EFRAG TEG appointments and reappointments

07 Jan, 2020

The Board of the European Financial Reporting Advisory Group (EFRAG) has announced the appointment of four new members of — and six reappointments to — its Technical Experts Group (TEG).

The new EFRAG TEG members are Jens Berger (Leader of Deloitte Germany's IFRS Centre of Excellence), Erlend Kvaal (academic, Norway), David Procházka (at large, Czech Republic) and Christoph Schauerte (industry, Germany). The appointments of Mr Berger, Mr Kvall and Mr Schauerte are effective 1 January 2020, while Mr Procházka will begin his term on 1 April 2020.

EFRAG TEG Vice-Chair Nicklas Grip has been reappointed, along with Ana Rosa Cortez, Geert Ewalts, Emmanuelle Guyomard, Ambrogio Virgilio and Jed Wrigley. Their reappointments are effective from 1 April 2020.

For more information, see the press release on the EFRAG Web site.


EFRAG updates case studies on IFRS 17

28 Jan, 2020

In 2018, the European Financial Reporting Advisory Group (EFRAG) conducted two case studies to determine whether IFRS 17 'Insurance Contracts' meets the criteria in the IAS Regulation to be endorsed for use in the EU.

In light of the amendments the IASB has proposed to the standard, EFRAG has now launched a limited update of the 2018 case studies.

Please click for more information on the EFRAG website.

EFRAG's final advice on the measurement of long-term investments in equity instruments

31 Jan, 2020

In 2018, the European Financial Reporting Advisory Group (EFRAG) received a request from the European Commission (EC) to advise on alternative accounting treatments on the measurement of long-term investments in equity instruments. EFRAG has now submitted its final advice.

EFRAG did not find sufficient evidence to determine whether the non-recycling treatment of equity instruments within IFRS 9 Financial Instruments has an impact on investor behaviour. However, EFRAG also notes that the reasoning behind the IASB's decision for prohibiting recycling is not one of the reasons stated in the revised Conceptual Framework for doing so. EFRAG, therefore, advises the EC to recommend to the IASB a review of the non-recycling treatment of equity instruments in IFRS 9, testing whether the revised Conceptual Framework would justify recycling of fair value gains and losses accumulated in other comprehensive income on such instruments when realised. EFRAG also recommends that if recycling was to be reintroduced, the IASB should also consider the features of a robust impairment model, including the reversal of impairment losses.

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


ESMA issues findings on potential undue short-term pressures in securities markets

18 Dec, 2019

Following its consultation in July 2019, the European Securities and Markets Authority (ESMA) has published its findings and recommendations on potential undue short-term pressures in securities markets.

The final report makes recommendations to the European Commission (EC) for action in key areas. Decisive actions are recommended for areas such as the disclosure of Environmental, Social and Governance (ESG) factors. These include:

  • amending the Non-Financial Reporting Directive (NFRD) to establish principles for high quality non-financial information along with a limited set of specific disclosure requirements;
  • promoting a single set of international ESG disclosure standards; and
  • requiring the inclusion of non-financial statements in annual financial reports.

Other areas investigated included the use of fair value measurement in financial statements. ESMA did not identify any need for amending existing requirements in the area of fair value measurement, particularly with respect to the treatment of equity and equity-like instruments in IFRS 9 Financial Instruments, to address concerns with undue short-termism.

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European Union formally adopts IBOR amendments

16 Jan, 2020

The European Union has published a Commission Regulation endorsing 'Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)'.

The amendments are a first reaction to the potential effects the IBOR reform could have on financial reporting and deal with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark); the IASB has already begun work on a second phase of the project that deals with replacement issues (issues that might affect financial reporting when an existing interest rate benchmark is replaced).

The European Union effective date is the same as the IASB effective date (1 January 2020).

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 16 January 2020.

Executive Vice President of the European Commission calls for European non-financial reporting standards

28 Jan, 2020

Speaking at a conference on implementing the European Green Deal today, Executive Vice President Valdis Dombrovskis announced that the European Commission will support a process to develop European non-financial reporting standards.

Mr Dombrovskis said that later this year he would present a renewed sustainable finance strategy, which would include a revision of the Non-Financial Reporting Directive. This would require companies to increase disclosure on their sustainable activities and give adequate reliable information on sustainability risks and opportunities. However, he said, not every detail can - or should - be fixed in law. There was also a need for clear reporting standards for companies to apply. Mr Dombrovskis went on to say:

So today, I can tell you that the European Commission will support a process to develop European non-financial reporting standards. I will soon invite the European Financial Reporting Advisory Group [EFRAG] to begin preparatory work for these standards as quickly as possible. The many overlapping international reporting standards and set-ups confuse companies and investors. They also find it expensive. The EU is well placed to address this situation – and show leadership in building consensus for a set of standards that can be widely accepted.

Mr Dombrovskis conceded that the European Commission cannot do this alone. Therefore, he stated, the best and most widely accepted elements of what exists today will be the starting point and expert assistance from those organisations and individuals who can best contribute to the process will be used. 

Please click for the full text of Mr Dombrovskis' speech on the European Commission website.

FRC amends eight ISAs to reflect conforming amendments arising from the revision of ISA (UK) 540 (Revised)

16 Jan, 2020

The FRC has released eight updated ISAs (UK), amended to include conforming amendments arising from the revision of ISA (UK) 540 (Revised) – Auditing Accounting Estimates and Related Disclosures.

All of the conforming amendments have an effective date of 15 December 2019, and were approved by the FRC Board in December 2018. The conforming changes were included as an Annexure to ISA (UK) 540, and have now been added to the text of each standard.
The revised ISAs (UK) are:  200, 230, 240, 260, 500, 580, 700 and 701.

A link to the updated ISAs is available on the FRC website here.

A link the eight updated standards is available on the FRC website here.

FRC calls for better governance reporting as companies adopt the 2018 UK Corporate Governance Code

16 Jan, 2020

The Financial Reporting Council (FRC) has published its annual review of the UK Corporate Governance Code.

The report includes commentary on the quality of reporting against the 2016 UK Corporate Governance Code but it is the comments on ‘early adoption’ of the 2018 Code where the FRC is setting out its clear expectations for companies about to report on the new Code.

Issuing the report, the FRC’s Chief Executive, Sir Jon Thompson said:

While there are examples of high-quality governance reporting from ‘early adopters’, looking ahead we expect to see much greater insight into governance practices and outcomes reporting on a range of key issues from diversity to climate change.  Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the spirit of the Code and does a disservice to the interests of shareholders and wider stakeholders, including the public.

The FRC makes clear that they wish to see a much greater focus on the practical activities and outcomes of implementing the Principles of the 2018 Code. It is felt that many governance reports lack information on the outcomes of governance policies and practices, including any areas for future development.

Specific expectations set out in the report:

  • Purpose – the FRC has observed that too many companies substituted what appeared to be a slogan or marketing line for their purpose or restricted it to achieving shareholder returns and profit. This approach is not acceptable for the 2018 Code. The FRC recommends that companies consider the guidance provided in the Financial Reporting Lab’s report Business model reporting; Risk and viability reporting – Where are we now? which considered company purpose and provided some good practice examples of purpose statements.
  • Culture – there is an expectation that companies have progressed their work on assessing and monitoring culture during 2019 and that more detail will be provided on the value and effectiveness of chosen practices, the range of metrics used and the role of internal audit in assessing and/or monitoring of culture.
  • Workforce engagement – 2020 annual reports should make it clear how the workforce engagement mechanisms used have achieved the objective of Provision 5 of the 2018 Code and include details or real examples of what a company has done to consider and, if appropriate, take forward matters raised by the workforce.
  • Section 172 reporting – disclosures must include the concerns raised by stakeholders, how companies have understood the issues, and how they have thought carefully about how these impact on the long-term success of the company.
  • Chair tenure – where a chair has been on the board for nine years or more, the FRC expects these companies to set out their rationale for this situation and their proposals for the future composition of their boards.
  • Succession planning – there should be more focus on providing information on how the company plans for the various types of succession that exist rather than on the appointment process.
  • Director re-election – AGM notices should make clear the reasons for an individual’s re-election, specifically linking their contributions to company strategy, risks or similar key issues referenced in the annual report.
  • Diversity and inclusion – there should be more detailed commentary on all aspects of diversity in future disclosures rather than just gender. In addition, companies need to report against their objectives as set out in the company’s policy on diversity and inclusion.
  • Remuneration – companies are encouraged to use more non-financial metrics to measure their annual bonus and LTIP awards. Future reporting will also need to provide insight into both how workforce pay influences pay policy, and how any new pay policies are communicated to the workforce. Malus and clawback provisions are vital for remuneration committees in terms of exercising their oversight duties and full details of these arrangements should be provided. Finally on remuneration, there is an expectation that companies should explain how will they align executive pension contribution rates with their workforce.
  • Viability reporting – companies should take time to consider the Financial Reporting Lab report on Risk and Viability Reporting to improve future disclosures. The FRC also signals that it intends to consult and issue updated guidance on Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting, taking into account the Kingman and Brydon reviews.
  • Explanations – these should be sufficiently clear to be convincing and understandable to all shareholders without the need to contact the company.
  • Relations with shareholders – all types of vote (including abstentions) should be taken into account when considering whether there has been any significant minority dissent to a resolution.

A press release and the full report is available on the FRC website. 

FRC issues consultation on revisions to ISA (UK) 315

29 Jan, 2020

The Financial Reporting Council (FRC) has launched a consultation proposing to revise ISA (UK) 315 (Revised – June 2016) - Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment.

The FRC’s proposed changes reflect revisions to the international standards on auditing issued by the International Auditing and Assurance Standards Board (IAASB).  Those revisions are designed to establish a more robust and consistent risk identification and assessment.

The FRC is proposing to update the ISA (UK) to reflect all of the changes made by the IAASB without any new UK requirements.

When finalised, the revised UK standard is proposed to be effective, in line with the international standard, for audits of financial statements for periods beginning on or after 15 December 2021. Early adoption of the revised standard will be permitted and is encouraged.

The FRC is at the same time consulting on conforming amendments to other UK standards.

The consultation runs until 4 April 2020.

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

FRC Lab report shows need for improved workforce reporting

20 Jan, 2020

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) reveals that reporting on workforce-related issues needs to improve to meet investor needs.

The Lab’s report provides practical guidance and examples on how companies can provide improved information to investors. It encourages companies to think of the workforce as a strategic asset and explain how it is invested in. Alongside the report, the Lab also published a summary of the report covering questions companies should ask themselves about their reporting on workforce matters.

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

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