entity clients and;
  • a greater focus on the profession's track record on diversity and inclusion.

The FRC press release and publication are available on the FRC website.

Financial Reporting Lab publishes quarterly newsletter

26 Jul 2018

The Financial Reporting Lab ("the Lab") has published its Q2 newsletter providing highlights of its activities in the second quarter of 2018.

The newsletter highlights the Lab's recent reports on 'Blockchain' and 'Performance Metrics'. It also includes further information on the Lab's upcoming project on Artificial Intelligence, details of further work on Performance Metrics and an Implementation Study.  

The full newsletter is available on the FRC website here.  

New company reporting requirements for private and public companies approved by Parliament

26 Jul 2018

The Companies (Miscellaneous reporting) Regulations 2018 have been approved by Parliament.

The Regulations make the legal changes necessary for the Government’s package of corporate governance reforms announced by the Department for Business, Energy and Industrial Strategy (BEIS) in August 2017.  They apply to company reporting on financial years starting on or after 1 January 2019.

Our related Governance in brief publication is available here.  Our related Need to know publication is available here.

Recent sustainability reporting developments

25 Jul 2018

A summary of recent developments at the UNEP FI, WBCSD, GRI/PRI/UN Global Compact and CDSB.

Sixteen leading banks convened by the UN Environment Finance Initiative (UNEP FI) have released new methodologies that aim to help the banking industry to understand and manage the physical risks and opportunities of climate change in their loan portfolios. The methodologies are designed to enable banks to be more transparent about their exposure to climate-related risks and opportunities, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Navigating a New Climate can be downloaded here from the UNEP FI website.

The World Business Council for Sustainable Development (WBCSD) has released Climate-related financial disclosure by oil and gas companies: implementing the TCFD recommendations. The report provides an in-depth description of the current state of climate-related financial disclosure and effective disclosure practices among leading oil and gas companies. It is available here on the WBCSD website.

The Global Reporting Initiative (GRI), Principles for Responsible Investment (PRI) and the United Nations Global Compact have released ten recommendations intended to provide guidance to businesses on how to better ensure their disclosures in relation to the Sustainable Development Goals (SDGs) are useful for investors. In Focus: Addressing Investor Needs in Business Reporting on the SDGs is available here on the GRI website.

The Climate Disclosure Standards Board (CDSB) announces that two months after the launch of the TCFD Knowledge Hub 400 resources have by now been uploaded to the platform, providing additional guidance and insights into climate-related financial disclosures. In the next few months, the platform will also be expanded to include two new sections on case studies and on upcoming events. Please click for more information on the CDSB website.

UK Government publishes response to its consultation on a streamlined approach to energy and carbon reporting

24 Jul 2018

The Department for Business, Energy and Industrial Strategy (BEIS) has published a response to its consultation which proposed a “streamlined and more effective energy and carbon reporting framework” for the UK.

A summary of the proposals, included within its October 2017 consultation, split between quoted and unquoted companies, can be found in our previous news item here

The Government proposes that:

  • The new Streamlined Energy and Carbon Reporting (SECR) proposals will apply throughout the UK and the proposed vehicle for reporting is company accounts.
  • In line with a majority of respondents’ views, reporting under the framework will form part of the Annual Report. Specifically, reporting will form part of the Directors’ report, in line with current mandatory reporting on greenhouse gases for quoted companies .
  • Where subsidiaries which qualify for SECR in their own right are part of a group, and are included in their parent’s group report, they will not be required to report separately although may do on a voluntary basis.
  • The reporting framework will apply to all quoted companies and large UK incorporated unquoted companies (including LLPs) with at least 250 employees or annual turnover greater than £36m and balance sheet total (gross assets) greater than £18m. The existing Companies Act definition of ‘large’ will be used. However those companies that fall within scope but are very low energy users will not be required to disclose SECR information if they can confirm they used 40,000kWh, or less, in the 12 month period.
  • Large Limited Liability Partnerships (LLPs) will be required to report SECR information in the Annual Reports, through an equivalent to a Directors’ report.
  • Quoted companies will continue to be required, where practical, to disclose scope 1&2 greenhouse gas emissions methodology (scope 3 will remain voluntary) and an intensity metric in their annual reports. Additionally, they will be required, where practical, to report on global energy use. Where Directors consider disclosure to be seriously prejudicial, they will be able to use such an exemption from disclosure but only in exceptional circumstances.
  • Unquoted companies will also be required, where practical, to report their UK energy use and associated scope 1 and 2 emissions and an intensity metric. Further, energy use in scope for unquoted companies as a minimum will include electricity, gas and transport. The Government also proposes that large unquoted companies should also include intensity metrics in their reporting.

The framework is expected to be put in place from April 2019.

The full set of Government proposals and a final impact assessment can be found on the BEIS website here.  The final regulations which implement these proposals are available here.  Guidance to help companies implement the requirements is available here.

CIPFA/LASAAC consults on a new Code of Practice on Local Authority Accounting

23 Jul 2018

The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) are seeking comments, via an ‘Invitation to Comment’, on proposals for developing the 2019/20 Code of Practice on Local Authority Accounting in the UK (the Code) which would apply to accounting periods beginning on or after 1 April 2019.

Local authorities in the United Kingdom are required to keep their accounts in accordance with 'proper practices'. This includes compliance with the terms of the Code of Practice on Local Authority Accounting in the United Kingdom prepared by the CIPFA/LASAAC Local Authority Accounting Code Board (CIPFA/LASAAC).

The changes being proposed in the Invitation to Comment (ITC) include:

  • Narrow scope amendments to International Financial Reporting Standards, including amendments to IFRS 9 Financial Instruments and IAS 19 Employee Benefits.
  • Legislative and policy changes.
  • Updates for the IFRS Conceptual Framework for Financial Reporting (IASB March 2018).
  • The Code's approach to adaptations/interpretations and statutory adjustments.

The invitation to comment also includes other areas which CIPFA/LASAAC wishes to see the views of interested parties including group accounts, employee benefits, service concession arrangements (PFI/PPP arrangements) and complex financial instruments. CIPFA/LASAAC also seek views from respondents on ways to streamline and simplify local authority financial statements.

This is the second of two consultations on the 2019/20 Code. The consultation on IFRS 16 Leases represents a fundamental change to accounting for leases for local authorities. Interested parties are also encouraged to respond to that consultation.

Comments are requested by 8 October 2018.

Click for (all links to the CIPFA website):

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