IPSASB guidance on borrowing costs

04 Nov, 2021

The International Public Sector Accounting Standards Board (IPSASB) has released non-authoritative guidance on borrowing costs.

Amendments to IPSAS 5 'Borrowing Costs' – Non-Authoritative Guidance adds non-authoritative guidance to IPSAS 5 Borrowing Costs that consists of implementation guidance and illustrative examples to clarify how the existing principles for when borrowing costs can be capitalised should be applied in various regularly encountered public sector contexts. The authoritative guidance in IPSAS 5 is not amended.

Please click to access the following additional information on the IPSASB website:

UK Government publishes a factsheet around the UK becoming the world’s first Net Zero-aligned Financial Centre

03 Nov, 2021

The UK Government has announced that the UK will be the world’s first Net Zero-aligned Financial Centre.

This means UK financial institutions having a robust firm-level transition plan setting out how they will decarbonise as the UK meets its ambitious and legally binding net zero targets, and there will be strong Government oversight of the financial sector as a whole to ensure financial flows actually shift towards supporting net zero. 

Furthermore, the UK will move towards making publication of transition plans mandatory. Initially, this will require asset managers, regulated asset owners and listed companies to publish transition plans that consider the government’s net zero commitment or provide an explanation if they have not done so. As standards for transition plans emerge, the Government and regulators will take steps to incorporate these into the UK’s Sustainability Disclosure Requirements and strengthen requirements to encourage consistency in published plans and increased adoption by 2023.

In October 2021, the Government published Greening Finance: A Roadmap to Sustainable Investing. This set out a comprehensive plan to get market participants the information they need to take climate into account in every financial decision. To make sure financial flows actually shift to meet the Paris commitment, the Government will go further, and next year set out a transition pathway for the sector as a whole with new policies and milestones looking ahead to 2050.

The factsheet can be accessed on the HM Treasury website here. Our related Need to know publication is here

IFRS Foundation creates new sustainability standards board

03 Nov, 2021

The IFRS Foundation has announced the creation of its new International Sustainability Standards Board (ISSB) that will develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

In two separate consultations, the IFRS Foundation Trustees consulted on the demand for global sustainability standards and what role the Foundation might play in the development of such standards (September 2020) and on proposed amendments to the IFRS Foundation Constitution that would enable the creation of a new sustainability standards board under the governance of the Foundation (April 2021).

Responses to the consultations showed strong support for the IFRS Foundation's initiative and the Trustees have today published a revised constitution and corresponding feedback statement and have announced the creation of the new ISSB.

International Sustainability Standards Board (ISSB)
Governance and structure The ISSB will sit alongside the IASB and will be overseen by the Trustees. The ISSB’s work will follow the IFRS Foundation’s established due process. Technical advice to the ISSB will be provided by a new Sustainability Consultative Committee; strategic advice will be provided by the IFRS Advisory Council, whose remit and expertise will be extended accordingly; and engagement with jurisdictional and regional initiatives will be provided through a working group already set up by the Trustees.
Mission The ISSB will develop global standards and disclosure requirements to facilitate consistent and comparable reporting by companies across jurisdictions to help to direct capital to long-term, resilient business in the transition to a low-carbon economy.
Name of the standards The name of the standards to be developed by the ISSB will be "IFRS Sustainability Disclosure Standards".
Composition of the ISSB The ISSB will normally comprise 14 members, some of which can be part-time members. The main qualifications for membership of the ISSB are professional competence and relevant professional experience. The board will comprise three members from the Asia-Oceania region, three members from Europe, three members from the Americas, one member from Africa, and four members appointed from any area. The search for members will commence shortly.
Chair and Vice Chair(s) The ISSB will have one Chair and at least one Vice Chair. They are still to be announced.
Seat The main seat of the ISSB will be in Frankfurt, but all regions - the Americas, Asia-Oceania and Europe/Middle East/Africa - will be covered by regional hubs.

The press release also notes that leading investor-focused sustainability disclosure organisations have committed to consolidate into the new board. The Trustees expect to complete the consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) into the ISSB by June 2022.

In addition to announcing the creation of the ISSB, the Trustees are also providing an update on the work of the Technical Readiness Working Group (TRWG). The TRWG was created in March 2021 to facilitate a running start of the ISSB. It was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB. The following two documents that resulted from the TRWG's work were published today:

  • Climate-related Disclosures Prototype (please see a summary of the prototype here) and
  • General Requirements for Disclosure of Sustainability-related Financial Information Prototype (please see a summary of the prototype here)

The two prototypes are accompanied by an overview of the work programme of the TRWG, explaining the technical preparatory work done so far and still to be completed so that a final set of recommendations can be handed over to the ISSB once it begins its work.

Please click for the following additional information on the IFRS Foundation website:

The International Organization of Securities Commissions (IOSCO) and the Board of the International Federation of Accountants (IFAC) have issued statements welcoming the creation of the ISSB and and pledging ongoing support for the ISSB:

In addition, see Deloitte's Purpose-driven Business Reporting in Focus — IFRS Foundation creates new board to set sustainability standards newsletter.

Note: On 3 November 2021 14:30 GMT, the ISSB was introduced in a live webcast from COP26. A recording of the event is available on YouTube.

Climate-related disclosures prototype

03 Nov, 2021

The IFRS Foundation has released a climate-related disclosures prototype that is the proposal of the Technical Readiness Working Group (TRWG) for the first thematic standard of the ISSB.

The TRWG was created in March 2021 to facilitate a running start of the ISSB. It was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB. The climate-related disclosures prototype published today is structured around the four TCFD pillars of governance, strategy, risk management, and metrics and targets:

  • Objective: The recommended objective of the prototype is to require an entity to disclose information about its exposure to climate-related risks and opportunities.
  • Scope: The prototype would apply to climate-related risks that the entity is exposed to, climate-related opportunities available to and considered by the entity.
  • Governance: Under the prototype, an entity would disclose information that enables users of general purpose financial reporting to understand the governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities.
  • Strategy: An entity would disclose information that enables users of general purpose financial reporting to understand the strategy for addressing climate-related risks and opportunities as well as the climate-related risks and opportunities that would affect the strategy and the impact of climate-related risks and opportunities on the strategy.
  • Risk management: An entity would disclose information that enables users of general purpose financial reporting to understand how climate-related risks are identified, assessed, managed and mitigated.
  • Metrics and targets: An entity would disclose information that enables users of general purpose financial reporting to understand the entity’s performance in managing climate-related risks and opportunities.

There are two appendices to the climate prototype. Appendix A contains the defined terms used; Appendix B sets out industry-based disclosure requirements, organised by sector and industry. Supplementary technical protocols for disclosure requirements describe industry requirements for climate-related metrics.

The climate-related prototype and the supplementary technical protocols for disclosure requirements can be accessed on the IFRS Foundation website.

General requirements for disclosure of sustainability-related financial information prototype

03 Nov, 2021

The IFRS Foundation has released a general requirements prototype that is the proposal of the Technical Readiness Working Group (TRWG) for a general presentation standard of the ISSB.

The TRWG was created in March 2021 to facilitate a running start of the ISSB. It was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB. The general requirements for disclosure of sustainability-related financial information prototype published today is inspired by IAS 1 Presentation of Financial Statements and sets out the overall requirements for sustainability-related disclosures to investors:

  • Objective and scope: The recommended objective of sustainability-related financial disclosures is described as providing information about the significant sustainability-related risks and opportunities to which the reporting entity is exposed that is useful to primary users of general purpose financial reporting in deciding whether to provide resources to the entity. The recommended standard would apply when an entity prepares and discloses sustainability-related financial information in accordance with IFRS Sustainability Disclosure Standards.
  • Materiality: An entity would disclose all information on sustainability matters that is material for investors and other providers of capital in respect of a reporting entity. Sustainability-related financial information is described as material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports.
  • Reporting entity boundary and connectivity: The reporting entity's boundary for its general purpose financial reporting is recommended to be the same for its financial statements and sustainability-related financial disclosures. The disclosures provided must enable users to understand the connections, dependencies and trade-offs between sustainability-related financial disclosures and other information in general purpose financial reporting.
  • General features: Applying the general requirements prototype an entity would disclose information that focuses on matters critical to the way an entity operates following the four pillars of governance, strategy, risk management, and metrics and targets. The prototype sets out objectives for each of these pillars and disclosure requirements to achieve these objectives.
  • Comparative information and frequency of reporting: Under the prototype, an entity would present comparative information regarding the previous period for all amounts including metrics and key performance indicators reported in the current period. An entity would report at least every 12 months and at the same time as its financial statements.
  • Reporting channel: Sustainability-related disclosures to investors would be disclosed as part of a reporting entity's general purpose financial reporting that is targeted at investors and other providers of capital and encompasses financial statements and sustainability-related financial information.
  • Identifying the related financial statements: Sustainability-related financial disclosures would identify the financial statements to which they relate. If the related financial statements are not prepared in accordance with IFRSs, the sustainability-related financial disclosures would disclose the basis on which the financial statements are prepared.
  • Using financial data and assumptions: When sustainability-related financial disclosures incorporates financial data and assumptions, such financial data and assumptions would be consistent with the corresponding financial data and assumptions incorporated in the entity’s financial statements.
  • Fair presentation: A complete set of sustainability-related financial disclosures would present fairly the sustainability-related risks and opportunities to which the entity is exposed. A fair presentation requires an entity to disclose information that is relevant, reliable, comparable and understandable and would include additional disclosures when the information provided is insufficient to enable users to understand the impact or potential impact of significant sustainability-related risks and opportunities on the entity’s enterprise value.
  • Sources of estimation uncertainty: When sustainability-related financial disclosures cannot be directly quantified and can only be estimated, the use of reasonable estimates is an essential part of preparing sustainability-related financial disclosure and does not undermine the usefulness of the information if the estimates are clearly and accurately described and explained.
  • Errors: The general requirements prototype describes prior period errors as omissions from, and misstatements in, the entity’s sustainability-related financial disclosures for one or more prior periods. Unless impracticable, an entity would correct material prior period errors retrospectively in the first general purpose financial reporting authorised for issue after their discovery.
  • Statement of compliance: An entity whose sustainability-related financial disclosures comply with all of the relevant requirements of IFRS Sustainability Disclosure Standards would include an explicit and unqualified statement of compliance.

There are four appendices to the general requirements prototype. Appendix A explains the defined terms used in the general requirements prototype; Appendix B sets out a general-purpose financial report that includes sustainability-related financial information and financial statement information; Appendix C provides an application guidance on materiality; and Appendix D describes qualitative characteristics of useful sustainability-related financial information.

The general requirements prototype can be accessed on the IFRS Foundation website.

EFRAG publishes October 2021 issue of EFRAG Update

02 Nov, 2021

The European Financial Reporting Advisory Group (EFRAG) has published an ‘EFRAG Update’ summarising public technical discussions held and decisions made during October 2021.

Agenda for the November 2021 GPF meeting

02 Nov, 2021

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) by video conference on 12 November 2021. The agenda for the meeting has been released.

The full agenda for the meeting is summarised below:

Friday, 12 November 2021 (11:00-16:00)

  • Welcome and introduction of new members, farewell to departing member
  • Goodwill and impairment
    • Disclosures for business combinations
    • Amortisation of goodwill
  • Equity method
    • Application questions
  • Subsidiaries without public accountability
    • Overview of the Board’s proposals in the exposure draft
  • Primary financial statements
    • Project status and next steps
  • Other IASB update session
  • IFRS Interpretations Committee update session
  • Concluding remarks

Agenda papers for this meeting are available on the IASB website.

FRC publishes the results of major local audit inspections

02 Nov, 2021

The Financial Report­ing Council (FRC) has published its inspection findings into the quality of major local body audits in England for the year ended 31 March 2020. This included larger health and local government bodies.

The FRC re­viewed 20 audits across six out of the seven largest audit firms cov­er­ing both the fin­an­cial state­ment opinion and the Value for Money ar­range­ments con­clu­sion work. The report focuses on the key areas requiring action across the firms, in relation to major local audits, to safeguard and enhance audit quality.

The FRC in­dic­ated that the results of its in­spec­tions were improved from the prior year inspection result with 30% (down from 60% in the prior year where those audits required either improvements or significant improvements) of the audits re­quir­ed im­prove­ment. The key areas identified by the inspection requiring action by some of the audit firms include:

  • strengthening the audit testing of expenditure;
  • improving the evaluation and challenge of assumptions used in concluding over investment property valuations;
  • improving the evaluation of assumptions used in property, plant and equipment valuations; and
  • providing improved rationale supporting a modified audit opinion.

With regards to Value for Money (VfM) arrangement con­clu­sions, all 15 reviews were as­sessed as requiring no more than limited improvements.

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

October 2021 IASB meeting notes posted

01 Nov, 2021

The IASB met in London on Monday, Tuesday, Wednesday and Thursday of the week beginning 25 October 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Goodwill and Impairment: The IASB began making decisions related to the package of disclosures about business combinations. The IASB decided to confirm that the information about the benefits an entity’s management expect from a business combination can be required in the financial statements. The Board also considered, but made no decisions about, the practical concerns raised by respondents with regard to the proposed package of additional disclosures about business combinations in financial statements, particularly commercial sensitivity of the information, the potentially forward-looking nature of the information, the auditability of the information, and the integration of the information.

Second Comprehensive Review of the IFRS for SMEs Standard: The Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The IASB decided to: remove the option to apply the recognition and measurement requirements in full IFRS Standards for financial instruments; retain the existing hedge accounting requirements unchanged (i.e. not align with IFRS 9); align the definition of, and guidance on, fair value with IFRS 13; not align with IFRS 14 but revisit this topic once it has completed its project on rate-regulated activities; and align the requirements with IFRS 15.

Post-implementation Review of IFRS 10-12: The IASB considered feedback gathered from its Post-Implementation Review, which the staff conclude, and the IASB agrees, supports the conclusion that IFRS 10, 11 and 12 are working as intended. The IASB decided to consider some topics for further action when developing its work plan for 2022–2026: (high priority) investment entities and collaborative arrangements outside the scope of IFRS 11; (medium priority) definition of an investment entity and corporate wrappers; and (low priority) transactions that change the relationship between an investor and an investee.  The staff are also looking at the disclosure of interests in other entities and assisting the application of IFRS 10 and IFRS 11, which they will bring back to a future meeting. The staff will then prepare a “Report and Feedback Statement” on the PIR.

Equity Method: The staff have updated the IASB on questions identified applying the equity method. The staff have had difficulties identifying underlying principles when the application questions involve the application of IAS 28 paragraph 26 (i.e. the interaction of the principles in IAS 28 with other IFRS Standards, such as IFRS 3 and IFRS 10). The staff plan to undertake more research, and the IASB agreed.

Maintenance and consistent application:

  • Two Agenda Decisions from the IFRS Interpretations Committee were finalised by virtue of no IASB members objecting to their publication: Non-refundable Value Added Tax on Lease Payments (IFRS 16) and Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32)
  • The staff have been preparing the ED Supplier Finance Arrangements, which proposes to amend IAS 7 and IFRS 7. During drafting, the staff identified one issue that they want the IASB to consider. The IASB decided to add a requirement for an entity to disclose, as at the beginning and end of the reporting period, the line item(s) in the statement of financial position in which the entity presents the carrying amount of financial liabilities that are part of a supplier finance arrangement.
  • IASB members had no comments or questions on the September 2021 IFRIC Update.

Pensions Benefits that Depend on Asset Returns: Following the 2015 Agenda Consultation, the Board has been considering whether to propose amendments to IAS 19 for pension benefits that depend on the return on a specified pool of assets (reference assets). The pension benefits to be paid to employees reflect the variability inherent in the reference assets, yet IAS 19 requires a discount rate that reflects high-quality corporate bonds. Applying the IAS 19 discount rate can overstate the pension liability, producing information that is not relevant to users of financial statements. The staff recommended the Board propose that an entity estimate the ultimate cost of providing pension benefits that vary with asset returns applying the IAS 19 discount rate, but only when the IAS 19 discount rate is lower than the expected rate of return on the reference assets. Only 5 IASB members voted to continue the project and therefore the project will be stopped. All Board members supported the staff recommendation to consider any further work as part of the Third Agenda Consultation.

IFRS Taxonomy due process: The IASB decided to shorten the comment period for the Proposed IFRS Taxonomy Update for the amendment Initial Application of IFRS 17 and IFRS 9—Comparative Information to 30 days.

Primary Financial Statements: The IASB discussed two papers carried over from the September meeting, relating to associates and joint ventures and the analysis of operating expenses. The IASB decided to proceed with the proposal to present income and expenses from equity-accounted associates and joint ventures outside of operating profit, but not to require income and expenses from integral associates and joint ventures to be identified and presented separately from non-integral associates and joint ventures. They also decided to provide application guidance that builds on the description of the function of expense method in the ED to set out the relationship with expenses of the same nature; the attributes of functions; and the interaction with the role of the primary financial statements and the principles of aggregation and disaggregation.

Additionally, the IASB decided:

  • Not to develop a definition of ‘cost of sales’
  • To explore an approach to analysing and presenting operating expenses in the statement of profit or loss that would:
    • Retain the proposal to require operating expenses to be analysed and presented based on their nature or function
    • Not retain the proposed prohibition on a mixed presentation in the statement of profit or loss and instead provide application guidance and disclosure requirements to improve comparability
    • Retain the proposal to provide application guidance on how to determine which presentation method should be used to provide the most useful information to users of the financial statements
  • Undertake more research on providing a partial cost relief from the proposed requirement for an entity that presents an analysis of operating expenses by function in the statement of profit or loss to also disclose an analysis of its total operating expenses by nature
  • Amend the definition of the specified subtotal ‘operating profit or loss before depreciation and amortisation’ to also exclude impairments of assets within the scope of IAS 36 and label that subtotal ‘operating profit or loss before depreciation, amortisation, and specified impairments’

Amendments to IFRS 17 Insurance Contracts: The Board's Exposure Draft (ED) Initial Application of IFRS 17 and IFRS 9—Comparative Information (Proposed amendment to IFRS 17) was published in July 2021. The proposed amendment allows an entity to apply a classification overlay when first applying IFRS 17 and IFRS 9 at the same time for the purpose of presenting comparative information about a financial asset, if the comparative information for that financial asset has not been restated for IFRS 9.

The ED proposed that an entity would not be permitted to apply the classification overlay to financial assets held in respect of an activity that is unconnected with contracts within the scope of IFRS 17. Most respondents suggested the IASB remove this scope restriction, and the staff agree. The ED also proposed that an entity that first applies IFRS 17 and IFRS 9 at the same time it is permitted to apply the classification overlay. The proposed classification overlay would not apply to entities that have already applied IFRS 9 before initial application of IFRS 17, however the staff considered that the scope of the classification overlay should be expanded to apply in such cases. The staff recommended no substantive changes be made to the classification overlay proposed in the ED relating to impairment of financial assets or disclosures. The Board supported all of the staff recommendations with the addition to add a disclosure requirement for the impairment method used for the asset overlay and expect to issue the amendments to IFRS 17 before the end of 2021.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The proposals in the ED have generally been well-received by respondents, agreeing  with: the proposed definitions for regulatory assets and regulatory liabilities; the existence threshold of ‘more likely than not’ for recognising regulatory assets and regulatory liabilities; using a cash-flow-based measurement technique to measure regulatory assets and regulatory liabilities; and using the regulatory interest rate for a regulatory asset or regulatory liability as the discount rate for that regulatory asset or regulatory liability. However, concerns were expressed about the scope; returns on assets not yet available for use; regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives; recognition, measurement and discount rate; minimum interest rate; and the interaction with IFRIC 12. The IASB discussed the feedback but made no decisions. The IASB will continue its discussions of the feedback in November, but no decisions are expected to be made at that meeting.

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

Joint statement by the FCA, PRA, TPR and FRC on the publication of Climate Change Adaptation Reports 

01 Nov, 2021

The Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), The Pensions Regulator (TPR) and the Financial Reporting Council (FRC) have issued a joint statement on the publication of their Climate Change Adaptation Reports.

Following the Government’s invitation under the Climate Change Act 2008 to publish Climate Change Adaptation Reports, their reports set out how climate change affects the UK financial regulators' respective responsibilities and the actions they, and the financial sector, are taking in response to it.

The focus of the UK financial regulators is on ensuring that the risks from climate change and the opportunities from the transition to a net-zero economy are being identified and proactively managed across the financial sector. 

The FCA's report sets out the steps that the industry has taken to mitigate the risks climate change presents and areas where more needs to be done are identified, such as retail investments and mortgages. Additionally, the report examines how the industry is making commitments to reach net-zero. 

The PRA's report sets out the risks from climate change to its objectives and the PRA's response to them.  This includes how climate-related financial risks affect the firms the PRA regulates, its work to support and drive improvements in firms’ capabilities to manage climate-related risks effectively, and its consideration of what further policy action may be necessary.  The report also examines the relationship between climate change and the banking and insurance regulatory capital regimes, whether there are gaps that should be addressed and the PRA’s planned future work in this space. 

The Pension Regulator's report sets out the risks from climate change that are most relevant to occupational pensions schemes and the approaches TPR are taking to tackle them both as a regulator and an organisation.

Click to access the following documents:

Correction list for hyphenation

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