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November

The Hampton-Alexander Review publishes its 2018 Report

30 Nov 2018

The Hampton-Alexander Review is an independent, business-led initiative supported by Government and is the successor to the five-year Davies Review into Women on Boards. Its initial report, published in November 2016, set a five key recommendations aimed at increasing the number of women in leadership positions of FTSE 350 companies.

The recommendations called for action from all stakeholders and importantly included a target of 33% representation of women on FTSE 350 Boards and FTSE 350 leadership teams (comprising the executive committee and the direct reports to the executive committee) by the end of 2020.

The third report highlights that the number of women on FTSE 100 boards has exceeded 30% for the first time (it is 30.2% up from 27.7% last year), there are more women on the boards of the FTSE 250 companies (it is 24.9% up from 22.8% last year) and women on FTSE 100 Executive Committees has passed 21%, again for the first time ever.

However the report indicates that the number of women in FTSE 350 Chair roles remains "flat" at 22 and the number of women in CEO roles is even lower at just 12, down from 15 this time last year.

Whilst the number of all-male boards is only 5 this year (down from 10 last year), the report does highlight that there are still 75 companies in the FTSE 350 which have only one woman on their board which the report calls "disappointing".  It indicates that "if each of these companies were to improve their gender balance in 2019 by adding one woman to their board, this would take the FTSE 350 almost half way to achieving the 33% target".

Looking forwards, the report states "if progress continues at a similar rate, the FTSE 100 is 'on track' to achieve the 33% target for Women on Boards by 2020".  However it notes that "elsewhere a step change is needed in pace, which means half of all available appointments in the next two years - both Boards and leadership teams - need to go to women to achieve the 33% target".

A press release and the full report are available on the BEIS website.

IFRS Foundation Trustees Chair delivers speech on the EU fitness check

30 Nov 2018

On 30 November 2018, the Chair of the IFRS Foundation Trustees, Erkki Liikanen delivered the keynote speech at the EU Conference in Brussels, discussing the results of the EU fitness check.

Mr Liikanen began by reviewing the history of how the EU decided to adopt IFRS instead of adapting them into EU GAAP. He noted the importance of that decision and how most of the world has followed suit. He then stated:

All things considered, the IFRS project has been a success at an international level. Is it also viewed as a success at an EU level? The answer to that is provided by the EU Fitness Check.

He went on to praise the EU fitness check, mentioning high participation within — and outside of — the EU. He explained that the number of external comments could be attributed to (1) many non-EU domiciled companies and investors having interests in the EU and being impacted by EU policies; and (2) the EU's approach to corporate reporting — particularly IFRS Standards — is "highly influential in shaping the policies of other jurisdictions".

Mr Liikanen described the financial reporting perspective of the EU fitness check, mentioning that "the report shows that things are working well". He acknowledged that not everything is perfect, but highlighted that there is not much support for substantive change:

Most respondents felt that IFRS Standards are effective, helping to reduce the cost of capital and increase investments within the EU. Few believed that the Standards have led to procyclicality and short-termism, while most believed that the EU’s policy on IFRS Standards has promoted more integrated capital markets in the EU and internationally. This is encouraging feedback and shows the importance of our Standards to the EU’s Capital Markets Union project and the wellbeing of the global economy more broadly.

He also discussed the fitness check results related to the 'carve-in' mechanism proposed to modify IFRS Standards in the EU. Mr Liikanen reported that three quarters of all respondents supported the status quo of a restricted endorsement process and argued against carve-ins. He did acknowledge that a minority of respondents argued for the carve-in mechanisms; he provided their perspective that it would help the EU exert greater influence on the IASB's standard-setting process. He explained:

This topic of influence is an important one and should not be dismissed. Every major jurisdiction sets out to influence the international agenda, and this is naturally relevant also for the EU. The EU signed up to IFRS Standards from the very beginning, has been a strong and vocal supporter of IFRS Standards as the global standard, and the EU has endorsed pretty much every standard the IASB has ever issued. So, I completely understand the desire to be highly influential in a process to create standards that are mandated for use across the EU.

The question is how best to exert that influence. To collect views, to analyse concerns, to present them well and to win the argument through logic and reason. The EU has a great deal of experience in this area, because that is how its own internal decision-making works.

Mr Liikanen said that many people see carve-ins as an 'opt-out' clause from international IFRS system, of which the EU is a major player. He emphasised that he sees the fitness check as an endorsement that the system is working well as-is. He opined that "the best way for the EU to influence the IASB is through the quality of its work and the persuasiveness of its arguments".

The full text of Mr Liikanen's speech is available on the IASB's website. For more information, see our March 2018 story on the release of the fitness test consultation document as well as our November 2018 story providing a summary of fitness test responses.

FSB reports to G20

30 Nov 2018

In the context of the 2018 G20 Buenos Aires summit, the Financial Stability Board has released its fourth annual report on the implementation and effects of the G20 financial regulatory reforms and a letter by the FSB Chair to the G20 Leaders.

In the annual report, the FSB especially notes expected loan loss provisioning (IFRS 9 and the FASB's current expected credit loss model). The FSB has asked the standard-setters to monitor the consistent implementation of their standards. The annual report also notes IFRS 17 as setting out a single, consistent approach to accounting for insurance contracts.

In his letter to G20 Leaders, the FSB Chair especially comments on mitigating the financial stability risks from climate change through the Taskforce on Climate-related Financial Disclosures (TCFD). He notes "encouraging progress" and that a many companies are already reporting against some of the recommendations. The letter states: "Adoption can be expected to widen and improve as the private sector refines emerging good practice in efficient, decision-useful material climate-related financial disclosure."

Please click for the two documents on the FSB website:

ICAEW publishes a guide to directors’ responsibilities

30 Nov 2018

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a guide to directors’ responsibilities.

The guide, which is written for directors of private companies limited by shares with more than one director, provides an overview of directors' responsibilities and duties, including on internal governance, transactions between a company and its directors or shareholders, and corporate administration. It also covers responsibilities in relation to insolvent or financially challenged companies, as well as penalties for breach of directors' responsibilities.

The guide is available on the ICAEW website.

EFRAG publishes technical advice on IFRS 9 to the European Commission

30 Nov 2018

In response to a European Commission request, the European Financial Reporting Advisory Group (EFRAG) has investigated the potential effects on long-term investments in equity instruments of the requirements of IFRS 9 'Financial Instruments'.

In the first phase of the project, the European Commission asked EFRAG to collect quantitative data on the current holdings of equity instruments and their accounting treatment and investigate if entities expect that the new accounting requirements will affect their decisions in relation to investment in equity instruments. EFRAG reported its findings from this first phase in January 2018.

In the second phase of the project, EFRAG investigated whether and how the requirements in IFRS 9 on accounting for holdings of equity instruments could be improved. EFRAG published a discussion paper to gather constituents' views on recycling and impairment of equity instruments designated at fair value through other comprehensive income on 1 March 2018 and made available the results of a literature view on IFRS 9 and long-term investment on 28 March 2018. EFRAG has now published its final response to the second phase of the EC request. The response addresses the interaction between an impairment model and the reintroduction of recycling, and what characteristics an impairment model for equity instruments could have. The letter notes:

The majority of respondents that expressed a view were in fact more supportive of an impairments model similar to IAS 39. [...] However, there is no consensus on how to reach an approprioate balance between relevance and comparability. [...] EFRAG maintains that a degree of rigour in the use of the election or the impairment model would be essential to ensure comparability.

Please click to access the full response on the EFRAG website.

EFRAG also notes that it is currently working on a second request for technical advice on possible alternative accounting treatments for equity and equity-type instruments. The European Commission asked for EFRAG's technical advice on this aspect of IFRS 9 by the second quarter of 2019.

GC 100 provides guidance to directors on s172

29 Nov 2018

The GC 100 has issued guidance which aims to provide practical help to directors on their performance of the section 172 duty.

The guidance includes:

  • a summary of key suggestions and matters for directors to consider;
  • practical steps directors can take to help them discharge their s172 duty;
  • the legal context of the s172 duty; and
  • an example scenario of how directors in a specific business situation could discharge their duties.

The guidance is available on the GC 100 page on the Practical Law website.  Our related Governance in brief publication is available here.

IFRS Foundation Trustees amend Constitution effective 1 December 2018

29 Nov 2018

The Trustees of the IFRS Foundation have issued amendments to the IFRS Foundation Constitution that increase the maximum tenure of the Trustees’ Chair and Vice-Chair to nine years.

The amendments also clarify that the Chair of the Trustees can be appointed either from among the Trustees or externally and specify that the Vice-Chairs must be appointed from the Trustee ranks.

Please click for the following additional information on the IASB website:

DECL Taskforce publishes first report on IFRS 9 ECL disclosures

28 Nov 2018

The Taskforce on Disclosures about Expected Credit Losses (‘the DECL Taskforce’) has published its first report, 'Recommendations on a comprehensive set of IFRS 9 Expected Credit Loss disclosures'.

The Taskforce was set up on the initiative of the UK Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulation Authority. The membership of the Taskforce includes Banks, Institutional Investors and Rating Agencies.

The Taskforce’s report sets out recommendations on the content of a comprehensive set of IFRS 9 Expected Credit Losses disclosures in order to promote high quality, comparable ECL-related disclosures.

A press releaseletter to co-chairs and the full report are available on the FRC website.

Investment Association publishes updated Principles of Remuneration

28 Nov 2018

The Investment Association (IA) has published its updated Principles of Remuneration ("the Principles").

This remuneration guidance sets out its members’ views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured.

Updates to the Principles, which have been made due to make the Principles "cleaner and sharper" and to reflect the new UK Corporate Governance Code and developing best practice.

Additionally the IA has issued a letter to Remuneration Committee chairmen highlighting key aspects of the Principles that its members have asked to be re-emphasised to companies. These areas include:

  • investor and remuneration committee relations;
  • shareholder engagement;
  • new reporting requirements;
  • levels of remuneration; and
  • pay for performance.

The press release, revised Principles of Remuneration and letter to the chairs of Remuneration Committees are available from the IVIS website.

EFRAG and FRC to host joint outreach event on FICE in London

28 Nov 2018

The European Financial Reporting Advisory Group (EFRAG) and the UK Financial Reporting Council (FRC) will host a public joint outreach event on 4 December 2018 in London. The event will address the IASB's Discussion Paper 'Financial Instruments with Characteristics of Equity'.

For more information please see the press release on the EFRAG website.

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