April

EFRAG launches consultation on draft sustainability standards

30 Apr 2022

The European Financial Reporting Advisory Group (EFRAG) has published its draft European Sustainability Reporting Standards (ESRS). Comments are requested by 8 August 2022.

According to the draft Corporate Sustainability Reporting Directive (CSRD) proposed by the European Commission in April 2021, the purpose of the standards is to specify the new sustainability reporting requirements of the amended Accounting Directive. While working papers on the standards have been published by EFRAG since January 2022, these are now the final drafts and comments are invited on them.  The scope of these proposed standards is still under discussion. The CSRD will apply to entities with securities traded on an EU Regulated market, but the scope may broaden.

The thirteen exposure drafts correspond to the first set of standards required under the CSRD proposal and cover the following areas of sustainability reporting:

  • Cross-cutting Exposure Drafts (ESRS 1 and ESRS 2)
  • Topical standards – Environment (ESRS E1 to ESRS E5)
  • Topical standards – Social (ESRS S1 to ESRS S4)
  • Topical standards – Governance (ESRS G1 and ESRS G2)

Further accompanying papers, such as a cover note including appendices, are part of the consultation package as well. Constituents are invited to provide their views online via a comprehensive multiple choice/multiple response survey tool which addresses the individual disclosure requirements in addition to higher-level questions (e.g., on the architecture of the standards). In addition, the survey tool provides for additional comments to be uploaded that deal with aspects other than those addressed in the questionnaire.

The EFRAG Sustainability Reporting Board and its Technical Experts Group will consider the exposure drafts in parallel with the public consultation. Together with the input and results from the public consultation, they will agree the final first set of draft ESRS to be submitted to the European Commission by November 2022.

Please click to access the exposure drafts and press release on the EFRAG website.

Deloitte's Need to know outlines the background, proposed architecture of ESRS, proposed cross-cutting standards and proposed topical standards.

FRC to host webinar on the ISSB and international sustainability standards

29 Apr 2022

The Financial Reporting Council (FRC) invites stakeholders to attend a webinar to learn more about the work of the newly formed International Sustainability Standards Board (ISSB) and its first two proposed standards.

A representative from the FRC and the Department for Business, Energy and Industrial Strategy (BEIS) will speak, alongside Sue Lloyd, Vice-Chair of the ISSB.

A Teams Live link will be sent to registered attendees in advance.

For more information, and to register to attend, visit the FRC website.

Recordings of recent webinars on ISSB’s exposure drafts now available

29 Apr 2022

The IFRS Foundation has posted the recording of its recent webinars on the ISSB’s proposed IFRS Sustainability Disclosure Standards.

The webinars lasted ap­prox­i­mately 60 minutes and discuss the following:

For more in­for­ma­tion, see the press release on the IFRS Foundation's website.

Updated IASB and ISSB work plan — Analysis (April 2022)

29 Apr 2022

Following the IASB's April 2022 meeting, we have analysed the work plan on the IFRS Foundation website to see what changes have resulted from the meeting and other developments since the work plan was last revised in March 2022. The work plan now also lists the projects of the ISSB.

Below is an analysis of all changes made to the work plan since our last analysis on 28 March 2022.

Standard-setting projects

  • Climate-related disclosures An ISSB project newly added to the workplan; feedback on the exposure draft will be discussed in H2 2022
  • Disclosure initiative — Subsidiaries without public accountability: Disclosures — The IASB has now discussed the feedback to the exposure draft; the next project step will be a decision on the project direction expected in June 2022
  • General sustainability-related disclosures An ISSB project newly added to the workplan; feedback on the exposure draft will be discussed in H2 2022
  • Management commentary — The IASB has now discussed the feedback to the exposure draft; the next project step will be a decision on the project direction (no date given)
  • Second comprehensive review of the IFRS for SMEs An exposure draft is now expected in Q3 2022 (previously H2 2022)

Maintenance projects

  • Lease liability in a sale and leaseback Final amendments are now expected in Q3 2022 (previously H2 2022)
  • Non-current liabilities with covenants Exposure draft feedback is now expected in June 2022 (previously Q2 2022)
  • Supplier finance arrangements Exposure draft feedback is now expected in June 2022 (previously Q2 2022)

Research projects

  • Pension benefits that depend on asset returns — A concluding project summary has been published and the project has, therefore, been removed from the work plan
  • Post implementation review of IFRS 10, IFRS 11, and IFRS 12 — A feedback statement is now expected in June 2022 (previously Q2 2022)

Other projects

  • no changes

The above is a faithful comparison of the IASB and ISSB work plan at 28 March 2022 and 29 April 2022. For access to the current work plan at any time, please click here.

Feedback on EFRAG's crypto-assets DP and recommendations for the IASB

29 Apr 2022

In July 2020, the European Financial Reporting Advisory Group (EFRAG) published a discussion paper (DP) 'Accounting for Crypto-Assets (Liabilities): Holder and Issuer Perspective'. The DP provided possible approaches to address the gaps in crypto-assets (liabilities) requirements. EFRAG has now reviewed the feedback received and derives recommendations for the IASB.

Based on the feedback received, EFRAG recommends clarifying or amending existing standards using a two-step approach. As a first step, EFRAG recommends addressing the accounting requirements for holders of crypto-assets by amending IAS 38 Intangible Assets to allow measuring crypto-assets or other intangibles within the scope of the standard at fair value through profit and loss and to develop disclosure requirements for issuers. As a second step EFRAG considers that it is important to also address issuer accounting in more detail and determine the appropriate accounting requirements for issuers, given the challenges that arise from the ambiguity on the nature of rights and obligations associated with the issuance of the novel and fast-moving crypto transactions. 

Please click to access the Recommendations and Feedback Statement on the EFRAG website.

 

ISSB forms working group to enhance compatibility between global baseline and jurisdictional initiatives

27 Apr 2022

The ISSB has formed a working group comprised of several jurisdictions to enhance the compatibility between the ISSB’s exposure drafts on sustainability disclosures and jurisdictional initiatives.

Specifically, the working group will “discuss compatibility of those initiatives to establish how the global baseline, fully responding to the needs of global market participants, can contribute to optimising reporting efficiency for companies in those jurisdictions and how those jurisdictions can build upon the global baseline according to their needs.”

The working group consists of members from the Chinese Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the US Securities and Exchange Commission.

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

FRC publishes its report on modern slavery in the UK

26 Apr 2022

In collaboration with the UK Independent Anti-Slavery Commissioner, the Financial Reporting Council (FRC) has issued a report which summarises research (undertaken by Lancaster University on behalf of the FRC) on how companies listed on the London Stock Exchange’s Main Market report on modern slavery.

The research examines reporting practice in modern slavery statements (as required under Section 54 of the Modern Slavery Act 2015 (MSA)). The report also investigates the extent to which companies are reporting on modern slavery in their annual reports as part of the separate requirement to describe how opportunities and risks to the success of the business have been considered and addressed, looking in particular at Section 172 statements.

The evidence is based on the reporting practices of a sample of 100 companies comprising FTSE 100, FTSE 250, and Small Caps.  The MSA requires organisations with a turnover of £36 million or more to provide an annual statement on the steps that they are taking to ensure that modern slavery is not taking place in any parts of their business or supply chains. The accompanying statutory guidance recommends that disclosure covers the following six reporting categories: policies, structures, due diligence, risk assessment, training, and effectiveness.

The research has found that around one in ten companies did not provide a modern slavery statement at all, and therefore failed to comply with the Section 54 reporting requirement. Where companies did comply, only one third of modern slavery statements were considered clear and easy to read. The majority of statements were fragmented, lacking a clear focus and narrative, or were unduly complicated. Less than half of companies provided a clear and comprehensive discussion of modern slavery concerns in the context of the organisational structure, operating and supply chains. Disclosure therefore often failed to provide information on how policies operated in practice, or how their effectiveness was measured. In addition, the vast majority of modern slavery statements were wholly backward-looking, with only a minority clearly identifying emerging issues or a long-term strategy.

The assessment of disclosures in annual reports suggests that many companies appear not to view human rights issues in their workforce and supply chain as a principal source of risk for their business. For some companies, the report suggests that this lack of concern may reflect strong and positive relationships with trusted suppliers coupled with relatively short supply chains that are easy to manage. For many others, however, it is suggested that the lack of disclosure might raise questions over whether sufficient attention is being paid to such issues.

In terms of the connection between the modern slavery statement and annual reports, only 14% of annual reports provided a direct link in the annual report to the modern slavery statement. The FRC report suggests that this lack of appropriate cross-referencing not only reduces visibility and transparency on modern slavery issues but undermines efforts to address the risks.

The FRC hopes that this report prompts companies to consider their supply chain and the role that the board has in providing oversight to ensure that effective policies are in place which will drive real action to address this important issue. They are keen to see future reporting demonstrating how assessment of the effectiveness of these policies has been undertaken.

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

IASB issues project summary on pension benefits that depend on asset returns project

26 Apr 2022

The IASB has published its project summary 'Pension Benefits that Depend on Asset Returns'. The project summary provides an overview of research and deliberations on the project.

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. At the IASB meeting in October 2021, 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.

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

Hyperinflationary economies - updated information on Turkey

26 Apr 2022

The International Practices Task Force (IPTF) of the Centre for Audit Quality (CAQ) that monitors the status of 'highly inflationary' countries has published an update on the situation in Turkey.

The addendum to the list, dated 16 March 2022, reflects significant changes to the inflation rates in Turkey since the latest overall list was published on 6 November 2021.

Please also note our recent Need to know addressing issues that arise in connection with the inflationary situation in Turkey and providing guidance on how to apply IAS 29 Financial Reporting in Hyperinflationary Economies in that context.

Accountancy Europe sends letter to Commissioner McGuinness on European sustainability reporting standards

25 Apr 2022

Accountancy Europe has written a letter to the European Commission's Commissioner Mairead McGuinness on the development of purposeful and effective European sustainability reporting standards (ESRS) providing some important comments that need to be addressed in order for the ESRS to be a successful tool for the EU and its ambitious plan to to turn Europe into the first climate neutral continent by 2050.

Beginning with the strong statement that the ESRS disclosure requirements, as currently appearing in the European Financial Reporting Advisory Group’s (EFRAG) Project Task Force (PTF) Working Papers will not help meet the European Commission's Green Deal’s objectives, the letter then explains why:

  • Too complex or burdensome reporting systems risk generating unhelpful pushback and slowing down adoption. However, the ESRS requirements are very prescriptive and include hundreds of data points. 
  • Adhering to a robust due process is essential for creating support for future adoption even while the time pressure for the EU to follow its commitment is understandable. Allowing sufficient time to respond to the exposure drafts will, among other points, ensure stakeholder inclusiveness and public acceptance and therefore legitimise the standards.
  • Developing ESRSs needs to follow a principles-based approach as such an approach will support the connectivity between sustainability reporting and financial reporting, which follows an principles-based approach (including endorsed IFRSs).
  • To build standards that would result in transforming companies’ business models and meeting the Green Deal’s objectives, a phased-in approach is needed.
  • ESRS need to be clear and efficient reporting standards to enable assurance and to avoid risks of green washing.
  • ESRSs need to be globally aligned and build on what exists, which would also help EU companies that need to comply with other foreign climate-related disclosures that would allow the use of international ones. Different terminology, definitions and concepts and not using internationally recognised terms as well as different disclosure requirements objectives and structure will impair global compatibility.

The letter concludes by stating that:

[T]he proposed ESRS might need to follow an iterative process of improvement at an early stage to ensure they facilitate meeting the European Green Deal objectives, as well as align with the upcoming international sustainability reporting standards.

Please click to access the full letter on the Accountancy Europe website.

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