Additional change to IASB work plan

04 Feb, 2020

The IASB has made an additional change to its work plan by moving the expected issuance of the discussion paper on its goodwill and impairment project to March.

For a list of other changes made to the work plan since it was last revised, see our IASPlus news item.

Agenda for the February 2020 DPOC meeting

11 Feb, 2020

The Trustees of the IFRS Foundation will be meeting in Brussels from 18 to 20 February 2020. However, only the meeting of the Due Process Oversight Committee (DPOC) on 18 February will be held in public.

The agenda for the DPOC meeting is summarised below.

Tuesday, 18 February 2020 (9:45–10:50)

  • Introduction and actions from the DPOC meeting held on 15 October 2019 and the public call held on 16 December 2019
  • Technical activities: Key issues and update
  • Five-yearly consultation on the IASB work programme - update on progress
  • IBOR phase 2
  • ITCG membership
  • Review of the Due Process Handbook
  • Correspondence
  • Summary

Agenda papers for the meeting are available on the IASB website.

Agenda for the March 2020 GPF meeting

21 Feb, 2020

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) in London on 5 March 2020. The agenda for the meeting has been released.

The full agenda for the meeting is summarised below:

Thursday, 5 March 2020 (10:10-16:20)

  • Primary financial statements — Overview over the ED and preliminary views of the members
  • IASB update
  • Goodwill and impairment — Overview of the Board’s preliminary views that will be included in the discussion paper and GPF members’ views on the feedback process for the project and areas of focus during the comment and outreach period
  • Disclosure initiative: Targeted standards-level review of disclosures in IAS 19 and IFRS 13 — next steps in the project

Agenda papers for this meeting are available on the IASB's website.

Alliance for Corporate Transparency launches research report on sustainability reporting

18 Feb, 2020

At a launch event on 17 February 2020 in Brussels, the Alliance for Corporate Transparency presented a report that analysed the information that companies disclosed on their environmental and societal risks and impacts following the requirements introduced by the EU Non-Financial Reporting Directive. The launch embedded the research into discussions around 'The State of Corporate Sustainability Reporting in the EU'.

The study assessed how 1000 European companies disclose sustainability and other non-financial information. Key findings of the study were:

  1. Less than 22% of the companies surveyed report climate-related key performance indicators in summarised statements, the rest of them publish them scattered around in different locations or not at all;
  2. only 20%-25% of companies describe risks specifically even though identifying them as relevant to the company in the first place;
  3. the TCFD criteria are not applied;
  4. outcomes are only reported in 4% of cases despite that fact that risks are identified and in some cases activities described;
  5. supply chain transparency is low with supply chain transparency in the apparel sector being the highest but still not exceeding 14%;
  6. only 6% of companies provide economic figures on sustainability activities;
  7. disclosures are immaterial.

There is not a major difference between different European regions, with the exception that companies from former Eastern Europe lag behind.

Generally, disclosures are not specific enough to enable understanding of a company’s position and future developments. Reports focus on presenting general policies and commitments, but not concrete targets, outcomes of policies with respect to these targets, and specific information on risks and impacts.

The following additional information is available on the Alliance for Corporate Transparency website:

The embedding launch event offered two opening speeches by MEPs, a panel discussion and two fire-side chat sessions on the direction for the reform of the Non-Financial Reporting Directive and an explanation of the plans of the European Commission regarding the Non-Financial Reporting Directive. Panel members included representatives from WWF, the analysts side, the industry, GRI, CDP, and CDSB. The European Commission was represented by Alain Deckers, Head of the Unit on corporate reporting, audit and credit rating agencies. All parts of the launch event offered the audience opportunities to raise questions or comments. The main messages that emerged from the panels and the audience were:

  • While quite a lot of companies provide information, very few provide useful information.
  • Analysts don't want more information, they want relevant information.
  • Materiality is of essence.
  • There is a great tendency towards boiler plate information.
  • The lack of useful information is not only due to a lack of clearness in the reporting requirements, but also due to how these are applied, how the reports are drawn up, and how much demand/pressure there is from the user side.
  • Reporting on individual matters very often improves, once "something has happened".
  • Information lacks connectivity.
  • Information needs to be comparable, yet companies must be allowed to report on what is relevant for them.
  • Information should be forward looking and identify not only risks but opportunities.
  • Sustainability reporting can learn from financial reporting, where there already are a well-established architecture, an international standard-setter, and international standards.
  • There should be more connection between financial information and non-financial information.
  • Disclosure alone, even if mandatory, does not suffice to achieve a change in company behaviour.
  • It is a mistake to try to use reporting legislation to manage a moral obligation.

In his concluding remarks, Mr Deckers noted that the results presented in the research form a great evidence base for the upcoming review of the EU Non-Financial Reporting Directive. He clearly distinguished between "review" and "revision", although he noted that politics and markets have moved on since the Directive was first released. Mr Deckers stated that sustainability must be "at the heart of" company reporting, but he also conceded that it is only part of the picture and cannot solve all the problems. He also pointed at the tension between principles-based and rule-based requirements that is well known from financial reporting and that would form part of the debate on sustainability reporting. As regards the way forward, Mr Deckers pointed at the recently launched initiative to review the Non-Financial Reporting Directive, the three-month corresponding consultation that would open very soon ("later this week"), and an expected proposal for legislation at the end of 2020. He also mentioned that preparatory work for standard-setting would begin in parallel, in order to be able to move quickly.

Annual ECON exchange of views with Hans Hoogervorst and Erkki Liikanen

18 Feb, 2020

At the annual exchange of views this morning between the Committee on Economic and Monetary Affairs (ECON) of the European Parliament and representatives of the IASB and the IFRS Foundation, IASB Chairman Hans Hoogervorst and Erkki Liikanen, Chairman of the IFRS Foundation Trustees, stood ready to answer questions of the Parliamentarians. IFRS 17 'Insurance Contracts' and wider corporate reporting dominated the exchange.

On IFRS 17, Mr Hoogervorst first stressed that IFRSs are the global accounting language with one big exception where the economy still uses a wide variety of mostly outdated standards and historical cost, so that insurers discount their pension liabilities at historical interest rates that in no way reflect the negative interest rates of today. He stressed that the International Monetary Fund calls for the new standard urgently as does the Financial Stability Board. Mr Hoogervorst also pointed out that the IASB listens very closely to outside comments and expertise - much of it from the EU and the European Financial Advisory Group (EFRAG). Of the ten proposed amendments to IFRS 17 the IASB is currently considering, six were brought forward by EFRAG and five of those have been dealt with.

The other big topic Mr Hoogervorst spoke about was the IASB's role in wider corporate reporting. He noted that not all non-financial information can be captured easily in financial statements as it is difficult to measure and recognise, and yet he also acknowledged that this information can be important to investors. As last year, Mr Hoogervorst pointed to the IASB's project to update the management commentary practice statement and noted that management commentary provided the space for information that does not naturally fit into the financial statements but can have a financial effect nonetheless. He stated that the IASB's role is not to set sustainability reporting standards as there are already many standard-setters ("too many") active in the field, but to provide a framework through the management commentary that would give preparers the opportunity to connect financial and non-financial information.

There were more Parliamentarians at this meeting than in the previous years and IFRS 17 and wider corporate reporting were exactly the topics they commented on. On IFRS 17, one Parliamentarian wanted to know that if this was so important why did not the US apply the standard. Mr Hoogervorst explained about the US decision in 2011 to stop convergence with IFRSs, but he also noted that IFRSs are accepted as accounting standards (for foreign private issuers) in the US, and IFRS adoption continues to be spreading around the world. On IFRS 17, he especially noted Korea, who will "courageously" adopt IFRS 17 and use it coupled with strict regulation as an opportunity to recapitalise its insurance market. He also stressed that he wished that the EU would speed up its IFRS 17 adoption process, because, he said, the standard can help deal with some of the present problems, especially in the context of negative interest rates.

The questions around wider corporate reporting were mostly linked to the European Commission's "Green Deal". There were questions regarding more quantitative not only qualitative information, more forward-looking information, and the expression of frustration that the IASB was not doing enough quickly enough. Mr Hoogervorst once more explained that the IASB's expertise was not in sustainability standard-setting, even though it was happy enough to provide a platform through the updated management commentary practice statement, which will include guidelines how sustainability information can be included in the management commentary and will provide space for such information, but it will not contain any standards for doing so. He acknowledged that not everything was "hunky-dory" in sustainability reporting, especially the huge fragmentation in that space was discouraging. Mr Hoogervorst allowed himself the hope that at some point the many players in the filed would merge into one global standard-setter. However, he warned of two aspects in the field one would need to be aware of. One would be that current sustainability standards face in two different directions: information on risks and opportunities for companies and thus investors (this would include all the non-financial information that can become financial information in the long run) and information on risks for society at large. And the other would be that sustainability information while it is much needed is much less precise than financial information and it is much more political.

A recording of the exchange of views is available on the European Parliament website.

Call to action in response to climate change

25 Feb, 2020

14 accounting bodies have signed a call to action in response to climate change. The bodies, who are all members of A4S’s Accounting Bodies Network, represent over 2.5 million accountants and students globally.

The statement includes eight actions which accountants are called upon to take in response to the climate emergency. It also includes commitments from the bodies themselves in support of their members. The call to action highlights that climate change represents an economic, social and business risk – a risk that accountants from across the world must take action on.

Please click to access the call to action on the A4S website.

EC launches initiative to update the NFRD

04 Feb, 2020

The European Commission (EC) has launched an initiative 'Revision of the Non-Financial Reporting Directive'.

As reported earlier, Executive Vice President Valdis Dombrovskis of the EC announced in January 2020 that later this year he would present a renewed sustainable finance strategy, which would include a revision of the Non-Financial Reporting Directive (NFRD).

As a first step of the corresponding initiative that has just been launched, an "Inception impact assessment" has been published. The background paper for the impact assessment notes the following current problems with the NFRD:

  • Reported non-financial information is not sufficiently comparable or reliable.
  • The reported non-financial information does not meet users' needs.
  • Companies incur unnecessary and avoidable costs related to reporting non-financial information.
  • Companies face uncertainty and complexity when deciding what non-financial information to report, and how and where to report such information.

The background papers names three options that could be followed to address these problems:

  1. Continue the current approach of non-binding guidelines to assist companies when reporting according to the NFRD.
  2. Explore the use of standards (which would remain voluntary for companies to use if they wish to).
  3. Revise and strengthen the provisions of the NFRD.

Given Mr Dombrovskis earlier remarks and the title of the initiative, it seems that the EC has already formed an opinion on the best way forward. However, stakeholders have the possibility to comment on the impact assessment (until 27 February 2020), and a formal full consultation is announced for the first quarter of 2020.

Please click for the consultation page on the EC website that offers access to the Inception impact assessment background paper, the feedback possibility and a general outline on the planned timing for the revision.

EC publishes consultation on the revision of the NFRD

20 Feb, 2020

Following the launch of the initiative 'Revision of the Non-Financial Reporting Directive', the European Commission (EC) has now opened the consultation itself for public comment.

As reported earlier, Executive Vice President Valdis Dombrovskis of the EC announced in January 2020 that later this year he would present a renewed sustainable finance strategy, which would include a revision of the Non-Financial Reporting Directive (NFRD). The initiative to update the NFRD was launched earlier this month. Today, the EC launched the consultation itself by publishing a consultation document. 

In the introduction to the consultation, the EC makes the following statement:

  1. There is inadequate publicly available information on non-financial issues as:
    • a) reported non-financial information is not sufficiently comparable or reliable;
    • b) companies do not report all non-financial information that users think is necessary, and many companies report information that users do not think is relevant;
    • c) some companies do not report such information; and
    • d) it is hard to find non-financial information even when it is reported.
  2. Companies incur unnecessary and avoidable costs related to reporting non-financial information.

The consultation document itself contains 45 questions in eight categories:

    1. Quality and scope of non-financial information to be disclosed
    2. Standardisation
    3. Application of the principle of materiality
    4. Assurance
    5. Digitisation
    6. Structure and location of non-financial information
    7. Personal scope (which companies should disclose)
    8. Simplification and reduction of administrative burdens for companies

"Standardisation" contains questions about whether there should be common standards for EU companies, what the relation between financial information and non-financial information should be and which bodies/groups should be involved in setting these standards (if that should be the case).

The consultation document is available on the EC website (login required). Feedback is requested by 14 May 2020.

EFRAG draft comment letter on the proposed new standard on general presentation and disclosures

24 Feb, 2020

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2019/7 'General Presentation and Disclosures'.

The proposed new standard is intended to replace IAS 1 Presentation of Financial Statements.

In its draft comment letter, EFRAG

  • supports the IASB's proposals to present an operating, investing and financing category in the statement of profit or loss to improve comparability and reduce diversity in practice, but has reservations over some of the proposals in the ED;
  • expresses the view that separate presentation of integral and non-integral associates and joint ventures will result in relevant information for users of financial statements and enhance comparability, but will involve significant judgement and needs to be tested in practice;
  • welcomes the IASB's efforts to provide guidance on management performance measures but highlights a number of challenges in regard to the ED proposals and also mentions the possibility of an alternative narrower scope; and
  • welcomes the IASB's efforts to define unusual income and expenses and to require entities to disclose such items in the notes, but notes that the definition of unusual items seems to be rather narrow.

Comments on EFRAG's draft comment letter are requested by 19 June 2020. For more information, see the press release and the draft comment letter on the EFRAG's website.

EFRAG issues academic report on intangibles

05 Feb, 2020

The European Financial Reporting Advisory Group (EFRAG) has issued an academic report, 'A Literature Review on the Reporting of Intangibles'.

The report focused on literature published since 2007 and covered the following areas:

  • Intangibles in a macro-perspective;
  • Unaccounted intangibles and their impact on the relevance of financial reporting;
  • Information on specific unaccounted intangibles and its impact on company performance, market value, and users;
  • Information on intellectual capital and its effects on company performance, market value, and users;
  • Frameworks and models for measuring and reporting on intangibles and their consequences on company performance, market value, and users.

For more information, see the press release and the academic report on the EFRAG’s website.

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