March

BEIS publishes government response on proposals to improve financial information that is filed at Companies House

03 Mar, 2022

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response to feedback on its proposals aimed at improving the quality of financial information which is filed at Companies House.

BEIS believes there are opportunities to improve the way financial information is filed with, and published by, Companies House. It is seeking to deliver benefits for those filing information, the users of that information, for Companies House and for the rest of government.

The original consultation in December 2020 sought proposals under three themes – how information is submitted to Companies House, what information should be filed at Companies House and what Companies House does with this information.  The headline outcomes from this consultation are as follows:

  • A requirement will be introduced for all accounts filings to be digital with full i-XBRL tagging. This means that each financial element within the accounts will need to be labelled appropriately. 
  • The role of Companies House will be enhanced and it will have the ability to query and reject information before it is placed on the register. Upfront validation of accounts will also be increased and some information will also be challenged post-registration.  These checks will, for example, be made to ensure that companies are eligible for the exemptions that they are taking. 
  • Dormant companies will be required to file an eligibility statement to confirm that they are actually dormant.
  • No changes will be made to the time allowed for filing of accounts as originally proposed. These remain at six months for public companies (plcs) and nine months for private companies.
  • The preparation and filing options available to small and micro companies are to be reduced to just two options - micro-entities and small companies. This will remove the “abridged” preparation option and the “filleted” filing option.  All small companies will therefore be required to file a profit and loss account.  Small companies will be required to file all the constituent parts of their accounts, so they will actually file what they prepare with no additional effort required to “fillet out” certain information.  This means that Companies House will receive a balance sheet and profit and loss account for all small companies including micro-entities. Small companies will also file a director’s report unless they meet the micro-entity thresholds, when they will still have the option to not prepare or file a director’s report.
  • The government will explore options to enable companies to file their financial information once a year across government departments instead of filing different elements of information with each department that requires it at various times.

The government response to the consultation also includes responses to two other consultations on Corporate transparency and register reform – powers of the registrar and implementing the ban on corporate directors.

A press release including the full outcomes from the consultations are available on the BEIS website.

European Union formally adopts amendments to IAS 1 and IAS 8

03 Mar, 2022

The European Union has published a Commission Regulation endorsing 'Disclosure of Accounting Policies' and 'Definition of Accounting Estimates' issued by the IASB in February 2021.

The IASB published the amendments to IAS 1 Presentation of Financial Statements and amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to clarify the differences between accounting policies and accounting estimates to ensure further consistent application of accounting standards and comparability of financial statements.

The amendments that revise IAS 1 also include amendments to IFRS Practice Statement 2 Making Materiality Judgements, however, as practice statements are not endorsed for application in the European Union those amendments have not been endorsed.

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 3 March 2022.

IASB issues podcast on latest Board developments (February 2022)

03 Mar, 2022

The IASB has released a podcast featuring IASB Chair Andreas Barckow and IASB Vice-Chair Sue Lloyd discussing deliberations at the February 2022 IASB meeting.

Highlights of the podcast include discussions on: 

  • an update on the agenda consultation and developments in the project on financial instruments with characteristics of equity;
  • decisions as a result of the post-implementation review of IFRS 10-12 and in the development of the IFRS for SMEs exposure draft;
  • deliberations in the projects on primary financial statements and rate-regulated activities; and
  • feedback on the projects on dynamic risk management and the targeted standards level review of disclosures.

The podcast can be accessed through the press release on the IASB website.

Please click to view the detailed notes taken by Deloitte observers for the IASB meeting.

Memoranda of understanding signed to establish ISSB in Frankfurt

02 Mar, 2022

During the meeting of the Trustees of the IFRS Foundation currently taking place in Frankfurt, Germany, the Trustees have signed memoranda of understanding with German public and private sector institutions to establish the presence of the International Sustainability Standards Board (ISSB) in Frankfurt.

The memoranda of understanding formalise the partnerships and funding arrangements required to establish the ISSB in Frankfurt. While the ISSB will have a global, multi-location presence, the Frankfurt office will provide the seat of the Board and the office of the ISSB Chair. The office will provide key support functions for the ISSB, including the hosting of board meetings, and will act as a hub for the Europe, Middle East and Africa region.

Please click for additional information in the press release on the IFRS Foundation website.

EFRAG final comment letter on the IASB's proposed new reduced disclosure IFRS

01 Mar, 2022

The European Financial Reporting Advisory Group (EFRAG) has published its final comment letter on the International Accounting Standard Board’s (IASB's) Exposure Draft ED/2021/7 'Subsidiaries without Public Accountability: Disclosures'.

In general EFRAG agrees with the proposed objective of the proposals.  EFRAG:

  • whilst acknowledging that there are potential benefits of broadening the scope of the proposals, notes that any decision in this regard is likely to be a challenge and controversial especially as there is no consensus on whether and to what extent the scope should be widened.  As a result EFRAG believes that the IASB should proceed with the scope as is and that the final Standard should be available to subsidiaries on an optional basis.   
  • recommends that before the issuance of a new IFRS Standard on reduced disclosures, the IASB clarifies the concept of holding assets in a fiduciary capacity (as insurers, for example, do not in general regard themselves as holding assets in a fiduciary capacity) and, therefore, explores the applicability of the Exposure Draft to the insurance sector.
  • recommends the IASB should, in parallel to the finalisation of this project, assess the possibility of extending the proposed benefits to other type of entities (associates, joint ventures, joint operations, non-listed banks that are subsidiaries, separate financial statements of ultimate parent entities and all entities without public accountability).
  • highlights that the IASB's proposals in this project are likely to put pressure on the definition of 'available for public use' and 'public accountability' and welcomes further application guidance in this area.

In addition, EFRAG raises some concerns and provides suggestions on the IASB's approach for developing the draft Standard, the proposed structure of the draft Standard, the proposed list of disclosure requirements (including not reducing the disclosure requirements for IFRS 17 Insurance Contracts) and some other topics.

press release, the final comment letter, the summary of the inputs received from preparers and a briefing prepared by the EFRAG Secretariat focused on the compatibility of the Accounting Directive 2013/34/EU with the IASB's ED are available on the EFRAG website.

New IFAC digital platform on accrual accounting

01 Mar, 2022

The International Federation of Accountants (IFAC) has launched the platform 'Pathways to Accrual'.

The new platform provides a central access point to resources helpful for governments and other public sector entities planning and undertaking a transition from cash to accrual accounting including adopting and implementing International Public Sector Accounting Standards (IPSAS).  

Please click for more information on the IFAC website.

Agenda for the March 2022 IFASS meeting

01 Mar, 2022

The International Forum of Accounting Standard Setters (IFASS) will meet on 7-8 March 2022. The meeting will be held virtually.

The full agenda for the meeting is summarised below.

Monday, 7 March 2022 (9:30–15:15)

  • Welcome and opening remarks including how IFASS will address sustainability-related reporting
  • Update on “Restoring trust in audit and cooperate governance”
    • Presentation by the FRC on the UK Government consultation
  • Separate financial statements
    • Presentation by the KASB and continuation of discussions from previous IFASS meetings
  • Non-current liabilities with covenants – Thoughts on the IASB exposure draft
    • Presentations by UKEB and MASB
  • Disclosure initiative — Targeted standard-level review of disclosures
    • Presentation by EFRAG on its field testing of the proposals in the IASB exposure draft
  • Supplier finance arrangements
    • Presentation by EFRAG
  • Review of the IFRS for SMEs
    • Presentation by the IASB
  • International financial reporting for non-profit organisations – IFR4NPO project update

Tuesday, 8 March 2022 (9:30-15:50)

  • Sustainability-related reporting items
    • Strategic level update on the ISSB work (ISSB)
    • Update on EFRAG Project Task Force on European sustainability reporting standards (ANC)
    • Sustainability-related reporting (AASB)
    • General update on sustainability related reporting project in a specific jurisdiction (KASB)
    • Discussions on all sustainability-related reporting presentations
  • PIR of IFRS 9 (classification and measurement)
    • Presentations by AASB, CASC, EFRAG, HKICPA, ICAI, and MASB
    • Break-out sessions
    • Plenary session with presentation of group discussions
  • Handover of official duties to the new IFASS Chair
  • Closing remarks

New FRC commissioned research on the Wates Corporate Governance Principles

01 Mar, 2022

The FRC has published research on the first reports under the Wates Corporate Governance Principles (the Wates Principles) for Large Private Companies undertaken by a research team from the Universities of Essex, East Anglia and Bristol.

The research team focused on those companies required to report under The Companies (Miscellaneous Reporting) Regulations 2018, which capture individual companies that meet the criteria of having 2,000 employees, and / or a turnover of more than £200 million and a balance sheet of more than £2 billion. The report considers that there is room for improvement, in particular by increasing disclosure of how policies are applied in practice.

The research team identified 796 companies that discussed their corporate governance arrangements in the annual report. Of these, 454 (57%) had applied a corporate governance code and 348 (44%) were determined to have followed the Wates Principles.

For each of the Wates Principles reporters, the research team evaluated the cross-referencing to other parts of the Annual Report such as the s172(1) statement, the readability of the report, and how clear and informative the disclosure was under each of the six Principles. The report includes examples of disclosure that successfully answer recommendations of the Wates Principles. The research team found that companies did not always explain each of the Principles, with the proportion of companies including some disclosure in regard to each Principle as follows:

  • Principle 1 – Purpose and Leadership – 88%
  • Principle 2 – Board Composition – 91%
  • Principle 3 – Director Responsibilities – 96%
  • Principle 4 – Opportunity and Risk – 93%
  • Principle 5 – Remuneration – 90%
  • Principle 6 – Stakeholder Relationships and Engagement – 95%

For each Principle the research team found that there was a low level of companies meeting all the granular disclosure elements recommended by the Wates Principles, with average disclosure scores less than 50%. The report includes three key recommendations for companies:

  • Disclose more detailed information in relation to the application of the six Principles to provide readers with a comprehensive understanding of the corporate governance arrangements in place and how these are mapped to the respective Principles;
  • Discuss more instances and/or circumstances relating to a given corporate governance practice to evidence how they have applied the Principles;
  • Use more cross-references, as in several cases the disclosure of some items could be found in other sections of the annual reports, but these were difficult to track down without the provision of cross-references.

The press release and report are available on the FRC website. 

New IFRS IC Chair appointed

01 Mar, 2022

The Trustees of the IFRS Foundation have announced that Bruce Mackenzie has been appointed as new Chair of the IFRS Interpretations Committee.

Mr Mackenzie, who is an IASB Board member and before that served six years as a member of the IFRS Interpretations Committee, follows Sue Lloyd who has been appointed Vice Chair of the newly formed the International Sustainability Standards Board (ISSB).

Please click for more information in the press release on the IFRS Foundation website.

European Commission adopts proposal for a Directive on corporate sustainability due diligence

01 Mar, 2022

The European Commission has adopted a proposal (and associated annex) for a Directive on corporate sustainability due diligence.

The proposal establishes a corporate sustainability due diligence duty to address negative human rights and environmental impacts by identifying, preventing, mitigating, monitoring and communicating on potential or actual adverse impacts, as well as bringing actual adverse impacts to an end where possible or taking action to neutralise or minimise impacts including through paying damages.

The proposed new rules apply to:

  • All EU limited liability companies with 500 or more employees and a net turnover over €150 million worldwide (‘group 1’).
  • Other EU limited liability companies operating in defined high impact sectors with over 250 employees and a net turnover over €40 million worldwide (‘group 2’).  The sectors are:
    • the manufacture of textiles, leather and related products (including footwear), and the wholesale trade of textiles, clothing and footwear;
    • agriculture, forestry, fisheries (including aquaculture), the manufacture of food products, and the wholesale trade of agricultural raw materials, live animals, wood, food, and beverages; and
    • the extraction of mineral resources regardless from where they are extracted (including crude petroleum, natural gas, coal, lignite, metals and metal ores, as well as all other, non-metallic minerals and quarry products), the manufacture of basic metal products, other non-metallic mineral products and fabricated metal products (except machinery and equipment), and the wholesale trade of mineral resources, basic and intermediate mineral products (including metals and metal ores, construction materials, fuels, chemicals and other intermediate products).
  • Non-EU companies active in the EU with turnover thresholds and activities aligned with groups 1 and 2, generated in the EU.

The proposal applies to the company's own operations, their subsidiaries and their value chains (direct and indirect established business relationships).  

The proposal requires companies to:

  • integrate due diligence into company policies;
  • identify actual or potential adverse human rights and environmental impacts;
  • prevent or mitigate potential impacts; and bring to an end or minimise actual adverse impacts;
  • establish and maintain a complaints procedure;
  • monitor the effectiveness of the due diligence policy and measures; and
  • publicly report on due diligence via an annual statement on company websites (for those companies not already subject to the reporting requirements of the Non-Financial Reporting Directive (NFRD) and the future Corporate Sustainability Reporting Directive (CSRD)). The Commission will also adopt delegated acts to determine additional rules on the content and criteria of such reporting.

In addition, the new proposal requires group 1 companies (both EU and non-EU) to adopt a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement and to take this into account when setting variable Director remuneration if this is linked to contribution to the company's business strategy and long-term interests and sustainability.

Timing and next steps:

  • The proposed directive needs to be adopted by both the Council and the European Parliament (EP) and then implemented in the 27 Member States. The EP is expected to begin its discussions soon
  • The new rules will then apply to group 1 (EU and non-EU) companies from the date of implementation of the directive (at least two years after the entry into force) and to group 2 (EU and non-EU) two years after the date of implementation of the directive

The press release, the proposal and the associated annex are available on the European Commission website.

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