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PRAG issues guidance on accounting for Guaranteed Minimum Pension equalisation

05 Apr 2019

The Pensions Research Accountants Group (PRAG) has issued guidance on accounting for Guaranteed Minimum Pension (GMP) equalisation by pension schemes.

The guidance includes:

  • Accounting approach, presentation and disclosures with example disclosures in an appendix
  • Transfers in and out
  • Annuity buy ins/but-outs and longetivity swaps.
  • Audit implications

The guidance is available to members on the PRAG website. Our related Need to know publication is available here.

BEIS Select Committee publishes "The Future of Audit" report

04 Apr 2019

The Department for Business, Energy and Industrial Strategy (BEIS) Select Committee has published its "Future of Audit" report. The report looks into reforming the UK audit market.

The BEIS report is one of a number of reviews that are taking place, or have taken place, looking at different aspects of the audit market, including a Competition and Market Authority's (CMA) study into audit, the Brydon review on the future of audit and the Kingman review of the Financial Reporting Council (FRC).

The BEIS Committee's inquiry into the future of audit was launched on 12 November 2018 (link to Parliament website).  The object of the inquiry was to examine how the three reviews, indicated above, would complement each other, given the links between the quality of the product, its regulation and the health of competition. The BEIS Committee wanted to ensure that what emerged from these reviews was a coherent framework for auditing that could regain the confidence of investors and the public.  

The BEIS report is the output of a series of hearings that have been held with leaders of the Big Four audit firms, investors, academics, Audit Committee Chairs, the UK audit regulator, mid-tier firms and Government stakeholders.

Among the recommendations are proposals for at least an operational split of audit and non-audit services, with a structural split to be considered if this is deemed ineffective after three years; piloting joint audits between a Big 4 firm and a challenger firm in the 'upper reaches' of the FTSE 100, in conjunction with a cap on the market share of individual firms. These are alongside wider calls for a stronger regulator, a UK version of Sarbanes-Oxley and expanding the scope of audit.

Rachel Reeves MP delivered a keynote speech launching the committee’s report into the future of audit in Chartered Accountants’ Hall.

The full report and the keynote speech are available on the Parliament website.

ICAEW background paper on who does what in financial reporting

04 Apr 2019

The Institute of Chartered Accountants in England and Wales (ICAEW) has published 'Financial Reporting: Who Does What?' highlighting who does what in financial reporting and unpacking the complex relationships between boards, auditors, shareholders – their duties and responsibilities as well as the regulatory regime within which they operate.

The paper notes that good financial information underpins the capital markets but the institutional framework intended to promote confidence in corporate reporting can in fact compromise quality, because of piecemeal, reactive and ad hoc development over many decades. The press release notes:

The financial statements of listed companies have become more and more complex over the years. At the same time the system that underlies this complex financial reporting is characterised by internal inconsistency, duplication and omission. This makes the system less effective than it could be or should be. It is time everyone involved, from standard-setters, regulators to government, to recognise and address the challenges that have built up over decades.

Please click to access the following information on the ICAEW website:

Pre-meeting summaries for the April IASB meeting

03 Apr 2019

The IASB will meet at its offices in London on 9–11 April 2019. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed, we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

The Board will consider the package of amendments to IFRS 17 Insurance Contracts it has been considering since June 2018. The staff conclude that none of the amendments either unduly disrupts implementation, or where there could be disruption, that the potential disruption is justified. In June 2018 the Board decided to propose some minor changes that it planned to include in the next Annual Improvements cycle. These will instead be included with the Exposure Draft for the package of IFRS 17 amendments. The staff also recommend that the effective date of IFRS 17 and of the proposed amendments be for annual periods beginning on or after 1 January 2022 (with earlier application permitted). The staff will be seeking clearance from the Due Process Oversight Committee to have a shorter than normal comment period.

The Board will consider the feedback it received on the Exposure Draft Accounting Policies and Accounting Estimates (Amendments to IAS 8). The staff’s preliminary view is that the Board should proceed with the project.

The project looking at goodwill and impairment returns to the Board. The staff recommend that the acquirer of a business be required to provide information to help a user of the financial statements assess whether a business combination was a good investment decision and whether that business is performing as expected. The paper sets out the recommended disclosures.

In Dynamic Risk Management the staff recommend that negative balances within the target profile should not be permitted within the DRM model; the changes to the risk management strategy and the target profile must occur infrequently; and the risk management strategy must be clearly documented within a specified time horizon and cannot be defined in a way that is contingent. They also recommend that separate line items in the primary financial statements should not be required for derivatives designated in the DRM model from other derivatives or for accumulated changes in fair value of designated derivatives. That information would be provided in the notes to the financial statements. Also, net interest margin should include the aligned portion but not the misaligned portion.

For the Disclosure Initiative the Board will be asked for clearance to proceed with an Exposure Draft to propose adding two examples to the Materiality Practice Statement related to accounting policies.

The Board will consider the potential to explore a form of predecessor approach for some business combinations under common control.  

In the Primary Financial Statements project the staff recommend that the Board clarify that MPMs (management performance measures) are subject to the general requirement that information included in the financial statements must provide a faithful representation. They also recommend that entities can only identify a measure as an MPM if they use the same measure in their public communications. The staff also have recommendations to clarify presentation issues related an entity’s “main business activities.”

There are also updates on Implementation Matters, the Research Programme and (orally) Management Commentary.  

More information

Our pre-meeting summaries are available on our April meeting notes page and will be supplemented with our popular meeting notes after the meeting.

Videos from the first European Reporting Lab@EFRAG Conference now available

03 Apr 2019

The EFRAG has made available a series of videos from the first conference of the European Reporting Lab held in Brussels on 5 March 2019. The theme of the conference was fostering innovation in corporate reporting.

The video series contains two videos on the whole event as well as nine short interviews with participates. For more information, see the press release on the EFRAG’s website and the EFRAG’s YouTube channel.

IASB chair discusses sustainability

02 Apr 2019

At the Climate-Related Financial Reporting Conference in Cambridge, UK, IASB chair Hans Hoogervorst gave a speech titled ‘What sustainability reporting can and cannot achieve’.

Mr Hoogervorst admitted that he had been sceptical about climate change in the past, but changed his mind over the years. During his speech, he criticized public policies that have enabled climate change; he called climate change “a massive example of such market failure.” He highlighted (1) the importance of sustainability reporting, (2) how it relates to financial reporting, and (3) the role of the IASB. Mr Hoogervorst was clear:

I do not think the IASB is equipped to enter the field of sustainability reporting directly. Setting sustainability reporting standards requires expertise that we simply do not have. Moreover, there are already more than enough standard-setters active in this field.

He went on to discuss how sustainability issues will become more visible in financial statements as the effects of climate change become more prominent. He noted, “[M]any sustainability issues may only emerge in the long run. In such cases they will tend to escape the financial statements, which are essentially backward-looking.”

He then explained how the IASB is working to improve ‘broader financial reporting’. Mr Hoogervorst discussed the IASB’s management commentary project — a renewal of its 2010 Management Commentary Practice Statement. He mentioned that the updated Practice Statement will focus more on intangibles and require companies to report on sustainability issues — including climate change — if those issues impact their businesses in a material way.

Mr Hoogervorst closed his speech by reflecting on the plethora of sustainability standards and initiatives. He praised the Corporate Reporting Dialogue, which is working to align the frameworks of various standards. He also cautioned against expecting too much from sustainability reporting as an agent for change: “[W]e should not expect sustainability reporting to be very effective in inducing companies to prioritise planet over profit.” He explained that financial incentives are crucial in combatting climate change and stated:

I strongly believe that the most promising strand of sustainability reporting comprises those standards that focus on the investor and on the impact of sustainability issues on the future returns of the company. This is the type of sustainability reporting which will fit well with our Management Commentary Practice Statement, rather than the reporting that focuses primarily on a company’s contribution to the public good.

For more information, see the transcript of the speech on the IASB’s website.

IFRS IC conference call cancelled

01 Apr 2019

The conference call of the IFRS Interpretations Committee that was supposed to take place on 30 April 2019 has been cancelled and removed from the IASB's diary.

The next meeting of the IFRS Interpretations Committee will take place on 11-12 June 2019.

IFASS meeting with detailed analysis of responses to the EC fitness check on public reporting by companies

29 Mar 2019

At the meeting of the International Federation of Accounting Standard Setters (IFASS) currently held in Buenos Aires, Peter Sampers, Chairman of the Dutch Accounting Standards Board (DASB) and Professor of Financial Accounting at Maastricht University, provided an update on the outcome of the public consultation on the EU framework for pubic reporting by companies.

For his detailed analysis, Mr Sampers drew on the summary report of the EU and on further analysis of individual responses to the consultation that were made public by the EU. The focus of his research was on the IFRS-related questions in the consultation.

Mr Sampers noted that stakeholders from 23 Member States and 25 third countries submitted 338 responses with 82% of the responses being from organisations and companies, 9% from public authorities and international organisations and 9% from private individuals. In this context, Mr Sampers especially noted the high number of responses from private individual that would show that stakeholders were really concerned about developments. He also noted the high number of responses from Germany.

In discussing the responses to individual questions, Mr Sampers noted the confusing design of certain elements of the consultation document that led to some false positives and contradictory answers and that only allowed additional comments in case of support for what seemed to be the EC Commission's preliminary view. He summarised the following insights:

  • Regarding the question of whether the EU should be able modify the content of IFRSs on adoptions, the majority of respondents was clearly against "carve-ins", however, clear regional differences became obvious with 75% of respondents in France supporting the possibility of carve-ins against only 15% in Germany, the UK and the Netherlands doing so.
  • A clear majority of respondents (68%) is convinced that the EU endorsement process is appropriate to ensure that IFRS do not pose an obstacle to broader EU policy objectives such as sustainability and long-term investments. This correlates with the answers to the question of how the EU could ensure that IFRS do not pose an obstacle to sustainability and long-term investments, where only 11% of respondents believed the possibility of modifications to IFRS was needed to ensure this.
  • On the question of whether an EU conceptual framework should underpin the IFRS endorsement process, the answer was clearly negative, however, a surprising number (not a majority, though) supported adopting the IASB's Conceptual Framework for use in the EU. (Discussing this point, participants made clear that adopting a pronouncement that is not binding for the IASB would lead to a legally difficult situation, especially since some of the IASB's standards are not aligned with the Conceptual Framework. Therefore, outright adoption would not seem to be an option.)

Overall, Mr Samper's presentation showed that it can be concluded that there is little support for changes to the current endorsement process and for the introduction of an ability for Europe to modify the content of IFRS. This is in line with the overall summary in the EC Commission's summary of responses which stated that the EU framework overall brings added value, is effective and relevant for achieving its objectives and is coherent.

Mr Sampers kindly gave us permission to make his presentation slides available on IAS Plus. They can be accessed here.

April 2019 IASB meeting agenda posted

29 Mar 2019

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 9–11 April 2019. There are ten topics on the agenda.

The Board will discuss the following:

  • Amendments to IFRS 17 Insurance Contracts:
    • Overview
    • Due process steps and permission for balloting
    • Sweep issues
    • Annual improvements
  • Business combinations under common control:
    • Update on the staff’s approach
    • Update on lenders and other creditors in BCUCC
  • Accounting policies and accounting estimates (Amendments to IAS 8):
    • Analysis of feedback — definition of accounting estimates
    • Analysis of feedback — other aspects
    • Project direction
  • Implementation matters
  • Disclosure Initiative:
    • Accounting policies — proposed amendments to IAS 1 and IFRS Practice Statement 2: due process steps and permission to begin the balloting process
  • Research programme update
  • Management commentary
  • Primary financial statements:
    • Amending proposals for management performance measures (MPMs)
    • Outstanding issues for financial entities
  • Goodwill and impairment:
    • Interconnecting issues
    • Better disclosures for business combinations
    • Better disclosures — feedback from consultative groups
  • Dynamic risk management:
    • Summary of decisions to date
    • Presentation
    • Determination of the target profile

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.

EFRAG Board Meeting April 2019

29 Mar 2019

The European Financial Reporting Advisory Group (EFRAG) will hold a Board meeting on 4 April 2019 in Brussels.

An agenda with supporting papers and details on how to register for the public meeting can be found on the EFRAG website.

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