February

FRC publishes its draft Strategy, Plan and Budget for 2021/22

23 Feb, 2021

The Financial Reporting Council (FRC) has published its draft Strategy, Plan and Budget for 2021/22. Comments are requested by 12 March 2021.

The Strategy, Plan & Budget 2021/22 reflects FRC’s continuing commitment to serving the public interest while developing its transition to the Audit, Reporting and Governance Authority (ARGA) in anticipation of legislation to put ARGA on a statutory footing. The 2021/22 budgeted costs increase by £6.8m, almost half of which funds the organisation’s development and maturity; the other half funds the establishment of the UK Endorsement Board (UKEB) following the UK’s exit from the EU.

The FRC indicates that moving forward it will reorganise into four divisions consisting of:

  • Regulatory Standards;
  • Supervision;
  • Enforcement; and
  • Corporate services.

The draft plan and budget sets out the FRC’s strategic priorities in these four areas:

Regulatory Standards

  • Develop and maintain UK and Ireland accounting standards (GAAP) in a timely fashion.
  • Ensure the UK endorsement process for IFRS provides accountability and transparency by establishing due process oversight.
  • Issue a feedback statement and next steps following the FRC’s report on the Future of Corporate Reporting.
  • Develop and maintain UK auditing standards
  • Work to operationalise audit market competition policy proposals set  ahead of legislation.
  • Undertake assessments of performance against the UK Corporate Governance Code, the UK Stewardship Code and the Wates Corporate Governance Code for Large Private Companies.
  • Consult on revisions to the UK Corporate Governance Code and associated guidance ahead of legislation, subject to the outcome of Government consultation.
  • Deliver FRC Lab reports on stakeholder reporting and s172 of the Companies Act 2006, risk, uncertainties and scenarios, and performance metrics.
  • Deliver improvements to the FRC’s stakeholder engagement function, including through a refreshed communications strategy and increased use of digital platforms.
  • Support the FRC’s transformation into ARGA through establishing a programme of work aimed at reviewing and revising standards, codes and guidance, where appropriate, in advance of legislation.
  • Build technology and innovation outreach and embed digital into its core policy areas.

Supervision

  • Taking a risk-based approach, maintain the scope and number of Audit Quality Reviews and Corporate Reporting Reviews undertaken.
  • Use thematic and cross-market reviews to promote improvements in corporate reporting, audit quality and audit market resilience.
  • Build and deepen its forward-looking supervision of the major audit firms.
  • Further develop its oversight of the professional bodies, taking over the decision-making function of PIE audit firm and auditor registration as a tool for supervision of audit firms.
  • Further develop and share views on what constitutes high quality audit, including in response to changing circumstances, such as the impact of COVID-19..

Enforcement

  • Deliver robust, fair and transparent regulatory outcomes.
  • Deliver investigations and enforcement action in an increasingly timely manner,
  • Create long-term behavioural changes by working closely with the Supervision and Regulatory Standards divisions to deliver a holistic regulatory approach.
  • Promote improvements through communicating clear and impactful messages in our enforcement outcomes
  • Support the transformation of the organisation into ARGA by working collaboratively with internal and external stakeholders.
  • The independent reviews included new enforcement regime recommendations for directors, accountants and potentially actuaries.

Corporate services

  • Deliver the supporting pillars of a new robust and independent regulator.
  • Support organisational growth and increased capabilities to set a medium-term workplace strategy to encompass career development and progression. 
  • Review and set the medium-term IT and information management strategy and implement the recommendations to support organisational resilience and effective decision-making, drawing on the data and intelligence available.
  • Embed the new governance arrangements and support the new board and NEDs in discharging their responsibilities
  • Continue the range of expert support services – legal, finance and risk, HR, IT, and economics, research and data analytics, including to the UKEB.

The draft plan and budget also covers the operational structure, governance and resourcing of the FRC and the UK Endorsement Board. The FRC also sets out its proposed budget for 2021/22 for expenditure and funding. Expenditure is being increased in the areas of audit firm supervision, audit market supervision, corporate reporting review, actuarial standards and stakeholder engagement.

The press release and Draft Strategy and Plan & Budget 2021/22 are available from the FRC website.

Updated IASB work plan — Analysis (February 2021)

19 Feb, 2021

Following the IASB's February 2021 supplementary meeting and February 2021 regular meeting, we have analysed the IASB work plan to see what changes have resulted from the meetings and other developments since the work plan was last revised in January 2021.

Below is an analysis of all changes made to the work plan since our last analysis on 29 January 2021.

Stan­dard-set­ting projects

  • Management Commentary — The exposure draft is now expected in April 2021 (previously Q2 2021)

Main­te­nance projects

  • Accounting Policies and Accounting Estimates — This project has been removed from the work plan since final amend­ments to IAS 8 were issued on 12 February 2021
  • Dis­clo­sure Ini­tia­tive — Accounting Policies — This project has been removed from the work plan since final amend­ments to IAS 1 and IFRS Practice Statement 2 were issued on 12 February 2021
  • IFRS 16 and COVID-19 — Extension of practical expedient — Newly added to the work plan; the IASB issued an exposure draft od proposed amend­ments on 11 February 2021 and will discuss feedback to the exposure draft in March 2021
  • Lack of Exchangeability (Amendments to IAS 21) — The exposure draft is now expected in April 2021 (previously March 2021)

Research projects

  • Dynamic Risk Management — The discussion on the feedback of the core model is now expected in April 2021 (previously Q2 2021).
  • Pension Benefits that Depend on Asset Returns — The review of the research is now expected in April 2021 (previously February 2021)
  • Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12 — The request for information feedback is now expected in Q3 2021 (previously Q2 2021)

Other projects

  • IFRS Taxonomy Update — 2020 General Improvements and Common Practice — This project is now expecting an IFRS Taxonomy Update in March 2021.
  • IFRS Taxonomy Update — Amendments to IAS 1, IAS 8, and IFRS Practice Statement 2 — The proposed IFRS Taxonomy Update is now expected in April 2021 (previously Q2 2021).

The above is a faithful comparison of the IASB work plan at 29 January 2021 and 19 February 2021. For access to the current IASB work plan at any time, please click here.

February 2021 IASB meeting notes posted

19 Feb, 2021

The IASB met on 16–17 February 2020 to discuss six topics. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

Financial Instruments with Characteristics of Equity: The Board discussed potential disclosures that could be developed as part of the FICE project. The Board also discussed the classification of particular financial instruments that contain obligations that arise only on liquidation of the entity, which IAS 32:16 classifies as equity. The 2018 DP proposed that at least some of these instruments should be classified as financial liabilities. The Board agreed with the staff that the information needs of users of financial statements could be met by supplementing the existing IAS 32 classification requirements with new presentation and disclosure requirements rather than changing the classification.

Management Commentary: The Board considered several issues identified during the drafting of the ED for the revised Practice Statement, mainly as a result of feedback from reviewers: (a) the status of the Practice Statement and how it compares to the status of the Materiality Practice Statement; (b) materiality—the staff recommended that the Practice Statement definition of material information should refer to the decision investors and creditors make on the basis of the management commentary and the related financial statements; (c) thresholds—clarifying why the ED uses the terms ‘key’, ‘fundamental(ly)’, ‘severely’ and ‘underpin’, and explaining how those terms relate to the materiality threshold; (d) Long-term prospects, intangible resources and relationships and ESG matters—the staff plan to restructure the appendix by providing a more summarised description of applicable requirements and guidance.

Extractive Activities: The Board had a non-decision making session in which the staff explained the life cycle of a minerals and oil and gas property, the activities that are performed in the different phases of that life cycle, and the financial reporting challenges associated with those different phases. Board members were concerned about the diversity in accounting practices for capitalisation of exploration expenditures. They want to understand if the differences in practice reflect simple policy choices or differences in the underlying activities. Several Board members observed that many of the issues were not limited to extractive activities, but are observed in pharma and mining as well, for example.

Agenda Consultation: The Board gave the staff permission to publish the Request for Information, which will lead to the Board setting priorities for 2022 to 2026 with 120 days as a comment period. This is shorter than the normal 180 days previously provided, because commenting on a strategic consultation should require less time for respondents.

Disclosure Initiative—Subsidiaries that are SMEs: The Board decided to start the process for publishing the ED. It will have a comment period of 180 days.  

SME Standard review: The staff provided an oral update of most recent meeting of the SME Implementation Group. They intend to present a plan for the project direction for the second phase of the review for the Board to consider at its meeting in March. 

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

Agenda for the March 2021 IFASS meeting

18 Feb, 2021

The International Forum of Accounting Standard Setters (IFASS) will meet on 8-9 March 2021. The meeting will be held virtually.

The full agenda for the meeting is summarised below.

Monday, 8 March 2021 (9:00–14:45)

  • Welcome and opening remarks
  • EFRAG initiative on non-financial reporting
    • Overview of the current discussions at the EU level on sustainability reporting
  • Disclosure initiative – Subsidiaries that are SMEs
    • Introduction of the forthcoming proposals
  • Going concern
    • Presentations by Australia and New Zealand
  • Issues surrounding separate financial statements
    • Presentations by Brazil, Italy, and Korea
  • Future of Corporate Reporting
    • FRC discussion paper on the future of corporate reporting
  • Post-implementation review of IFRS10, IFRS 11 and IFRS 12
    • Presentation by India

Tuesday, 9 March 2021 (9:00-15:00)

  • International financial reporting for non-profit organisations
    • Introduction to the IFR4NPO consultation paper issued in January 2021
  • Agenda consultation
    • Introduction to the main areas of the forthcoming request for information (IASB)
    • EFRAG presentation of its preliminary views on the IASB’s agenda consultation
  • Business combinations under common control
    • Quick overview of the discussion paper and introduction of the discussion topic for this meeting
    • Break-out session
    • Plenary session with presentation of group discussions
  • Message from IASB Chair
  • Closing remarks

Recent sustainability reporting developments

17 Feb, 2021

A summary of recent developments at ASCG, CDSB, CDSB/SSE, UNEP FI, and GRI.

The Accounting Standards Committee of Germany (ASCG) has published the results of a study of how companies comply with the reporting obligations on environmental, social and governance (ESG) aspects in connection with the requirements of the EU Non-Financial Reporting Directive (NFRD). The study included a horizontal study of 100 representatively selected companies and outreach events with participants from all stakeholder groups; it also includes  recommendations for action on the upcoming revision of the NFRD. Please click to access the study on the ASCG website.

Following the publication of guidance for integrating climate matters into financial reporting in December 2020, the Climate Disclosure Standards Board (CDSB) now welcome companies, preparers, accountants, the finance function and other stakeholders to join a two-part webinar on how to account for climate in financial reporting. Please click for more information on the CDSB website: Part one (25 February) and part two (11 March).

The CDSB also invites comments from multi-stakeholders on the CDSB Framework application guidance for water-related disclosures and how it can support the integration of material water-related information in corporate mainstream reports. Comments are requested by 1 March 2021. Please click for more information on the CDSB website.

A recording is available of a workshop held in the Baltic region on Enhancing Climate-Related and Environmental Disclosure. The worhshop was held jointly by the CDSB and the United Nations Sustainable Stock Exchanges (SSE) initiative. Please click to access the recording on the SSE website.

Ten UN Environment Finance Initiative (UNEP FI) members (financial institutions from banking, investment and insurance) have issued a statement calling for greater action on assessment, reporting and management of the physical risks of climate change, and asking policy makers to deliver mandatory disclosure requirements on climate risk. Please click to access the statement on the UNEP FI website.

Research into corporate transparency practices in Hispanic American capital markets has set a benchmark for the prevalence of sustainability reporting in the region. The study by the Global Reporting Initiative (GRI) involved all 762 listed companies in five countries – Argentina, Chile, Colombia, Mexico and Peru – and found that 37.5% produce a report. Please click for more information on the GRI website.

 

FRC Lab report on virtual and augmented reality

17 Feb, 2021

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) considers how virtual and augmented reality are and might be used to expand the scope and audience for corporate reporting.

The report notes that the COVID-19 pandemic has massively accelerated the adoption of technology across business and communications. These changes are driving some to ask if the digitisation of communications will permanently switch from physical to digital. Whilst the ultimate answer to this is currently unclear, it remains a good time to consider how virtual and augmented reality (the latter of which bridges the physical and digital) might work for corporate reporting. The report includes examples of current practice and highlights some possible future uses.

Please click to access the report on the FRC website.

IVSC valuation guide on IBOR reform

17 Feb, 2021

The International Valuation Standards Council (IVSC) has published a perspectives paper 'IBOR Reform - A Valuation Guide' as the move away from IBOR will change the pricing, valuation, and risk management practices, notably in the financial services sector but also for any entity that uses financial instruments.

The paper notes that the industry will need to navigate valuation challenges that are interrelated and can be grouped under three broad headings:

  • valuation impact of terms in existing IBOR inventory;
  • valuation impacts of evolving market liquidity;
  • valuation impacts of new risks.

The paper also outlines the areas that can contribute to ‘valuation uncertainty’ and thereby increase valuation risk in valuations of financial instruments arising from the cessation of IBOR.

Please click to access the perspectives paper on the IVSC website.

UK Endorsement Board reappointed to international Accounting Standards Advisory Forum

16 Feb, 2021

The UK Endorsement Board (UKEB) has been reappointed to the Accounting Standards Advisory Forum (ASAF) for a further three year term.

The Accounting Standards Advisory Forum (ASAF) provides a forum where members can constructively contribute towards developing high-quality, globally accepted accounting standards and acts as the main technical advisory body to the International Accounting Standards Board (IASB).

A press release is available on the UKEB website.

Summary of the February 2021 ITCG meeting

15 Feb, 2021

The IASB has published a summary of the IFRS Taxonomy Consultative Group (ITCG) meeting held on 1 February 2021.

The ITCG discussed the following:

  • IFRS Taxonomy 2020 — Proposed Update 4 General Improvements and Common Practice — Presentation of information in primary financial statements

For more in­for­ma­tion, see the summary on the IASB’s website.

IASB announces webinar on regulatory assets and regulatory liabilities exposure draft

15 Feb, 2021

The IASB will be holding a webinar on 24 February 2021 (12:00 GMT) to provide an overview of Exposure Draft (ED) ‘Regulatory Assets and Regulatory Liabilities’.

On 28 January 2021, the IASB published the ED which would replace IFRS 14 Regulatory Deferral Accounts and would apply when the entity is party to a regulatory agreement that determines the regulated rate the entity can charge for the goods or services it supplies to customers.

For more in­for­ma­tion, see the press release on the IASB’s website.

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