During the meeting, the TRG discussed the following:

• Insurance risk consequent to an incurred claim
• Determining discount rates using a top-down approach
• Commissions and reinstatement premiums in reinsurance contracts issued
• Premium experience adjustments related to current or past service
• Cash flows that are outside the contract boundary at initial recognition
• Recovery of insurance acquisition cash flows
• Premium waivers
• Group insurance policies
• Industry pools managed by an association
• Annual cohorts for contracts that share in the return of a specified pool of underlying items

Please click to download our summary of the discussions at the meeting.

In April 2017 the Charity Commission selected two random samples of charities that had filed their 2015 annual returns or annual updates. One sample was of 106 charities that had reported an income of £25,000 or more (‘larger charities’) and the other of 110 charities that had reported an income of less than £25,000 (‘small charities’).

In January 2018, it also selected a random sample of 106 charities that had reported an income over £500,000 in their 2016 annual returns.

For each charity in each sample, it checked whether the figures reported in their annual return agreed to their accounts

The key findings from an analysis of total income and expenditure include:

• Only 93% of the larger charities’ income agreed to the accounts with a figure of 66% for small charities.
• Only 92% of the larger charities’ expenditure agreed to the accounts with a figure of 65% for small charities.
• 89% of larger charities’ income and expenditure both agreed to the accounts with a figure of 62% for smaller charities.        

The key findings of those with income over £500,000 include:

• 83% of the charities’ income analysis agreed to their accounts.
• 85% of the charities’ expenditure analysis agreed to their accounts.
• 98% of the charities’ balance sheet analysis agreed to their accounts.
• 97% of the charities’ fund analysis agreed to their accounts.
• Only 71% of the charities’ in the sample had all analysis which agreed to their accounts.

The Charity Commission reminds the trustees of charities that they must provide financial information in the charity’s annual return or annual update based on the charity’s accounts. It also indicates that those familiar with the charity’s accounts should complete or check the annual return figures.

The full report is available  on the Charity Commission website here.

The deadline for applications has now been extended to 2 November 2018. Please click for more information on the EFRAG website.

The Update reports on the EFRAG Board meetings on 3 September 2018 and 20 September 2018, the EFRAG TEG meetings on 5 September 2018 and 27 September 2018 and the EFRAG TEG and EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) meeting on 26 September 2018.

The Update also lists EFRAG publications  issued in September which included:

• EFRAG’s letter to the International Accounting Standards Board (IASB) to highlight certain aspects of IFRS 17 Insurance Contracts that, in the view of the EFRAG Board, merit further consideration.
• EFRAG’s call for candidates for those interested in becoming a member of the European Lab Steering Group
• EFRAG’s invitation to register for a webinar Financial Instruments with Characteristics of Equity (FICE) which will take place on 12 October.
• EFRAG’s video outlining its tentative views on the key principles under consideration in the IASB Discussion Paper and EFRAG draft comment letter on Financial Instruments with Characteristics of Equity (FICE)

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

As reported earlier, the resolution notes the benefits that IFRS 17 will bring about but also states that ECON members have several concerns regarding the standard.

The motion for a resolution was discussed in the plenary session of the EP on 1 October 2018. During the plenary session, the European Comission (EC) representative and the EP members:

• noted that IFRSs are essential and costs are inevitable in changing to a new environment;
• stressed that the benefits from IFRS 17 are clear as it will bring comparability and clarity to an industry that is currently not transparent;
• noted that in order to be endorsed, IFRS 17 should comply with the EU policy in relation to sustainability, European public good, climate change and long-term investments;
• noted the importance of assessing the impact of IFRS 17 on financial stability;
• recalled that the EC has no possibility of changing IFRSs during endorsement;
• noted that EFRAG has identified six issues to be considered by the IASB again;
• noted that the IASB is going to discuss in October potential amendments to IFRS 17 and a possible delay of the timeline;
• called for the industry to be realistic regarding the solutions it is asking of the IASB;
• noted that standards do and should evolve over time; and
• noted that the EC will continue to monitor the work on IFRS 17 ensuring it is in line with the European public good and puts no undue strain on the insurance industry.

The resulotion was adopted by show of hand by the EP on 3 October 2018.

The following additional information is available on the EP website:

• Text of the resolution adopted by the EP
• Recording of the plenary discussion on 1 October (begins at approx. 19:29)
• Recording of the vote on 3 October (begins at approx. 13:01)

Please click to access the short overview (17 minutes) on YouTube.

The topic was introduced by Peter Sampers, Chairman of the Dutch Accounting Standards Board (DASB). Mr Sampers coordinated the response of eleven smaller European standard-setters to the consultation and is also familiar with developments at the European oversight bodies ESMA, EIOPA, EBA, and ECB.

Mr Sampers introduced the topic to the wider standard-setter community by explaining the history of the fitness check beginning with the EU IAS Regulation over the Maystadt report, the evaluation of the IAS Regulation, the report of the HLEG on sustainable finance to the EC action plan on sustainable finance thus summarising what he called the European "love-hate relationship" with IFRSs. (Mr Sampers has kindly given us permission to make his presentation slides available on IAS Plus, they are available here.)

Mr Sampers then turned to the fitness check itself, especially to question 19 of the consultation: "Given the different levels of commitment to require IFRS as issued by the IASB around the globe, is it still appropriate that the IAS Regulation prevents the Commission from modifying the content of IFRS?" After a short comment on the lack of neutrality of the consultation language and format, which was later echoed by an irate FRC representative, Mr Sampers gave a balanced overview of pros and cons and shared consultation results that saw only the French standard-setter in favour of possible carve-ins and carve-outs while the other standard-setters and the oversight bodies all came down in favour of no changes. He also shared first results that had been presented by EC representatives at the meeting of EFRAG's Consultative Forum of Standard Setters in September (an official report on the consultation outcomes is expected in October 2018):

• 338 responses were received.
• Most responses came from accounting organisations.
• 60% came from 5 member states.
• The IFRS questions were addressed by approx. 70% of the respondents.

According to Mr Sampers, the EC representatives at the CFSS meeting also noted the following overall conclusions from the consultation: "IFRS is essentially fine" and "some think nothing should be done".

When the discussion was opened to the floor, the following main comments were made:

• The wording of the HLEG in its final report seemed to indicate that there is equality between sustainability and long-term investment, which is not the case.
• France's position is not pro carve-ins and carve-outs per se, it is for such a possibility as a last resort.
• Canada has theoretically the possibility to change IASB pronouncements but has never done so yet. If there ever would be changes, it would be the standard-setter's decision and not a political one. Political decisions in other parts of the world that would have an effect on the international accounting community would be viewed with great concern.
• It was noted that the question was connected with sovereignty issues but it was also noted by others that sovereignty issues have been on the table since adoption in the EU. The binary adoption decision was built into the endorsement process intentionally to keep the possibility of political influence to a minimum.
• Next steps in the process will not necessarily be coming soon as Parliamentary elections are coming up in the EU, which could mean a standstill of developments in 2019.
• The EU is not a bubble, "we are trading with the rest of the world and the rest of the world is trading with us". (Australia, Canada, and Hong Kong have in fact also responded to the EU consultation for exactly this reason.)
• By trying to make accounting bring about long-termism, governments are ducking out of their jobs of addressing things directly themselves.

The last comment from the audience was from IASB Chairman Hans Hoogervorst. He thought the European thinking of giving the EU more power by being able to "threaten" the IASB with carve-ins and carve-outs was completely wrong. Mr Hoogervorst explained that the IASB is listening very carefully to concerns brought to its attention and many adjustments are made during the process of development of a standard. Why, he asked, should the IASB continue to listen to European concerns if in the end the EU would change the final standards during endorsement according to their own wishes anyway?

This revised standard is the first to be completed as part of the IAASB’s broader programme, Addressing the Fundamental Elements of an Audit, and is an important part of the IAASB’s efforts to improve audit quality globally.

The revisions include:

• an enhanced risk assessment that requires auditors to consider complexity, subjectivity and other inherent risk factors in addition to estimation uncertainty. This will drive auditors to think more deeply about the risks inherent to accounting estimates;
• a closer link between the enhanced risk assessment and the methods, data and assumptions used in making accounting estimates, including the use of complex models;
• specific material to show how the standard is scalable to all types of accounting estimates;
• emphasis on the importance of applying appropriate professional scepticism when auditing accounting estimates to foster a more independent and challenging sceptical mindset in auditors.

ISA 540 (Revised) becomes effective for financial statement audits for periods beginning on or after 15 December 2019.

For further details on the updates see the International Federation of Accountants (IFAC) website.

The members of the panel were all members of the IASB's Management Commentary Consultative Group (MCCG): Kris Peach, Chair of the Australian standard-setter AASB; Ryoko Ueda, Mizuho International; and Andreas Barckow, President of the German standard-setter ASCG.

Given that all panelists are members of the MCCG, which had its first meeting last Friday, the discussion opened with the question why the panelists had put their name forward to be a member of the Board’s consultative group on the management commentary project and what perspective and insights they hoped to bring to the debate. Ms Peach explained that she believed the project to be a crucial one for the IASB and that standard-setters needed to be part of the wider debate to ensure a common approach. Ms Ueda noted management commentary as the bridge between investors and companies. And Mr Barckow explained that Germany has had a mature standard on management commentary in place for 15 years and that he hoped to help develop an international standard by sharing experiences, insights, and lessons learned.

As the most pressing issues that the Board should address in revising the practice statement, the panelists noted that in order to be able to tell their story consistently, companies need a framework that allows for comprehensive and complete reporting that connects financial and non-financial information. It was also noted that what is currently missing is reporting on risks beyond the risk of financial instruments. In this context and in connection with the question of whether standard-setters have a mandate to venture into non-financial reporting it was also noted that much of the non-financial information is in fact not non-financial but pre-financial as it will have an impact and will appear in a company's financial statements at a later point of time, so the question of what to report was more of a timing issue.

The discussion then turned to two crucial questions. Should the approach of the project focus on comparability, which in the end might lead to very comparable statements that are, however, mostly boiler-plate and therefore useless, or should a management approach be favoured that would come at the price of less comparability? Panelists agreed that a fine balance between the two positions needed to be observed. And should the practice statement be made mandatory to foster consistent application and comparability? Panelists noted that all other IASB pronouncements are mandatory and that the practice statements are odd animals in the IFRS literature. It was noted that the practice statement should become mandatory in the long run, however, it was also agreed that this could only be achieved in stages.

As the quality of management commentaries varies enormously across the corporate world panelists were asked what can be done to raise the bar for everyone. Suggestions included the recommendation to beef up the compliance statement in IAS 1 so that companies would have to state whether the practice statement had been applied and companies would be made aware that there is good guidance is out there. And the suggestion was made to collect examples of best practice and make them available. The user representative noted the importance of dialogue with users to understand what they want and need.

A question from the audience triggered a discussion around integrated reporting versus management commentary. The IIRC framework was referenced. It was noted in the panel that the IIRC framework was one of the sources the IASB can draw on but that there were many more sources available. In this context, the staff of the IASB also referred back to the scope of the project, which had been explained in introducing the panel discussion (see slide 3 of the agenda paper for the discussion). The same reference was made again when a question of ESG reporting versus management commentary came up. As regards ESG factors, it was also noted that you can look at them through two lenses: financial reporting and public policy. In this context, it was noted that the Conceptual Framework is the strong backbone of the IASB's project in that it will help to determine the degree that ESG factors need to be considered in management commentary to make sure that the statement provides consistent, concise, comparable, relevant, neutral, and useful information about whether the company and its business model are sustainable in the long run. 

Returning to the questions prepared for the discussion, panelists were asked on the style of presentation of management commentary. Ms Ueda made an ardent statement stating that while narrative reporting is very different from financial reporting, the connecting aspect needed to be quality: that both forms of reporting need to be clear and concise and need to fill users' needs. Mr Barckow noted that the approach of thinking about management commentary and somehow making reporting in that format more similar to financial reporting, i.e. thinking about financials first and then supplementing it with a management commentary was maybe thinking about things the wrong way round. Maybe the management commentary should come first and then the thinking about how the general report on the company's strategy and long-term goal is supported by and reflected in financials should follow.

Lastly, the standard-setters on the panel were asked whether they were not afraid of duplicating requirements that already existed in their jurisdiction. Ms Peach stated that while there were requirements in place in Australia the overarching framework that would make sure that all of the reported information is material, important, verifiable, reliable, neutral, and balanced was still missing. So far, she said, she had not seen anything that would duplicate or even be in conflict with the local requirements. Mr Barckow, who noted that he was happy to license the German standard internationally, noted that it was much easier for national standard-setters to develop standards and frameworks as they are working against one legal background only, a comment that was supported by the IASB staff who said that one of the big challenges of the project was to develop a framework that can be applied rigorously and consistently around the world.

In his speech, Mr Prada looked back over the long success story of IFRSs that he had been closely involved with over twenty years. As he explained, the birth of the IFRS movement began, as many other movements do, with a crisis. In the late nineties, the Asian financial crisis hit a deeply fragmented accounting world, and in May 2000 IOSCO endorsed international financial reporting standards — in a meeting chaired by Michel Prada at that time. And while the SEC realised that it needed to protect investors that were increasingly investing abroad, the Enron scandal shook belief in US GAAP, and the international community came to the conclusion that „international accounting standards could not be drafted in Connecticut“.

Mr Prada explained how the European Union decided to adopt IFRSs from 2005 and how the EU, Hong Kong, South Africa, and others led the way in global adoption. Today, Mr Prada stated, nine out of ten jurisdictions apply IFRSs, and many large jurisdictions that have not joined fully (yet) have either standards that are close to IFRSs or permit IFRSs — sometimes for certain groups only. (Mr Prada detailed the situation in China, India, Japan, and the US.) He also touched upon the topic of consistent application. While there was still much to do and while, as Mr Prada commented on one of the first adopters of IFRSs, „in Europe not everything is always easy“ these days, he concluded that IFRSs have come of age.

Looking to the future of IFRSs, Mr Prada talked about the relevance of accounting in an age of digital disruption and how IFRSs need to adapt and evolve. He also discussed broader corporate reporting and the need to cooperate globally to provide investors with a tool to assess companies performance across many fields. In this world, he maintained, IFRSs need looking after and sometimes even protection but he did not doubt their relevance.

Taking leave of the standard-setters community, he urged his audience to deepen their cooperation, to develop standards together and to solve problems together. He ended with two strong messages: „IFRSs is not merely about standards, but also about people,“ he said, and „IFRS remains a shining example of what can be achieved when people work together.“

Mr Prada's term as Chair of the Trustee's ended in December 2017 but he agreed to stay on until a successor could be found. He will hand over to the designated Chair of the Trustees, Mr Erkki Liikanen, at the Trustees' meeting in Johannesburg later this month.