While the fundamental principles of ethics have not changed, major revisions have been made to the unifying conceptual framework — the approach used to identify, evaluate and address threats to compliance with the fundamental principles and, where applicable, independence.

The press release on the IESBA website offers an overview of the changes as well as access to the revised document.

The theme that came over loud and clear during the interview with Paul George, was the need for more clarity and useful information from companies. With the implementation of the EU’s non-financial reporting rules this year the FRC is looking to see greater explanation of companies’ impacts on society and the environment. With greater importance now attached to Section 172, which deals with directors’ responsibilities, of the UK’s Companies Act the FRC wants to see more detail on how directors have discharged their duties. With the help of its newly established Stakeholder Advisory Panel it wants to broaden its outreach. . And there is much to follow-up in the 270-plus responses the FRC received in its recently-completed consultation on the Corporate Governance Code. 

One area that sparked interest in the consultation was a greater emphasis on the responsibilities of remuneration committees. ‘There have been some challenges around our desire that remuneration committees have wider responsibilities for the oversight of remuneration policies throughout the organisation’, said George. ‘We were quite clear in saying that this was an oversight responsibility but some have interpreted that as encouraging remuneration committees to cross a threshold from being non-executive to executive’, he said. And this, along with strengthening independence around the chair of a company throughout their tenure and proposals on how to get the employee voice better heard in the boardroom have caused concern. 

Paul George also made it clear that the FRC also wants, via the implementation this year of European rules on social and environmental disclosure, ‘to see companies respond to that, particularly explaining their impact on society and the environment’. This is a theme. ‘More generally we are really looking for much more colour around how directors discharged their Section 172 [of the Companies Act] responsibilities’, he said. He would like to see boards using examples of major decisions that a board has taken during the year and to explain how they had regard to various stakeholders for the longer term, and the environment, for example, in taking those decisions. ‘We are also keen that boards better explain how they generate value and then explain how they take decisions on how that value is distributed amongst the various different stakeholders’. The FRC wants to know ‘what are the decisions and judgments around the extent to pay dividends, the extent to accelerate making good pension deficits, the decisions around investing in research and development and capital expenditure, for example. We think a better flavour of the company’s policies in regard to these matters would be really helpful to shareholders and to stakeholders’. 

The collapse of Carillion has focused minds. ‘Before the collapse’, George said, ‘we did publish a Financial Reporting Lab report on how investors would like to see better reporting in respect of risks and we are encouraging companies with their participation to do that’. George also urged companies to look at the interaction between the going-concern concept in the preparation of accounts, the role of the strategic report and the role of the viability statement and how all these different aspects are pulled together. 

He talked of how the FRC’s new mission was to focus on transparency and integrity in business and the importance of the newly established Stakeholder Advisory Panel so that the FRC could think more broadly about the impact of their work. He accepted that perhaps they could be criticised for focusing too much on responses and engagement with those who very closely involved in the company reporting and governance arena. So the intention is to broaden their outreach so that they see more clearly how business is contributing much more to society and enable the FRC to play their part in restoring trust in business. 

The position of IFRS in a post-Brexit world was also causing concern. While accepting that it was a matter for Government the FRC was playing its part. ‘So far as the extensive outreach that we have undertaken to date goes there is a clear preference that as far as companies listed on the main market and AIM are concerned we should have, or continue to have in the UK, an accounting framework based on international standards’, he said. ‘The question then arises: What type of international standards? International standards as set by the IASB? International standards as endorsed by the EU? Or international standards as endorsed by the UK?‘ he said. ‘So far as the FRC is concerned we believe that the way that the UK’s interests are best served so that we get the highest quality standards relevant to UK business and UK stakeholders is that we should have international standards endorsed by the UK. The question that then arises’, said George, ‘is what is the endorsement process and who should be involved in that, and we are actively engaged in that debate as we speak’. 

Corporate governance continues to evolve. One of the issues which emerged from the recent consultation on the corporate governance code was how far the mainstay of the Code, the principle of ‘comply or explain’ had become, in the view of some, ‘comply or else’. ‘I put this down to two things’, said George, ‘the role of proxy advisors and the shortening and sharpening of language that we have undertaken through the Code consultation’. The latter might have given the impression that there was less flexibility as a result. And that will be looked at in the finalising of the Code. As for proxy advisors George recognised that there was a changed geography. ‘I think you have to look at the role of passive funds’, he said. ‘I think you have to look at the increasing internationalisation of share registers in the UK and therefore are stewards able to [ask the right questions to] discharge their responsibility that society would like them to discharge in holding corporate boards to account’? As a result the FRC is to look, as part of the work on the Stewardship Code, into how the role of proxy advisors fits in with that. 

These are complex times for the FRC, with many issues to face. It is harder for a regulator to focus on changing the overall culture as opposed to producing short-term rules. It will be a hard road ahead to navigate.

The topics discussed at the meeting included:

• Primary financial statements:
  • Introducing management performance measures and management-defined adjusted earnings per share (adjusted EPS) into financial statements; and
  • Proposed improvements to the presentation of the share of profit or loss of associates and joint ventures in the statement(s) of financial performance.
• Discussion Paper: Disclosure Initiative — Principles of Disclosure:
  • Preparers’ views on addressing the disclosure problem;
  • The relative prioritisation of five specific topics included in the DP; and
  • The effect of technology and digital reporting on the project.
• Goodwill and impairment:
  • An approach to the impairment testing of goodwill that considers movements in headroom; and
  • The requirement in IFRS 3 Business Combinations to recognise all identifiable intangible assets acquired in a business combination separately from goodwill.
• Rate-regulated activities:
  • Whether using the disclosure objective in IFRS 14 Regulatory Deferral Accounts would be a good starting point for developing the disclosure objective for the model;
  • The usefulness of the preliminary set of disclosures; and
  • Whether entities should be required to provide all the resulting information within their financial statements, rather than in another location, such as in management commentary.

The next CMAC meeting will take place on 14–15 June 2018.

For more information, see the meeting page and the meeting summary on the IASB's website.

The outreach will be conducted through structured interviews that should take no longer than 30 minutes.

Please see the press release on the EFRAG website for more information.

This issue features:

• Darrel Scott's perspective on the new information about insurers’ financial performance that will be available when IFRS 17 is applied;
• the unit of account and why the unit of account in IFRS 17 matters to investors, and
• illustrative examples.

For more information, see the press release and Investor Perspectives article on the IASB’s website.

Local authorities in the United Kingdom are required to keep their accounts in accordance with ‘proper (accounting) 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 Code specifies the principles and practices of accounting required to prepare financial statements which give a true and fair view of the financial position and transactions of a local authority.

Significant updates to the 2018/19 Code, which was consulted on in July 2017, include:

• Updates to incorporate the Code’s adoption of IFRS 9 Financial Instruments. The Code will adopt the new classification and measurement requirements for financial assets, the new expected credit loss impairment model and the new disclosure requirements arising from the adoption of IFRS 9.
• Updates for the adoption of IFRS 15 Revenue from Contracts with Customers including consequential amendments as a result and additional guidance on the principles of revenue recognition. The Code will adopt the recognition and disclosure requirements of IFRS 15.
• Updates for narrow scope amendments to International Financial Reporting Standards (IFRSs)

The Code applies formally in Great Britain to local authorities, fire authorities (England and Wales), joint committees and joint boards of principal authorities. In Northern Ireland it applies to all district councils. The Code also applies to police and crime commissioners and other police bodies, as relevant.

A full version of the Code can also be obtained on the CIPFA/LASAAC website (requires payment).

In 2017, the Government announced its intention to introduce a new corporate governance reporting requirement for large private companies. To complement this new reporting requirement, the Government appointed James Wates CBE, Chairman of the Wates Group Ltd, to lead a coalition of partners, including the Financial Reporting Council, to develop corporate governance principles to enhance transparency and accountability in large private companies, and improve public trust in business.

This event will involve introductory comments from James Wates as to his vision for the principles, insight from a leading academic, and a panel discussion featuring local company and investor representatives to discuss the role of corporate governance in large private companies and the impact of the new reporting requirement. There will also be an opportunity for the audience to ask questions about the development of the principles.

This event will be of interest to large private companies, investors, academics, as well as auditors and advisors involved in corporate reporting.

Further details and how to register for the event are available on the FRC website.  A similar event co-hosted by Aston Business School will be held in Birmingham on 30 May 2018.  Registration details for that event are available on the FRC website here.

The Climate Disclosure Standards Board (CDSB) has released an updated version of its framework for reporting environmental information, natural capital and associated business impacts, which is now aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The newly-released Framework presents clear links between its principles and reporting requirements with the TCFD recommendations and the supporting recommended disclosures. Please click to access the updated Framework on the CDSB website.

The CDSB and the World Business Council for Sustainable Development (WBCSD) have released new research that takes a closer look into opportunities for alignment in sustainability reporting, with a deeper dive into corporate governance requirements across 60 countries, building on the strong need for further harmonisation in this area. Please clickk to access the research report on the CDSB website.

The CDSB and and the Carbon Disclosure Project (CDP) have released A brief introduction to climate disclosure in France. The publication is part of of the two organisations' series looking at climate disclosure regulations in G20 countries. Please click to access the briefing paper on the CDSB website.

The Global Reporting Initiative (GRI) and the Responsible Minerals Initiative (RMI) have announced a project to help improve companies’ minerals sourcing due diligence and impact reporting by providing reporting resources and tools based on internationally recognised frameworks. Based on the outcome of the project, the RMI and GRI will develop a consolidated reporting resource for responsible minerals sourcing reporting, and inform the Global Sustainability Standards Board (GSSB). Please see the press release on the GRI website for more information.

An independent taskforce in the UK (Green Finance Taskforce) has produced a report that sets out a series of recommendations on how the government and the private sector can work together to make green finance and integral part of the UK’s financial services. Included within the report are proposals as to how the recommendations of the TCFD should be implemented in the UK. The report is available on the website of the UK Government.

The Canadian Securities Administrators (CSA) have published Report on Climate change-related Disclosure Project. The report summarises the findings of the CSA’s project to review the disclosure by reporting issuers of risks and financial impacts associated with climate change and outlines its plans for future work. Please click to access the report the website of the Ontario Securities Commission.

Included within the report are proposals as to how the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) should be implemented in the UK. The report highlights that “the competitive landscape is changing rapidly” and “the time is right for the UK to move further on climate related disclosures and stay ahead of the curve”.

The report notes that although existing UK legislation “provides the foundation for implementing the TCFD”, it also includes “several gaps” and a number of market barriers that need to be overcome for the UK to implement the TCFD recommendations. These include:

• Information failures
• Financial stability risks
• Trust in capital markets
• Productivity 

The report makes the following proposals for implementing the TCFD recommendations in the UK:

• Companies and investors should use the TCFD framework to develop their financial, corporate governance and stewardship disclosures on a comply or explain basis. The report notes that “there must be a comprehensive effort by the Government and relevant regulators to support successful adoption, implementation and enforcement of the TCFD recommendations, such as through public rankings, off-the-shelf tools and scenarios, and publicly available datasets”. It also recommends that the Government review disclosure in 2020 to “monitor and encourage market adoption” and take further action to encourage take up where adoption is deemed insufficient.
• Relevant financial regulators should integrate the TCFD recommendations throughout the existing UK corporate governance and stewardship reporting framework. It recommends that the Government should publish guidelines by the summer of 2019 and “appropriately reference these guidelines in the corpus of relevant UK rules, codes and guidance by 2020”. The report proposes that the guidelines would clarify certain TCFD recommendations “to make them more readily implementable”. It also proposes that the guidelines:
  • Should define which corporate preparers are covered by disclosure requirements
  • Ensure that information is disclosed on a consistent and transparent basis
  • Ensure that preparers provide scenario-based disclosures of how their business strategies and financial planning may be affected by climate-related risks and opportunities and the associated time horizons considered
  • Ensure that preparers are aware of the requirement and are supported in the reporting of revenues from green business areas
  • Take account of different jurisdictional needs. 

The report also acknowledges the role of the private sector in providing knowledge development and training for preparers to “ensure sufficient organisational competence in relation to environmental risk, impact and opportunity”. It also recommends that the Green Finance initiative convenes sector-specific preparer forums to support guideline adoption and implementation.

• Government and relevant financial regulators must clarify in their guidelines that disclosing material environmental risks, including physical and transition climate-related risks, is already mandatory under existing law and practice. The report indicates that “these recommendations would embed the TCFD recommendations for disclosing climate-related risks in all relevant UK corporate governance and reporting frameworks. With the requisite support from financial regulators this can be achieved without additional legislation”. Nevertheless the report highlights that revisions to relevant legislation will further integrate the TCFD recommendations into the corporate governance and reporting framework.

The report highlights that adoption of these measures will enable adoption of the TCFD recommendations in the UK and will enable investors to identify those companies that are aligned to the UK’s Clean Growth Strategy. For those companies the report indicates that this may lead to a lower cost of capital, higher productivity and better stock market performance.

The full report is available on the BEIS website here.