Accountancy Europe response to ad personam mandate on non-financial reporting standard setting

19 Nov, 2020

Accountancy Europe has responded to the request of the President of the EFRAG Board to share views on the future governance and framework of EFRAG in the context of possible changes to non-financial reporting by companies.

Accountancy Europe especially raises points around the governance, structure and financing of the European Financial Reporting Advisory Group (EFRAG) that need to be considered if a standard-setter for non-financial information were to be established under the umbrella of EFRAG.

As before in its paper on interconnected standard-setting for corporate reporting, Accountancy Europe points out that standard-setting needs to follow the principles of legitimacy, independence, transparency, public accountability, due process, and balance and notes that:

Particularly, a multi-stakeholder involvement guarantees high quality and balanced standards; whereas independence affects the public perception of standard setting and resultantly, legitimacy.

Applying these principles to a possible standard-setter for non-financial information (NFI), the comment letter makes the following suggestions:

  • setting up a new body within EFRAG to address NFI standards activities;
  • providing adequate governance and oversight to the NFI standards activities body (distinct from the governance and oversight of the financial reporting activities);
  • ensuring connectivity between NFI and financial activities within the EFRAG where appropriate;
  • providing adequate governance and oversight of the EFRAG organisation as a whole;
  • enlarging the EFRAG General Assembly;
  • setting up a new NFI EFRAG Advisory Council; and
  • reforming the EFRAG European Reporting Lab.

The comment letter also emphasises the other on-going initiatives in the field and especially notes the work of CDP-CDSB-GRI-IIRC-SASB as well as the IFRS Foundation consultation towards a comprehensive reporting system. Accountancy Europe proposes that EFRAG uses the NFI standards from these initiatives as a basis upon which to add regional (EU) requirements and only develops separate standards if it becomes clear that a global solution will not be timely available as broad market acceptance also depends on leveraging to the maximum possible the relevant work of recognised NFI frameworks and standards organisations.

On financing, the comment letter makes clear that that the more demands are put on EFRAG, the more human and financial resources will be needed. To this end, stable funding from both the private sector (financially and, in particular, in kind) and from the European Commission is required, both for the EFRAG ac­tiv­i­ties related to financial reporting and the ones related to the wider corporate reporting including NFI reporting.

Please click to access the full comment letter on the website of Accountancy Europe.

Agenda for the December 2020 ASAF meeting

11 Nov, 2020

The International Accounting Standards Board (IASB) has released an agenda and meeting papers for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held by remote participation on 10 December 2020.

The agenda for the meeting is summarised below:

Thursday, 10 December (11:00-15:00)

  • Rate-regulated activities
    • Main features of the proposals in the forthcoming exposure draft and ASAF members' views on possible outreach activities
  • Cryptoassets
    • EFRAG discussion paper on the accounting for cryptoassets
  • Financial instruments with characteristics of equity
    • Potential refinements to the disclosure requirements in the June 2018 discussion paper
  • Dynamic risk management (oral update on the project)
  • Lack of exchangeability (Amendments to IAS 21)
    • Introduction of the forthcoming exposure draft

For more information, please see the agenda and meeting papers on the IASB's website.

Agenda for the upcoming Emerging Economies Group meeting

26 Nov, 2020

The IASB Emerging Economies Group (EEG) will meet via video conference on 30 November and 1 December 2020. An agenda for the meeting is now available.

The agenda for the meeting is summarised below:

Monday 30 November 2020 (11:00-15:45)

  • Welcome
  • Disclosure initiative — Accounting policies
    • Overview of the forthcoming amendments
  • Disclosure initiative — Subsidiaries that are SMEs
    • Update on the project
  • Disclosure initiative – Targeted standards-level review of disclosures
    • Overview of forthcoming proposals
  • Applying IFRSs in 2020
    • Discussion on the impact of Covid-19
  • Lack of exchangeability
    • Overview of forthcoming proposals

Tuesday 1 December 2020 (11:00-15:30)

  • Goodwill and impairment
    • Feedback from the EEG members on the discussion paper
  • Update on IASB projects
  • Post-implementation review of IFRS 10-12
    • Overview of the forthcoming request for information

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

    Chairman of the IFRS Foundation Trustees presents sustainability consultation paper at ISAR 37, engages in panel discussion

    06 Nov, 2020

    At the thirty-seventh session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) this week, Erkki Liikanen, Chairman of the IFRS Foundation Trustees, introduced the Trustees' consultation paper that was published in September to assess demand for global sustainability standards and what role the Foundation might play in the development of such standards.

    During the introduction of the consultation paper Mr Liikanen noted that when the challenges are global, the most optimal solution would be global. He explained that there have calls for the IFRS Foundation to play a role in this area as the Foundation has a well-established model of global standard-setting, working in close cooperation with both public and private stakeholders.

    The presentation was followed by a lively panel discussion on "Climate-related financial disclosures in mainstream entity reporting: Good practices and key challenges", that among other speakers saw participation of representatives of TCFD, CDSB, CDP, and UNEP FI.

    Please click for the following additional information:

    Closing Out 2020

    10 Dec, 2020

    Welcome to our one-stop guide covering the issues relevant to the preparation of December 2020 annual reports.

    This year, preparers face the additional demands of producing high-quality reports against the backdrop of the effects of the COVID-19 pandemic and its economic consequences. In a continually changing and uncertain economic environment, both the FRC and ESMA highlight the importance of entity-specific and transparent disclosures regarding the impact that COVID-19 has had on the performance, position and cash flows of the entity. The FRC’s Annual Review of Corporate Reporting and ESMA’s Common Enforcement Priorities provide guidance on appropriate reporting and meeting investor expectations during the pandemic and highlight other areas of regulatory scrutiny that reporters of all sizes should focus on in the coming reporting season

    Although Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosure is not yet fully mandatory, the FRC has highlighted that climate-change reporting needs to improve significantly to meet the expectations of investors and other users. Boards need to demonstrate how they have considered climate change in setting strategy. Narrative reporting should consider the broader needs of users rather than just complying with the minimum legal requirements. Disclosures in the ‘front-half’ should be consistent with those in the ‘back half’ financial statements. A recent FRC thematic review provides guidance that will help facilitate improved company disclosure in this area.

    2020 sees the mandatory application of two new legal reporting requirements. The first, effective for financial periods beginning on or after 1 April 2019, broadens greenhouse gas reporting and energy efficiency disclosure requirements in the directors’ report for quoted companies and extends this reporting requirement to large unquoted companies and LLPs. The second, impacting financial years beginning on or after 10 June 2019, introduces changes to remuneration reporting and extends the scope to unquoted traded companies.

    Whilst reporting under the revenue and leasing standards, IFRS 15 and 16,is no longer new, the FRC expects significantly improved reporting under these standards. Additionally, the FRC has challenged companies to improve their s172 reporting, publishing a set of tips to assist companies in making the statement more useful.

    Further FRC challenge can continue to be expected over presentation and reconciliation of Alternative Performance Measures (APMs) and business reviews, which should be a balanced and comprehensive analysis of both performance and position. Additionally the FRC will be looking for company-specific disclosures about the impact of Brexit including the company’s ability to continue as a going concern and its longer-term viability and prospects. Increasing focus is also being given to capital allocation and dividend policy disclosures.

    Turning to the financial statements, amendments to both UK GAAP and IFRS Standards have been relatively minor. However, for those entities that apply hedge accounting, amendments as a result of IBOR reform to both UK GAAP and IFRS Standards are likely to be significant. Additionally, lessees and lessors reporting under UK GAAP who have received temporary rent concessions for operating leases as a direct consequence of COVID-19 will need to apply the amendments to Section 20 of FRS 102. Whilst amendments for lessees have also been made to IFRS 16, entities can choose, as an accounting policy choice, whether to apply them or not.

    Our Closing Out 2020 publication covers all these topics and more, providing an invaluable guide to the issues affecting today’s corporate reporting landscape.

    December 2020 IFRS Interpretations Committee meeting agenda posted

    20 Nov, 2020

    The IFRS Interpretations Committee has posted the agenda for its next meeting, which will be held by video conference on 1-2 December 2020.

    The Committee will discuss the following:

    • Administrative matters
    • IAS 1 — Classification of debt with covenants as current or non-current
    • IAS 19 — Attributing benefit to periods of service
    • Supply chain financing arrangements — reverse factoring
    • IAS 38 — Configuration or customisation costs in a cloud computing arrangement
    • IFRS 9 — Hedging variability in cash flows due to real interest rates
    • Work in progress

    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.

    Deloitte response to ad personam mandate on non-financial reporting standard setting

    10 Nov, 2020

    The Deloitte firms in the European Union have responded to the request of the President of the EFRAG Board to share views on the future governance and framework of EFRAG in the context of possible changes to non-financial reporting by companies.

    As general background, we welcome the European Commission’s review of the non-financial reporting directive and support companies disclosing high-quality, transparent, relevant and comparable non-financial information that is connected to financial information within mainstream corporate reporting. We support global standards for reporting these because issues such as climate change are global, and the UN Sustainable Development Goals are of course global. However, we recommend a ‘building block approach’ where core global standards can be supplemented by local requirements.

    We recognise the urgency of developing harmonised standards for non-financial reporting, and the particular needs of the EU, given that the EU has adopted reporting requirements that will apply in the relatively near term, particularly for financial sector companies. We are encouraged by recent international developments, including the statement of intent of five leading sustainability and integrated reporting organisations to work together in this area and by the IFRS Foundation’s consultation paper on sustainability reporting.

    We agree that EFRAG has an essential role to play with respect to non-financial reporting requirements in the EU. What that role would be will depend on the overall approach agreed by the EU Institutions as well as the outcome of current developments in non-financial information standard-setting at the global level. We can see at least two possible roles and approaches for EFRAG:

    • an influencer and endorsement adviser with respect to global sustainability standards; or
    • standard-setting activities for the EU for non-financial reporting standards.

    The expected role of EFRAG in non-financial reporting standard-setting will depend on a proper understanding of what needs to be developed at a European level versus what could be leveraged from global existing and future developments, and related timing. This would have significant implications on the possible changes to EFRAG’s governance and resourcing.

    Please click to download our full analysis in the comment letter.

    Educational material on applying IFRSs to climate-related matters

    20 Nov, 2020

    The IFRS Foundation has released a publication that shows how existing IFRS requirements require companies to consider climate-related matters when their effect is material to the financial statements.

    The publication mainly consists of a non-exhaustive list of examples illustrating when IFRS Standards may require companies to consider the effects of climate-related matters in applying the principles in a number of standards.

    The examples in the list refer to the following standards:

    • IAS 1 Presentation of Financial Statements
    • IAS 2 Inventories
    • IAS 12 Income Taxes
    • IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
    • IAS 36 Impairment of Assets
    • IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21 Levies
    • IFRS 7 Financial Instruments: Disclosures
    • IFRS 9 Financial Instruments
    • IFRS 13 Fair Value Measurement
    • IFRS 17 Insurance Contracts

    The publication also notes that in addition to the specific requirements outlined in the table, IAS 1 contains some overarching requirements that could be relevant when considering climate-related matters.

    In an article published in November 2019, IASB Board member Nick Anderson had already explained how IFRS requirements can be used to report on climate and other emerging risks.

    Please click to access Effects of climate-related matters on financial statements on the IASB website.

    EFRAG early-stage analysis of rate regulation proposals — preparer perspective

    11 Nov, 2020

    The European Financial Reporting Advisory Group (EFRAG) is inviting preparers to participate in an early-stage analysis of the likely impacts of possible changes to IFRS requirements as a result of the IASB project on the accounting for regulatory assets and regulatory liabilities. The IASB is expected to issue an exposure draft in early 2021.

    The EFRAG analysis aims at assessing possible impacts of the new accounting model under consideration for preparers.

    Please click for more information on the EFRAG website.

    EFRAG issues draft endorsement advice on 'Classification of Liabilities as Current or Non-current ' and 'Deferral of Effective Date (Amendments to IAS 1)'

    20 Nov, 2020

    The European Financial Reporting Advisory Group (EFRAG) has issued a draft endorsement advice letter and separate invitations to comment relating to the endorsement for use in the European Union (EU) of 'Classification of Liabilities as Current or Non-current' and 'Deferral of Effective Date (Amendments to IAS 1)' ('the Amendments').

    The objective of the amendments is to clarify one of the criteria in IAS 1 for classifying a liability as non-current - that is the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period. 

    EFRAG recommends the endorsement of the Amendments. EFRAG’s initial assessment is that the Amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.

    Comments are required by 07 December 2020.

    For more information, see the press release, draft endorsement advice letter,  and invitations to comment here and here on the EFRAG website. EFRAG has also updated its endorsement status report to the issuance of the positive draft endorsement advice.

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