ESMA answer to the EFRAG questionnaire on alternative accounting treatments for equity instruments

15 Jul, 2019

The European Securities and Markets Authority (ESMA) has submitted to EFRAG its response to the current consultation, which addresses (potentially inappropriate) accounting requirements for equity and equity-type instruments that are held in a long-term business model. In the consultation, EFRAG seems to suggest that current measurement requirements under IFRS 9 might be inappropriate - a view that is not supported by ESMA.

In addition to the completed questionnaire, ESMA has included a cover letter that notes the following points:

  • Public financial disclosures should remain focused on depicting economic reality in a neutral way, while avoiding the possibility of giving rise to structuring opportunities.
  • The current provisions in IFRS 9 already cater for an adequate depiction of financial instruments. Particularly, the economic characteristics of equity instruments would generally not be adequately reflected by cost-based measurement, especially when current value information is reliable and available.
  • Concerns with respect to reported volatility are acknowledged, however, IFRS 9 provides an option to mitigate this volatility.
  • It is not yet possible to assess any potential effects of IFRS 9 on long-term investment decisions.
  • ESMA is not currently aware that the application of IFRS 9 has caused any obstacles to or provided disincentives to long-term investment decisions.
  • Elaborating an alternative accounting model for equity and equity-type instruments, in advance of having identifed evidence of any concrete issues regarding long-term investment arising from the application of IFRS 9, may result in a solution that may ultimately not be effective.

ESMA concludes:

In line with the above-mentioned considerations, at this stage, ESMA does not support any of the alternative accounting solutions illustrated in EFRAG's background document.

Please clickt to access the cover letter and completed questionnaire on the ESMA website.

Latest report highlights a continued increase in the numbers of women on boards

15 Jul, 2019

A report published by Cranfield School of Management shows that the percentage of women on boards continues to increase and indicates that “the FTSE 250 is starting to catch up with the FTSE 100”.

The report The Female FTSE Board Report 2019 (the Cranfield report”) indicates that over the past 12 months the percentage of women on FTSE 100 boards has increased from 29% to 32%. It indicates that “the 33% target set for 2020 is well in sight” for the FTSE 100 companies and with a “concerted push” the FTSE 250 could also reach the target.

The key findings in the Cranfield report are:

FTSE 100:

  • The percentage of women on FTSE 100 boards has increased from 29% to 32%
  • 48 companies having reached the target set for 33% women on their boards by 2020.
  • 292 women hold 339 directorships on FTSE 100 boards.
  • The percentage of female non-executive directors (NEDs) is at the all-time high of 38.9% however the report indicates that “the percentage of female executives remains worryingly low at 10.9%”

FTSE 250:

  • For the FTSE 250, the reports indicates that “there has been progress”.
  • The percentage of women on boards has increased from 23.7% to 27.3%.
  • The number of companies with at least 33% women on their boards has increased from 59 to 88.
  • There are only 3 all-male boards
  • The percentage of female NEDs is 32.8% but the percentage of female executive directors (EDs) “remains low” at 8.4%.

The report also looks at the diversity characteristics of all the female directors of the FTSE 100 boards.

Click for: 

ESMA updates ESEF Reporting Manual

15 Jul, 2019

The European Securities and Markets Authority (ESMA) has published an update of its European Single Electronic Format (ESEF) Reporting Manual. The manual is aimed at all market participants involved in the implementation of the requirements set out in the ESEF Regulation, and in particular in the first-time preparation of IFRS consolidated financial statements in Inline XBRL.

The manual was originally published by ESMA in December 2017. It is intended to provide guidance on issues commonly encountered when generating Inline XBRL instance documents in compliance with the ESEF Regulation. Following feedback from market participants, ESMA decided to publish a revised version of the manual to expand existing guidance and update the guidance included in the original publication.

Please click to access the updated manual on the ESMA website.

EFRAG publishes a feedback statement on its early-stage analysis of the FICE discussion paper

15 Jul, 2019

The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement on its early-stage analysis of some possible effects of the IASB Discussion Paper DP/2018/1 'Financial Instruments with Characteristics of Equity'.

The EFRAG analysis offered an assessment of the potential effects of the proposals in the discussion paper. It could inform and be one of the inputs to a more comprehensive impact analysis if the IASB were to further proceed with the project on financial instruments with characteristics of equity (FICE) in its current form. The early-stage analysis was also a pilot study into the assessment of potential wider effects during the development of new IFRS requirements.

The feedback statement describes the main comments received by EFRAG in response to its analysis.

Please click to access the feedback statement on the EFRAG website.

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

12 Jul, 2019

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 2020/21 Code of Practice on Local Authority Accounting in the UK (the Code) which would apply to accounting periods beginning on or after 1 April 2020.

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 and feedback requested in the Invitation to Comment (ITC) relate to the following:

    • Clarity and streamlining principles, including amendments to the definition of materiality and checklist questions relating to the provision of disclosures.
    • A review of disclosures to support clarity and streamlining, including specific areas such as capital, pensions and financial instruments.
    • Accounting standards, including proposals to support the application of materiality in implementing Amendments to IAS 19: Plan Amendment, Curtailment or Settlement.
    • Legislative changes, affecting the different government areas in the UK.
    • Other areas, including service concession arrangements (PPP/PFI) relating to third party revenues and measurement of the liability; Housing Revenue Account debtor impairments, financial instruments presentation in the comprehensive income and expenditure statement; minor updates and insurance contracts for future years.

    CIPFA/LASAAC consulted on the implementation plans for IFRS 16 Leases in 2018. The ITC does not specifically re-expose the proposals to consultation but does include the text approved by CIPFA/LASAAC for IFRS 16 Leases implementation as an Appendix.

    Comments are requested by 27 September 2019.

    Click for (all links to the CIPFA website):

    July 2019 IASB meeting agenda posted

    12 Jul, 2019

    The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 22–25 July 2019, which includes a joint educational session with the FASB on 23 July.

    The Board(s) will discuss the following:

    • SME Standard review and update
    • Implementation matters: IFRIC Update
    • Classification of liabilities as current or non-current (amendments to IAS 1)
    • Goodwill and impairment
    • Management commentary
    • Business combinations under common control
    • Segments
    • Primary financial statements
    • Financial instruments with characteristics of equity
    • IBOR reform
    • Disclosure initiative
    • Implementation of revenue and leases
    • Rate regulated activities
    • Dynamic risk management

    The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries as well as observer notes from the meeting on this page as they become available.

    FRC publishes FRED 72 'Draft amendments to FRS 102 – Interest rate benchmark reform'

    12 Jul, 2019

    The Financial Reporting Council (FRC) has published FRED 72 'Draft amendments to FRS 102 – Interest rate benchmark reform'.

    The exposure draft proposes narrow scope amendments to specific hedge accounting requirements in Section 12 of FRS 102 to provide relief that will avoid unnecessary discontinuation of hedge accounting as interest rate benchmarks are reformed.  Entities will apply those hedge accounting requirements assuming that the interest rate benchmark relevant to the hedge accounting is not altered as a result of interest rate benchmark reform.

    FRED 72 is based on similar proposals issued by the IASB, and has a proposed effective date of 1 January 2020, with early application permitted.  Comments are requested by 20 September 2019.

    A press release and the exposure draft are available on the FRC website.

    FRC publishes amendments to FRS 101

    12 Jul, 2019

    The Financial Report Council (FRC) has issued 'Amendments to FRS 101 Reduced Disclosure Framework - 2018/19 cycle' which amends the definition of a qualifying entity so that insurers cannot apply FRS 101 from the effective date of IFRS 17 Insurance Contracts.

    FRS 101 requires the application of the recognition and measurement requirements of EU-adopted IFRS with reduced disclosures. Unlike accounts that apply IFRS in full (IAS accounts), those prepared in accordance with FRS 101 (non-IAS accounts) must comply with detailed accounting requirements set out in company law. Some of these requirements conflict with the requirements of IFRS 17 Insurance Contracts. The primary conflict is in relation to Schedule 3 formats of the primary statements; the approach and methodology that underpins IFRS 17 is so fundamentally different that presenting amounts determined in accordance with that standard, within the formats laid down in law for non-IAS accounts, is not possible.

    Consequently, the amendments change the definition of a ‘qualifying entity’ such that entities that are required both to comply with Schedule 3 to the Regulations and have contracts within the scope of IFRS 17 may not be qualifying entities. This means that these entities cannot apply FRS 101 from the effective date of IFRS 17. The amendment is necessary to ensure that insurance companies that are not required to, and choose not to, prepare IAS accounts, continue to comply with company law requirements by only applying FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 103 Insurance Contracts.

    The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time.  Consequential amendments have also been made to FRS 100 and FRS 102.

    A press release and the amendments are available on the FRC website.

    IFRS Foundation issues Formula Linkbase 2019

    11 Jul, 2019

    The IFRS Foundation has issued the 2019 IFRS Taxonomy Formula Linkbase. The Formula Linkbase is updated from the 2018 version; it is designed to help improve the data quality of IFRS Taxonomy filings and to provide additional guidance for both technical and financial reporting audiences so that they can better understand the IFRS concepts and their meanings.

    For more information, see the press release on the IASB's website.

    FRC publishes audit quality inspection reports of the major audit firms

    11 Jul, 2019

    The Financial Reporting Council (FRC) has published individual audit quality inspection reports for the major audit firms.

    The results highlight that 75% (73% in 2017/18) of FTSE 350 audits reviewed were assessed as “good” or “requiring limited improvements”. No firms achieved the FRC’s audit quality target for 90% of FTSE 350 audits to have “no more than limited improvements” by 2018/19.  For 2019/20, the FRC will extend the 90% quality target for FTSDE 350 audits to all audits inspected.  It has also indicated that it will set a new target for audit firms that from 2020/21 onwards, 100% of audits inspected should require no more than limited improvement. 

    The FRC indicates that "overall, there has been no improvement on last year" and highlights that 25% of assessed audits were "below an acceptable standard".

    The reports set out the principal findings arising from the audit quality inspection work carried out by the FRC’s Audit Quality Review (AQR) team for 2018/19. 

    The reports focus on the key findings from the reviews, why such findings are important and actions the individual firms are taking to address them in order to safeguard and enhance audit quality.

    The press release and links to individual reports are available on the FRC website.

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