The proposals, which have been developed in collaboration with the HM Treasury led TCFD joint Taskforce, come in the wake of the Chancellor’s November 2020 announcement of the intention that Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures will be fully mandatory across the economy by 2025. Consistent with HM Treasury’s roadmap towards mandatory climate-related disclosures (link to HM Treasury website), the proposals are in line with the expectation, as set out in the Government’s 2019 Green Finance Strategy (link to HM Treasury website), that all listed companies and large asset owners will be expected to make disclosures aligned with the recommendations of TCFD by 2022.

The proposed changes would take effect for periods commencing on or after 6^th April 2022 and would apply to:

• all UK companies currently required to produce a non-financial information statement (being UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies (Relevant Public Interest Entities (PIEs));
• UK registered companies with securities admitted to AIM with more than 500 employees;
• UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500m (turnover as defined in s474); and
• LLPs which have more than 500 employees and a turnover of more than £500m.

While companies in scope would not be required to make the eleven recommended disclosures as set out in the Recommendations of the Taskforce on Climate-related Financial Disclosures, they would be required to provide information in line with the four “pillars” of TCFD, being Governance; Strategy; Risk Management; and Metrics and Targets. It is proposed to require in scope companies and LLPs to provide disclosures relating to:

Governance

• a description of the governance arrangements in place to identify and manage risks and opportunities arising from climate change;
  • who has operational responsibility for climate change, including the experience of that executive or committee; and
  • if the company has an audit committee, whether climate change is a matter considered by the company’s audit committee.

Strategy

• a brief description of the company’s business model and strategy (to the extent that the company is not already required to report such information);
• a description of how the company’s business model and strategy may change in response to effects relating to climate change, and the trends and factors that affect this change.

Risk Management

• a description of the principal risks and principal opportunities, including material financial risks and opportunities, relating to transition risk, physical risk and regulatory risk arising from climate change which may affect the business and a description of how the company manages those areas of risk and opportunity including:
  1. a description of its business relationships, products and services which are likely to cause adverse impacts in those areas of risk, and
  2. a description of how it manages the principal risks; and
• a description of the risk management policies pursued by the company in relation to climate change, any due diligence processes implemented by the company in pursuance of those policies and a description of the outcome of those policies.

Metrics & Targets

• a description of the key performance indicators relevant to the entity’s exposure to climate change risk and opportunity, and the targets set by the business for those key performance indicators.

The proposals would not require companies and LLPs to provide detail on scenario analysis but would encourage such disclosure where possible.

Companies will be required to report climate-related financial information in the non-financial information statement which forms part of the Strategic Report (or cross-referenced into that statement). LLPs will be required to report climate-related financial information in either the non-financial information statement which forms part of their Strategic Report or the Energy and Carbon Report which forms part of their Annual Report.

BEIS has stated that it will consider increasing the scope further in 2023. Non-binding guidance will be produced to help support application of the requirements.

A press release and the consultation are avail­able on the UK Government’s website.  A Financial Reporting Council (FRC) podcast on the consultation is available on the FRC website.

The FRC has broken the consultation down into six main themes on which the sessions will focus. These themes are Regulatory Framework, Corporate Reporting and Governance, Audit Scope, Quality and Competition in the Audit Market, Supervision and Enforcement. 

Further details, how to register and webinar slides for the events are available on the FRC website. 

A podcast is also available on the FRC website detailing the consultation in further detail and highlighting the FRC's engagement plans to support the consultation.

The podcast is available on the FRC website. 

The Issued IFRS Standards 2021 publication contains the Standards as approved by the International Accounting Standards Board for issue up to 31 December 2020. These Standards include changes that are not yet required at 1 January 2021. The Annotated Issued IFRS Standards 2021 includes the same content as Issued IFRS Standards 2021, but with additional annotations containing extensive cross-references, explanatory notes and IFRS Interpretations Committee agenda decisions.

The books are available in electronic format for subscribers to eIFRS Professional. Printed copies of the books are available for sale through the IASB's web shop.

The White Paper sets out the Government's proposals to respond to over 150 recommendations arising from independent reviews carried out by Sir John Kingman ('Independent Review of the Financial Reporting Council'), the Competition and Markets Authority (CMA) ('Statutory audit market services study') and Sir Donald Brydon ('The quality and effectiveness of audit: Independent review') (all links to BEIS website).

The proposed reforms in the paper set out how the Government plans to address the findings of each review and include a number of new measures in relation to directors, auditors and audit firms, the audit regulator and shareholders. The reforms are focused on the largest companies as this is where there is greatest public interest in ensuring that audit and corporate reporting are functioning effectively.  The Government wants its reforms to be effective and is therefore looking to make decisive changes. Previous attempts at incremental reform have not prevented the problems identified by the reviews. The proposals in the White Paper are therefore intended to be significant, targeted measures.

The White Paper notes that the UK is consistently placed as one of the leading destinations for foreign investment in Europe and around the world, thanks to the strength of its workforce, innovation, and approach to better regulation. Reliable corporate reporting is vital to well-functioning financial markets, business investment and growth through enabling all interested stakeholders to make an informed assessment of a company’s performance and governance. It helps safeguard investors, creditors, employees, customers, suppliers and the wider public from corporate mismanagement. High quality reporting by directors allied with robust and challenging external audit should give confidence to all those with an interest in a company’s activities, position and prospects. The point is made that whilst corporate failure can happen, it should rarely be a surprise.

The Government believes that fundamental reform of the framework underpinning audit and corporate reporting is needed to rebuild public trust in the way the largest companies are run and scrutinised. The UK has long held a hard-earned reputation for high standards of corporate governance and robust protections for investors and other stakeholders, and this is vital to making the UK attractive to international business and investment. The White Paper proposals represent steps to address the weaknesses and lack of accountability that the Kingman, Brydon and CMA reviews have highlighted so that this reputation can be maintained and enhanced.

The most significant proposals covered in the White Paper are:

• Proposals in relation to the responsibilities of, and reporting by directors
  • Capital maintenance
  • Definition of public interest entity
  • Directors’ obligations in relation to fraud
  • Exploring options for attestations on internal controls
  • New regulatory regime for directors
  • Options for assurance on areas such as climate, Alternative Performance Measures (APMs) and Key Performance Indicators (KPIs)
  • Payment practices
  • Publication of principal risks & audit plan for engagement with shareholders
  • Supervision of corporate reporting
  • The Resilience Statement

• Proposals impacting the work of audit committees
  
  • Regulatory framework for audit committees
  • The Audit & Assurance Policy 

• Proposals on the future of audit 
  • A new professional body for corporate auditors
  • Enhanced reporting by auditors
  • Managed shared audits
  • Operational separation
  • Principles of Corporate Auditing
  • Publication of AQR reports
• Proposals for the future of the Financial Reporting Council (FRC)
• Proposals for the investor community

There are also some proposals from the independent reviews that have not been taken forward. 

Please click on the links above to be taken to our resource pages summarising the key features of the proposals.  

To balance the urgency of audit reform with its desire to manage additional requirements on businesses, the Government intends to take the following overall approach:

• In general, measures that do not directly impact on businesses would be brought into effect quickly. This is intended to include:
  • measures associated with establishing the new regulator, including the powers and duties of the regulator; and
  • measures that do not take effect until something else is done (for example, powers to make legislation which will require the further approval of Parliament).
• Measures with significant impacts on those regulated by the new regulator would be commenced quickly, but transition periods and/or phasing (particularly for those newly in scope of the regulator) may be appropriate to ensure a smooth introduction.
• Measures with significant impacts on wider business are most likely to be considered for later commencement, a transition period and/or phasing. In particular this would include the proposed extension of the definition of Public Interest Entities and introduction of a stronger internal controls regime.

The consultation paper is accompanied by a regulatory impact assessment which examines the cost and benefits of implementation of the proposals. 

Responses are requested by 8 July 2021.

A press release, the full consultation and other supporting documents are available on the BEIS website.  The Financial Reporting Council (FRC) will be hosting a series of webinars on the White Paper.  Further information is available here.

The statement stresses that the responsibility for developing and maintaining high-quality standards lies with the IASB and especially welcomes the recent IASB educational material on the topic of going concern disclosures as the topic is likely to be relevant for a larger number of public companies for 2020 and 2021 financial reporting periods in many jurisdictions.

IOSCO highlights that is important for investors to receive high-quality information about the existence of material uncertainties that may cast significant doubt on an entity’s ability to continue as a going concern. IOSCO also notes that it is important for investors to receive complete information about significant judgements that management may have exercised in determining the entity’s ability to continue as a going concern.

In conclusion, IOSCO reminds issuers, audit committees, and external auditors of the important role each plays in providing investors with high-quality, reliable, timely, and transparent financial information, especially in times of heightened uncertainty.

Please click to access the full statement on the IOSCO website.

Background

The IASB noted constituent concern about the cumulative effect of disclosure requirements introduced by new and revised standards and conducted a research project with the aim of a general review of disclosure requirements.

As a first step, the Board published a discussion paper DP/2017/1 Disclosure Initiative — Principles of Disclosure in March 2017 that contained an appendix with two examples of how existing standards could be re-drafted using the principles described in the DP.

Many respondents to the DP highlighted the ‘checklist’ approach as a significant factor contributing to the disclosure problem and that the Board’s way of developing and drafting disclosure requirements in IFRSs is partly responsible for this as there often are a large number of disclosure requirements without specific disclosure objectives. In addition, disclosure sections are drafted inconsistently.

The Board acknowledged these concerns and decided to pursue a project following a four-step approach:

• Develop draft guidance for the Board to use when developing and drafting disclosure sections;
• Select two standards on which to apply the draft guidance;
• Test the draft guidance by applying it to those standards; and
• Prepare an ED of amendments to those standards.

The exposure draft published today includes the draft guidance as well as proposed amendments to IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits that result from applying the draft guidance to those standards. 

Draft guidance and suggested changes

The exposure draft ED/2021/3 Disclosure Requirements in IFRS Standards — A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19) is made up of three blocks: the draft guidance for the IASB to apply when developing and drafting disclosure requirements in IFRSs in future; proposed amendments to IFRS 13; and proposed amendments to IAS 19.

Draft guidance

As one of the main reasons for the perceived disclosure problem was the 'checklist' mentality, the IASB decided to develop an approach that would shift the focus to the use of judgement and to determining whether the objective behind the disclosures has been met by the entity.

To this end, the the Board proposes to use overall disclosure objectives in future that that describe the overall information needs of users of financial statements and specific disclosure objectives that describe the detailed information needs of users of financial statements. An entity would then need to apply judgement to identify items of information for each specific disclosure objective by considering whether the information is relevant or irrelevant and whether it helps the entity to communicate effectively. For the overall disclosure objectives, the IASB would use more prescriptive language, while for the information needed to meet specific disclosure objectives it would typically use less prescriptive language.

The draft guidance is not a standard. However, once finalised, the Board will apply the guidance in developing and drafting disclosure sections of IFRSs in the future. The Board expects that the broad application of the guidance will have a significant effect on the behaviour of entities, auditors and regulators. Instead of checking whether a specific piece of information required by an IFRS has been provided, auditors and regulators will have to use judgement to assess compliance. Compliance will be achieved if the information provided effectively meets the disclosure objectives in the entity’s case.

Proposed amendments to IFRS 13

In line with the draft guidance, the Board proposes an overall disclosure objective that requires an entity to disclose information that shows

• the significance of the assets and liabilities measured at fair value;
• how the fair value measurements have been determined; and
• how changes in those measurements affect the entity’s financial statements.

Specific disclosure objectives would then regard the fair value hierarchy, measurement uncertainties, possible alternative fair value measurements, and drivers of change in fair value measurements. The proposed amendments also note the kind of information needed to meet the disclosure objectives. In addition, the specific disclosure requirements also cover disclosures regarding assets and liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed in the notes.

Proposed amendments to IAS 19

The overall disclosure objectives proposed for IAS 19 distinguish between defined benefit plans and define contribution plans. For defined benefit plans, the overall disclosure objective requires an entity to disclose information that shows enables users of financial statements to evaluate the uncertainties associated with the entity’s involvement in its defined benefit plans and to assess the effect that the defined benefit plans have on the financial performance, financial position and cash flows of the entity. For defined contribution plans, the overall disclosure objective requires requires an entity to disclose information that enables users of financial statements to understand the effect that defined contribution plans have on the financial performance and cash flows of the entity.

While the Board does not propose specific disclosure objectives for defined contribution plans, the proposed specific disclosure objectives for defined benefit plans include amounts in the primary financial statements relating to defined benefit plans, the nature of, and risks associated with, defined benefit plans, expected future cash flows relating to the defined benefit obligations at the end of the period, future payments to members of defined benefit plans that are closed to new members, measurement uncertainties associated with the defined benefit obligation, and drivers of change in the amounts in the statement of financial position relating to the defined benefit plans. The proposed amendments also note the kind of information needed to meet the disclosure objectives.

In addition, the proposed amendments also touch on  multi-employer plans and defined benefit plans that share risks between entities under common control as well as other types of employee benefit plans.

Comments on the draft guidance and the proposed changes are requested by 12 January 2022 (comment letter deadline extended on 21 July 2021).

Effective date

The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. Early application would be permitted.

Additional information

Please click for:

• IASB press release including a short explanatory video (link to IASB website)
• Access to the exposure draft on the IASB website
• Access to the basis for conclusions on the IASB website
• Snapshot overview of the exposure draft (link to IASB website)
• Our UK Accounting Plus project page on Disclosure initiative — Disclosure review
• Our related Need to know newsletter

Board Work Plan Update: This is a regular update for the Board. The Board decided to increase the comment period 30 days for the ED Regulatory Assets and Regulatory Liabilities, because of ongoing challenges from the pandemic and the volume of consultation documents out for comment. They also decided to have longer consultation periods for two documents due to be released shortly—ED Targeted Standards-level Review of Disclosures from 180 days to 210 days (rather than the 270 days proposed) and the Request for Information on the Third Agenda Consultation from 120 days to 180 days.

Management Commentary: The Board decided that the comment letter period for the forthcoming ED to revise Practice Statement 1 Management Commentary should be set to avoid overlapping with other projects and (possibly) to avoid publication at the same time as the Trustees consultation on sustainability reporting.

Equity Method: The staff updated the Board on the equity method research project. The staff have compiled from various sources 71 application questions for consideration. Using the project scope decided by the Board in October 2020, the staff plan to consider only those issues that can be resolved without fundamentally rewriting IAS 28 or amending other Standards. The staff consider that issues not meeting these criteria should not be considered in this project and that issues should be removed if they are not important or do not affect the consistent application of IAS 28. Board members suggested that the criteria be used as guidelines and not imposed strictly.

Goodwill and Impairment: In March 2020, the Board published Discussion Paper DP/2020/1 Business Combinations—Disclosures, Goodwill and Impairment. During the comment period, Board members and the staff attended 94 meetings with outside parties, received feedback from its consultative bodies, recorded two webinars, conducted fieldwork and received 193 comment letters. The Board discussed a high-level summary of the feedback received on the DP but no decisions were made.

Maintenance and Consistent Application: The Board discussed the latest IFRIC Update. No decisions were made.

Primary Financial Statements: The Board discussed detailed feedback on three topics: Subtotals in the statement of profit or loss—operating profit; scope of management performance measures (MPMs); and statement of cash flows. The Board decided to proceed with the proposal to require all entities to present an operating profit subtotal. The operating category would include volatile and unusual income and expenses arising from an entity’s operations. The Board decided to proceed with the proposal to include information about measures meeting the definition of MPMs in the financial statements and explore possible approaches to expand the scope of MPMs to include measures other than subtotals of income and expenses. The Board also decided to proceed with the limited proposals in the ED in relation to cash flows and make no additions to the scope of the work. 

IFRS for SMEs: The Board decided to move the project from its research programme to its standard-setting work plan, treating alignment with IFRS Standards as the starting point, applying the principles of relevance to SMEs, simplicity and faithful representation in determining whether and how that alignment should take place. The next step should be an ED.

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

The IFRS Taxonomy 2021 is consistent with IFRSs as issued by the IASB at 1 January 2021, including those issued but not yet effective.

The IFRS Taxonomy 2021 also incorporates the six updates made to the IFRS Taxonomy in 2020 reflecting amended IFRSs and providing new common practice elements.

For more information, see the press release and the IFRS Taxonomy 2021 page on the IASB's website.

The topics for discussion are:

• Adoption of the Terms of Reference
• Approval of Delegation of Authority to UKEB Chair

The meeting, agenda papers and details of how to register are available on the UKEB website.

The meeting recording can be found here.

A recording of the webinar (30 minutes) is now available. It can be accessed here on the IASB website.