The IFRS Foundation disclosed this decision in its Coronavirus update.

The errors affect the stand-alone standards only.

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

For the first phase of the project, the task force was split into several work streams to assess the current situation and report on it to the European Commission. The streams included focuses on special groups (e.g. financial institutions, SMEs) EU focuses (e.g. current reporting practices and momentum of reporting in the EU) and an international focus (which initiatives exist and can their work be leveraged).

While the EU-focused assessment includes "all current, developing and expected European initiatives", the international assessment, despite the 31 October cut-off date, makes no reference to newer initiatives such as the Trustees' consultation on establishing a global sustainability standard-setter, the WEF publication on an ESG framework and common metrics for reporting or the statement of intent of CDP, CDSB, GRI, IIRC, and SASB to work together towards a comprehensive corporate reporting system. A vague reference to these developments might be read into the statement that "Convergence and harmonisation efforts among some initiatives are taking place. These efforts include Memorandums of Understanding, Statements of Intent, Consultation processes and, from a technical standpoint, tables of translation from one initiative to another." However, the report dismisses these efforts in the very same paragraph and states: "Despite such efforts, the number of initiatives has continued to grow over the past years."

Please click to access the full progress report on the EFRAG website.

The FCA’ review, conducted in early 2020, looked at listed companies’ compliance with certain FCA rules relating to corporate governance. The FCA reviewed annual reports across several years for issuers across different listing segments and categories. The review highlights a number of areas for improvement including:

• That when stating how they have complied the Principles of the Code under Listing Rule (LR) 9, Premium listed issuers should ensure that that disclosure is sufficient to enable shareholders to evaluate how the Principles have been applied rather than just stating that they have been applied. Premium listed issuers are also encouraged to consider including specific details of how the company has applied the Principles in that accounting period with the use of examples and cross references where appropriate.
• Making use of cross references to other parts of the annual report and/or examples to evidence good corporate governance. The FCA found that for the premium listed population sampled, some of the disclosures appeared boilerplate and did not change year on year.
• The quality of Board Diversity Reporting.

Additionally the FCA observed that:

• Some closed-ended investment funds which had executive directors may have been erroneously using the exemption in LR 15.6.6R.
• A number of standard listed issuers either provided little or no information to meet the disclosure requirements of DTR 7.2.5R and DTR 7.2.7R.
• Standard listed issuers who state that they have applied the Provisions of the Code ‘as far as is relevant’ without providing any further detail do not appear to meet the requirements set out in DTR 7.2.3R (1).

The FCA has indicated that going forward it will work with the Financial Reporting Council (FRC) to consider areas for improvement. It will also use the results of its review to inform decisions about the deployment of future surveillance and monitoring efforts.

The full report is available on the FCA website.

The year-end advice letter covers the following key areas:

2020 year-end reporting environment

COVID-19 and its impact on corporate reporting

The effects of COVID-19 present challenges to businesses of providing clear and transparent information that focuses on issues most relevant to users. To assist preparers in reporting in a COVID-19 environment, the letter draws the reader’s attention to the FRC guides published during the year in relation to Covid-19:

• The Joint statement issued by the FRC, FCA and PRA and subsequent updates.
• The FRC’s thematic review on the financial reporting effects of COVID-19.
• The FRC’s Lab reports on ‘Going Concern, Risk and Viability’ and ‘Resources, action, the future’, issued in June which highlight the information that investors indicate they find most critical to understand the impact of COVID-19 on a company.
• The FRC’s updates to the June Lab reports, issued in October.

The FRC highlights that a thematic review on cash flow and liquidity, due to be published shortly, and which provides guidance on the disclosure of liquidity risk, going concern and viability, may also provide a useful reference.

The letter highlights that the FRC expects preparers:

• To consider the principles contained in IAS 1 Presentation of Financial Statements and provide disclosures that allow users to understand the impact of events and conditions on a company’s position and financial performance. These should, where possible, quantify the impact of COVID-19 on a company’s performance, position and prospects.
• To increase disclosure of relevant sensitivities or ranges of possible outcomes where judgements are made on significant estimation uncertainties.
• To quantify the historical effect of COVID-19 in narrative reporting in the strategic report. However companies are ‘strongly encouraged’ not to make arbitrary splits of items between COVID-19 and non-COVID-19 financial statement captions as such allocations are likely to be highly subjective and therefore unreliable. Companies are also expected to apply their existing accounting policies for exceptional and other similar items consistently to COVID-19-related income and expenditure.
• To clearly articulate the impact of COVID-19 on their business and strategies and how the changes are compatible with future forecasting assumptions used in other areas of the financial statements such as going concern, viability, impairment testing and recognition of deferred tax assets. Specifically the FRC expects any significant judgements made in determining whether or not there is a material uncertainty in relation to going concern to be disclosed and explained.
• To describe and explain any other significant judgements and estimates made especially with regards impairment reviews. Disclosures are expected to describe the approach used to determine key impairment assumptions and explain significant year-on-year changes, including any changes due to COVID-19.

In light of the light of the impacts of COVID-19, the FRC has encouraged boards to carefully consider whether they should lengthen their reporting timetables for 2021, making use of the extensions to reporting deadlines.

Impact of Brexit

The FRC expects company reports to explain company-specific risks and uncertainties arising as a result of Brexit. This should include the impacts on different parts of the business and any effects on the financial statements including major sources of estimation uncertainty, amounts at risk and ranges of potential outcomes.

Insights and observations from the FRC’s monitoring work

The FRC makes reference to its latest Annual Review of Corporate Reporting which provides the FRC's assessment of corporate reporting in the UK based on evidence from a variety of sources, including the work of the FRC's own Corporate Reporting Review (CRR) team. The report sets out the FRC’s expectations of areas of corporate reporting that require improvement and what it expects companies to focus on in the coming reporting season. The key areas of focus, included in the letter, have been drawn from, and are consistent with, the findings included in the FRC’s Annual Review of Corporate Governance and Reporting.

Specifically the FRC highlights frequent challenges around disclosure of judgements and estimates, impairment of non-financial assets and working capital finance arrangements such as reverse factoring. Preparers should consider these findings during the year-end reporting process.

Insights and observations from thematic reviews

The letter summarises key points identified from thematic reviews carried out during the year. Specifically it focuses the reader’s attention on:

• Climate change – the FRC indicates that “users expect companies to provide full information about the future impact of climate change on the business and how the company’s activities affect the environment”. Its climate change thematic review provides key findings and FRC expectations.
• IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases - Recently the FRC published the results of two thematic reviews covering the current reporting on IFRS 15 and IFRS 16. The reviews identified a number of areas where companies need to improve their reporting.
• Cash flow and liquidity – the FRC’s forthcoming thematic review which looks at how companies reported cash flows and liquidity risk sets out the following expectations in this area:
  • Companies should provide a clear explanation of the matters considered in assessing going concern, viability and liquidity.
  • Company disclosure should include the methods, assumptions and judgements made in assessing going concern and viability.
  • There should be consistency in the amounts and descriptions of items in the cash flow statement, and other areas of the annual report, including: the strategic report, other primary statements, disclosures of changes in financing liabilities and other notes.
  • Company disclosures should include accounting policies and judgements in relation to the cash flow statement, particularly for large, one-off transactions.
  • Companies are expected to address what the FRC calls as ‘basic errors’ in the preparation of their cash flow statements by performing robust pre-issuance reviews of the cash flow statement.

Narrative reporting and corporate governance matters

Section 172 statement and reporting on workforce engagement

The FRC indicate that many companies are failing to explain how their directors discharged their section 172 duty and in particular the responsibility to have regard to the consequences of decisions in the long term. Additionally whilst companies are reporting on the methods of engagement with stakeholders they are not reflecting how the feedback affected decision making. Some companies are treating the statement as one of compliance.

The letter draws attention to the recent s172 review by the Financial Reporting Lab of the Financial Reporting Council (FRC) which provides a set of tips intended to help companies consider what content to include in a Section 172 statement, how to present it and how to facilitate the process of preparing the statement.

The letter also highlights the FRC’s expectations around reporting on workforce engagement and indicates that reporting should improve in that area. The FRC draws attention to its Lab report on workforce reporting in January 2020 to assist in this area.

Other areas covered

Other areas covered in the letter include:

• Chair tenure
• Future endorsement of IFRS Standards in the UK
• The requirement to consider new IFRS Standards including Interest Rate Benchmark Reform and amendments to IFRS 16 for COVID-19-Related rent concessions.

The press release and full letter are available on the FRC website.  Our related Governance in brief publication is here.

The report brings together the FRC’s overview across the audit market. It captures the key publically reported quality metrics and findings (as published for the major audit firms in July 2020) and highlights its developing plans and changes in its structure around supervision of audit firms.

The key messages are:

• Continued inconsistency in audit quality – The FRC highlights its concerns that audit firms are not delivering quality on a consistent basis indicating that “49 out of the 130 audits inspected (primarily covering audits with year-ends between July 2018 and June 2019), required either improvement or significant improvement”. The key findings are related to challenge of management in areas of complexity and forward-looking judgements such as goodwill impairment, audit of going concern, group auditor oversight and quality control over audit. The FRC also saw examples of good practice including a willingness to delay and modify audit reports where necessary, the effective use of specialists and some examples of strong challenge of management.
• Audit market health and resilience – the FRC continues to strive to achieve greater competition in the market, particularly for FTSE350 audits, and to monitor the resilience of audit firms including the impact of the pandemic.
• COVID-19 – the report looks at the impact that COVID-19 is having on audit. The FRC highlight that its audit quality findings are all on engagements performed before the pandemic and that there is an even greater challenge looking beyond that. It indicates that judgements especially around going concern, remote working and controls and fraud risk are those areas that COVID-19 has and will continue to have the most significant impact on. The FRC has previously published guidance to support the provision of high-quality financial information to markets and high-quality audit work including guidance for companies preparing financial statements and a bulletin for auditors covering factors to be considered when carrying out audits during the Covid-19 crisis.

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

Dr Barckow, currently the President of the Accounting Standards Committee of Germany (ACSG), will succeed Hans Hoogervorst on his retirement as chair of the IASB at the end of June 2021.

Dr Barckow, a former Deloitte Partner, has been an active participant in numerous advisory bodies to the IFRS Foundation and the IASB, including membership of the IASB’s Accounting Standards Advisory Forum (ASAF) and the IFRS Advisory Council, and is a highly recognised expert on IFRSs at national, European and international level. He will step down from all his present positions in order to join the IASB.

A biography of Dr Barckow and statements on the appointment are available in the IASB's press release and the press release on the ACSG website.

The International Organization of Securities Commissions (IOSCO) has published a Statement of the IFRS Foundation Monitoring Board on the appointment of Mr. Andreas Barckow as the next Chair of the IASB welcoming the appointment.

Investors and stakeholders now expect climate-related disclosures in annual reports and financial statements. Recent Deloitte research shows that 90% of companies referred to climate change in their 2019 annual report, with 64% referring to the Task Force on Climate-related Financial Disclosures (TCFD).

HM Treasury has published the interim report of the UK’s Joint Government-Regulator TCFD Taskforce and accompanying roadmap which sets out an indicative path to mandatory TCFD reporting by 2025 – towards comprehensive and high-quality climate-related risk disclosure across the UK economy. The Taskforce was set up after the Government’s Green Finance Strategy was released last year to explore the most effective approach to implementing the recommendations of the TCFD.

The roadmap document notes that comparability of disclosures should ‘optimally be achieved through international standards for climate-related and other sustainability disclosures’. The TCFD Taskforce therefore ‘strongly supports’ the IFRS Foundation’s ‘proposal to create a new, global Sustainability Standards Board, as well as complementary work underway on harmonisation by an alliance of voluntary standard-setting organisations’.

Support for the IFRS Foundation’s proposals has also come from the Department for Business, Energy and Industrial Strategy (BEIS) and other UK regulators such as the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC). In a joint statement  (link to HM Tresaury website) they indicate that the proposals ‘are an important and timely step as a contribution to addressing the climate emergency’. They say:

We believe that the creation of a new board, within the IFRS Foundation structure, would allow the effective exploration, reconciliation and resolution of ideas and challenges that are relevant to reporting of material sustainability factors (that are most relevant to investors and other market participants) in the first instance, and reporting of wider sustainability impacts in the longer term. We believe that establishing an SSB alongside the IASB will promote much-needed integration of financial and non-financial reporting, within a common architecture. A transparent and robust governance structure should, in our view, be a pre-requisite for establishing an independent and impartial sustainability reporting standard setter. For these reasons, the Foundation is very well-placed to lead this conversation and work, and we are grateful that it has done so.

The progress is strengthened by the commitment of the FCA to introduce TCFD for premium listed companies in 2021, and to consult in the first half of 2021 on extending the scope of these rules, including for asset managers, life insurers and pension providers. This commitment was set out in a speech ‘Green Horizon Summit: Rising to the Climate Challenge’ by FCA CEO, Nikhil Rathi.

A new FCA Listing Rule will be introduced on a 'comply or explain' basis and the FCA generally expects companies to be able to comply. As well as consulting on further extending the Rule to a wider scope of listed insurers, the FCA will also consider further tightening the rule, moving from 'comply or explain' to mandatory disclosure. The FCA will also, in the first half of next year, release proposed TCFD implementation measures for asset managers, life insurers and FCA-regulated pension providers. It aims to bring in rules for the largest firms by 2022.

Click for:

• FCA speech - Green Horizon Summit: Rising to the Climate Challenge (link to FCA website)
• Interim Report and Roadmap for implementing the recommendations of the Taskforce on Climate-related Financial Disclosures – (link to HM Treasury website)
• Chancellor statement to the House – financial services – (link to HM Treasury website)

Major groups of valuation topics identified in the consultation paper as potential IVSC projects include gaps in the current IVS suite of standards, automated valuation models, environmental, social and governance aspects, long-term value, social value, uncertainty and risk as well as data management.

Please click to access the consultation paper on the IVSC website. Comments are requested by 15 January 2021.

The agenda for the meeting is summarised below:

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