September

EFRAG publishes August 2020 issue of 'EFRAG Update'

07 Sep, 2020

The European Financial Reporting Advisory Group (EFRAG) has published an 'EFRAG Update' summarising public technical discussions held and decisions made during August 2020.

The update reports on the EFRAG Board webcast meeting on 24 August and the EFRAG TEG webcast meeting on 24 August.  The publication also covers the activities of the European Reporting Lab.

The update also lists EFRAG publications issued in August including:

Please click to download the August EFRAG Update from the EFRAG website.fThe update reports on the EFRAG Board conference call on 6 July and webcast meeting on 16 July, the EFRAG TEG webcast meeting on 1-2 July, 8 July and a conference call on 6 July and the EFRAG TEG and EFRAG CFSS webcast meeting on 1 July.  The publication also covers the activities of the European Reporting Lab.fdThe update reports on the EFRAG Board webcast meeting on 24 August and the EFRAG TEG webcast meeting on 24 August.  The publication also covers the activities of the European Reporting Lab.

EFRAG questionnaire on goodwill

14 Sep, 2020

The European Financial Reporting Advisory Group (EFRAG) has published a questionnaire and an invitation for interviews for preparers with active mergers and acquisitions agendas or material goodwill amounts in their financial statements.

The purpose is to collect input on the proposals in the IASB's discussion paper DP/2020/1 Business Combinations — Disclosures, Goodwill and Impairment and on EFRAG’s suggestions included in its draft comment letter.

Responses on the survey are requested by 26 October 2020. Please click for more information and access to the survey on the EFRAG website.

Please note that the deadline for responses has been extended to 13 November 2020.

European Lab announces members of its task force on possible EU non-financial reporting standards

07 Sep, 2020

The European Financial Reporting Advisory Group (EFRAG) has published a list of the members of a new project task force on preparatory work for the elaboration of possible EU non-financial reporting standards.

The task force will be chaired by Patrick de Cambourg, President of the French standard-setter ANC.

Please click for a list of all members in the press release on the EFRAG website.

Financial Reporting Lab calls for participants in a new Lab project: reporting on risks, uncertainties and scenarios

15 Sep, 2020

The Financial Reporting Lab has called on investors and companies to participate in a new project on corporate disclosures on risks, uncertainties and scenarios.

The scope of the project will include:

  • exploring whether and how companies’ risk identification, risk management and scenario planning processes are evolving and how this is impacting reporting and disclosure.
  • determining whether the time horizons utilised in scenario planning have changed.
  • considering how companies communicate uncertainty in their disclosures.
  • discussing which areas of reporting are most challenging for companies.
  • exploring examples of risks and related disclosures where investor focus has been heightened by the current pandemic (for example, supply chain risk, existential risk/viability of business model).
  • analysing how investors use this information in their decision-making process and identify whether reporting meets investor needs;
  • discussing what types of disclosures would be most useful in interim reports; and
  • highlighting best practice in current company reporting.

A press release and further information are available on the FRC website.

FRC calls for comments on its draft UK Endorsement Criteria Assessment on the IBOR Phase 2 Amendments

09 Sep, 2020

The Financial Reporting Council (FRC) has published a draft UK Endorsement Criteria Assessment on the International Accounting Standards Board's (IASB’s) amendment ‘Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)’ (the Amendments).

As part of the preparation for the end of the Transition Period, work is being undertaken to ensure the UK is ready to undertake adoption of the Amendments if EU adoption does not occur in December 2020 (as the UK leaves the EU at the end of the transition period on 31 December 2020).

The FRC welcomes stakeholders’ views to inform its recommendation to the BEIS Secretary of State to adopt the Amendments in the UK.

The FRCs initial assessment is that:

  • the Amendments meet the criterion of relevance, reliability, comparability and understandability required of the financial information needed for making economic decisions and assessing the stewardship of management, as required by SI 2019/685 (see Regulation 7(1)(c)); and
  • application of the Amendments are not contrary to the principle that an entity’s accounts/consolidated accounts must give a true and fair view as required by SI 2019/685 (see Regulation 7(1)(a)).

Additionally the FRC initially concludes that the Amendments will improve the quality of financial reporting, that the benefits of the Amendments are likely to outweigh the costs and that users are likely to benefit from the Amendments.

The press release, Invitation to Comment and draft UK Endorsement Criteria Assessment are available on the FRC website. 

Comments are requested by close of business on Monday 28 September 2020. 

FRC calls for improvements in the reporting of revenue and leases

25 Sep, 2020

The Financial Reporting Council (FRC) has published the results of two thematic reviews covering the current reporting on IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’ following the first year of its application. The reviews identify a number of areas where companies need to improve their reporting.

IFRS 15 ‘Revenue from Contracts with Customers’

The thematic review focused on those areas which gave the FRC greatest cause for concern in its thematic review of October 2019. The bulk of the review was focused on certain aspects of revenue reporting by a sample of 22 companies but also covered ‘quick reviews’ of 50 companies to substantiate and further inform the findings from the 22 more detailed reviews.

Although the FRC found some good company-specific explanations about accounting for revenue it still identified disclosures that it indicates ‘do not meet the FRC’s quality threshold”. Many of the areas identified for improvement relate to the new requirements introduced by IFRS 15 specifically variable consideration and costs to obtain and fulfil a contract. The FRC notes that “often it was difficult to assess the appropriateness of the accounting in these areas as limited information was provided in the accounts”. Additionally with respect to more familiar areas such as the timing of revenue recognition and the explanation of significant judgements made by management the FRC found that “disclosures continue to lack clarity”. The FRC indicates that companies should “critically review their revenue-related disclosures to ensure they provide a clear understanding of how they have applied the requirements of the standard to their own particular circumstances”    

The principal findings from the IFRS 15 thematic review were:

  • Some companies are still not clearly communicating when their performance obligations are satisfied and thus when revenue is recognised. Where revenue is recognised over time, often the specific method used to measure progress is not provided.
  • Disclosures about the nature of variable consideration and how it is estimated and constrained were sparse, if provided at all. The FRC also found a few instances where disclosures about the related risks were poorly articulated and potentially misleading.
  • In general, companies provided helpful disaggregated revenue disclosures but, in some instances, the categories selected could have better illustrated how the nature, amount, timing and uncertainty of revenues and related cash flows are affected by economic factors.
  • Information about significant judgements relating to revenue sometimes lacked clarity about the specific judgements made by management. Quantitative disclosure, such as sensitivities or ranges of potential outcomes, was often not provided for judgements involving estimation uncertainty.
  • There is scope to improve disclosures about material contract balances, particularly in relation to how they arise and explanation of year-on-year variances. Better disclosures clearly explained the relationship between the delivery of performance obligations and the timing of cash flows.
  • The FRC are concerned that some companies have overlooked the accounting requirements under IFRS 15 for costs to obtain or fulfil a contract when these appear relevant to the companies’ activities. Only a small proportion of companies included a policy for these costs and even fewer provided any quantitative information.

The review includes examples of disclosures falling short of the FRC’s expectations and those it considers as better practice which companies can benchmark their own disclosures against. The FRC indicates that it will challenge companies whose disclosures fail to match its expectations.

IFRS 16 ‘Leases’

The thematic review focuses on the disclosures made by a sample of twenty companies following the first year of adoption of IFRS 16 and is a follow up to the FRC’s report published in November 2019 which focused on disclosures made by interim reporters.

The FRC found that most of the sample provided “sufficient information to enable readers to understand the impact of adopting IFRS 16”. A number of opportunities for companies to improve disclosures were identified and the review includes a number of better practice disclosures.

The principal findings from the IFRS 16 thematic review were:

  • Accounting policies - Many companies relied on boilerplate language, with insufficient entity-specific information, when explaining their accounting policy for leases. The FRC highlights that better examples explained the policy using language specific to the company’s circumstances. It expects companies to tailor the descriptions of their leasing accounting policies to match their particular circumstances and to cover all material areas.
  • Judgements - Descriptions of judgements made by management in the application of the company’s accounting policy were absent or inadequate – for example judgements made about the lease term or scope of the standard. In several instances, significant differences were identified from the IAS 17 Leases disclosure of lease commitments with little or no explanation for these, even though some appeared to reflect potentially significant judgements. The FRC expects companies to provide detailed information about the significant judgements affecting their accounting for leases.
  • Disclosures – the FRC identified that only a few companies provided the broader disclosures required by paragraph 59 to help readers understand the exposure to future cash outflows from leases. This would include the nature of variable lease payments, or the impact of extension options not recognised in the lease liability. Explanations were not given where the exercise of extension options was identified as a significant judgement made by management. Additionally whilst most of the disclosures required by paragraph 53 were provided, these were often not provided in a single note or cross referenced as required by the standard. The FRC expects companies to include sufficient detail to enable a good understanding of the financial reporting effects of their leasing arrangements on their financial position, financial performance and cash flows.

The FRC will continue to review compliance with IFRS 16 through its routine work.

A press release and the full thematic reviews (IFRS 15 and IFRS 16) are available at the FRC website.

FRC issues its 2021 suite of Taxonomies

30 Sep, 2020

The Financial Reporting Council (FRC) has issued the 2021 suite of FRC Taxonomies.

In addition to updating all existing taxonomies (except for the Irish Extensions which remain as per the 2019 version), the FRC has published a new taxonomy called the UKSEF which can be used for UK reporting purposes to Companies house and HMRC.  It is a UK version of the ESEF Taxonomy and overseas entities wishing to file with Companies House need to use the UKSEF to file, since it contains the extra tags needed to file in the UK.

Key changes to the 2021 suite include: 

  • Enablement of revised accounts due to disruption caused by COVID-19.
  • Covid Issues: additional income-related tags to cover the Coronavirus Jobs Retention Scheme (CJRS) and other Covid-related grants have been added.
  • Off Payroll Working: additional tags have been added to cover revenue from off payroll working and off payroll working expenses. These new tags have been added for all entry-points (FRS 101, FRS 102, UK IFRS and Charities).
  • Pay Ratio Regulations: The Statutory Instrument The Companies (Miscellaneous Reporting) Regulations 2018 sets out requirements for the reporting of pay ratio information in the Directors’ Remuneration Report. All entry-points have been amended to cover these requirements.
  • SECR Reporting:  The SECR Taxonomy introduced in 2019 supersedes the greenhouse gas emissions reporting items present in the Directors’ Report. These tags have been removed (not deprecated, to avoid confusion with the SECR reporting requirements).

In addition, SECR reporting is an additional requirement for (large) companies who may choose to report using UK SEF. Consequently, the SECR taxonomy has been incorporated into the UKSEF taxonomy extension for the convenience of filers. This will avoid the complication of additional combined entry-points.

The 2021 suite represent the most up to date version of the FRC Taxonomies and as such should be used to comply with HMRC requirements to fully tag.  The suite has been designed with full tagging in mind.  Accounts should be fully tagged, except for consolidated UKSEF data where regulations permit minimum tagging. Filers to Companies House should use the most-up to date version where possible.  It is expected that both HMRC and Companies House will have enabled this suite by April 2021. .

The press release and updated taxonomies are available on the FRC website.

FRC to host webinar to review early reporting against the new UK Stewardship Code

21 Sep, 2020

The FRC is hosting a webinar which will present the findings of its review of early reporting against the new UK Stewardship Code.

The new UK Stewardship Code took effect for reporting years beginning on or after 1 January 2020. In order to support prospective signatories in meeting the higher expectations set by the Code, the FRC will publish a 'Review of Early Reporting'. The Review will detail the expectations for reporting, identify effective examples and highlight where reporting needs to improve. 

In order to coincide with the launch of the review the FRC will host a webinar on the morning of the 30th September at 11am. The webinar will include an introduction from Mark Babington, FRC’s Executive Director of Regulatory Standards, and a presentation of the key findings from Claudia Chapman, Head of Stewardship. This will be a followed by a Q&A session which will give attendees the opportunity to ask questions about applying and reporting on the Code.

Further details and how to register for the event are available on the FRC website

IASB Chair says Trustees are 'considering' sustainability reporting

28 Sep, 2020

In his keynote speech at the IFRS Foundation Virtual Conference, IASB Chairman Hans Hoogervorst talked spoke about sustainability reporting and how ‘traditional’ financial reporting can help to make climate-related financial issues more visible.

In his speech, which also touched briefly on COVID-19 matters, Mr Hoogervorst noted that the growing urgency of climate change has intensified interest in sustainability reporting in recent years. Exploring the relationship between financial reporting and non-financial reporting, he made the following points:

  • None of the IFRSs even mentions ‘climate change’ or ‘sustainability’. Financial reporting merely seeks to neutrally describe economic reality as it is.
  • However, that does not mean that there is a disconnect between IFRSs and sustainability issues and financial reporting based on current IFRSs can be more reflective of sustainability issues than many people realise.
  • The principle-based approach of IFRSs means that many issues can be captured by the requirements, both in terms of recognition and measurement and disclosure. In fact, separate disclosures on the effects of climate change might already be required based on the materiality requirements.
  • Sustainability reporting has important added value to the financial statements. However uncertain this information may be, it can very well be material to investors.
  • Sustainability reporting may also serve to make a company aware of the financial consequences of such issues much earlier.
  • There is hope that in the future financial reporting and sustainability reporting will come even closer together.

Mr Hoogervorst also noted that, as a separate piece of work that is complimentary to the requirements in IFRSs and the IASB’s work on Management Commentary, the Trustees of the IFRS Foundation are currently considering sustainability reporting. They are in the process of preparing for their next five-yearly strategy review and a working group of Trustees has done research into sustainability reporting. Mr Hoogervorst explained that the Trustees plan to build on that work by consulting on the topic more broadly shortly.

Please click to access the full transcript of Mr Hoogervorst's speech on the IASB website.

IASB issues 'Investor Update' newsletter

23 Sep, 2020

The IASB has issued the latest edition of its newsletter 'Investor Update', which profiles recently introduced IFRS Standards and other changes to the pipeline as well as how those changes may affect companies and performance.

This issue features:

  • Spotlight — Covid-19-Related Rent Concessions
  • Spotlight — Supply Chain Finance
  • We need your views
  • Stay up to date
  • Resources for investors

The Investor Update newslet­ter is available on the IASB’s website.

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