FRC publishes new audit quality indicators for the largest UK audit firms

09 Dec, 2022

Following a positive response to its consultation earlier in the year, the Financial Reporting Council (FRC) has published 11 new firm-level Audit Quality Indicators (AQIs) for the largest UK audit firms.

The AQIs will provide users of audit services provided by the largest UK audit firms with more information about factors that drive audit quality and help them make an informed choice when selecting an auditor.
The 11 AQIs include a range of comparable indicators on perceived culture within an audit firm, audit quality inspection results, staff workloads, and the level of partners’ involvement in audits.

A press release and the AQIs are available on the FRC website.  Our UK Accounting Plus news item on the consultation is available here.

Agenda papers available for the UK Endorsement Board Public Meeting on 14 December 2022

08 Dec, 2022

The meeting agenda and papers for the UK Endorsement Board (UKEB) meeting on 14 December 2022 are available.

The agenda items to be discussed are as follows: 

  • Administrative Matters
  • Lease Liability in a Sale and Leaseback: narrow-scope amendments to IFRS 16—Draft Endorsement Criteria Assessment
  • Economic impact assessment of narrow-scope amendments – survey 
  • IASB General Update
  • Interconnectivity between financial and sustainability reporting – paper for IFASS
  • ISSB General Update
  • Draft Report: Intangibles Qualitative Research
  • Approval of Due Process Handbook – Feedback Statement

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

A recording of the meeting was made available on the UKEB website on 20 December 2022.

GRI consults on revision to its biodiversity standard

08 Dec, 2022

The Global Reporting Initiative (GRI) has published an exposure draft for its revised biodiversity standard 'GRI 304: Biodiversity'.

The exposure draft proposes changes that:

  • Reflect reporting throughout the supply chain, given many biodiversity impacts are found beyond the scope of a company’s own operations.
  • Help organisations prioritise attention on their most significant impacts, recognising the challenge of scale in addressing biodiversity impacts.
  • Add new disclosures to connect with the drivers of biodiversity loss, including climate change, pollution, and overexploitation of resources.
  • Introduce requirements for biodiversity-related human rights impacts, such as those on indigenous peoples, local communities and workers.
  • Emphasise location-specific data, to ensure businesses are transparent about the sites where their biodiversity impacts take place.

The exposure draft is open for public comment until 28 February 2023.

A press release and the full consultation are avilable on the GRI website.

IASB Chair discusses collaboration with EFRAG

07 Dec, 2022

At the EFRAG anniversary conference entitled ‘Where is corporate reporting going?’, IASB Chair Andreas Barckow noted the special relationship the IASB had with the European Financial Reporting Advisory Group (EFRAG) over the years.

In the first part of his speech, Mr Barckow looked back over the 21 years of collaboration between IASB and EFRAG and called them "21 years of shared success". When, in 2002, Europe adopted the IAS Regulation requiring companies listed on regulated securities markets to prepare their consolidated financial statements in accordance with International Accounting Standards from 2005 onwards this encouraged most of the rest of the world to follow suit. Mr Barckow pointed out that, therefore, the IASB's success is also Europe’s success.

Mr Barckow also noted EFRAG’s ongoing contribution to the technical work of the IASB and praised it as being well informed and immensely helpful. He noted that at times EFRAG may bring different perspectives to the table than does the IASB, but be also stressed that the discussions and debates have always been conducted with the aim of enhancing financial reporting and over the years the IASB and EFRAG have collectively resolved many reporting challenges.

In the second part of his speech, Mr Barckow looked at the future. He noted as key priority for both the IASB and EFRAG the necessity to balance the varied needs of a wide range of stakeholders. The standard setters need to carefully choose areas to concentrate on and to be mindful of stakeholders’ capacity to cope with changes. As overall aim of the collaboration between the IASB and EFRAG Mr Barckow stressed "maintaining and further enhancing a global financial reporting language and [...] fostering one global capital market".

Mr Barckow's overall message at EFRAG's 21st anniversary conference was:

The IASB and EFRAG certainly have a special relationship. It spans many years of collaboration, debate and discussion. We have always shared a common goal, regardless of our stances on various matters. That goal is to create a global passport in financial reporting for multinational companies — with EFRAG from an EU perspective, and the IASB as the international standard-setter.

Please click to access the full transcript of the speech on the IFRS Foundation website.

November 2022 IASB meeting notes posted

07 Dec, 2022

The IASB met in London on Tuesday 22, Wednesday 23 and Thursday 24 November 2022. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Post-implementation Review (PIR) of IFRS 9—Classification and Measurement

The IASB discussed financial liabilities and own credit. The IASB confirmed that it is satisfied that the project can be concluded. The next step will be the publication of a Report and Feedback Statement.

Dynamic Risk Management             

The IASB discussed managing equity and notional alignment of designated assets and liabilities. The IASB decided that equity not be an eligible item in the DRM model. The IASB also agreed to amend its original tentative decision to not require the notionals of eligible assets, liabilities and future transaction for designation in the current net open risk position to be the same.

Rate-regulated Activities

At this meeting, the IASB continued redeliberating the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities. The IASB decided that when there is a direct relationship between an entity’s regulatory capital base and its property, plant and equipment and the regulatory agreement provides the entity with both a debt and equity return on an asset not yet available for use, the entity must reflect in the statement of financial performance during the construction period only those returns in excess of the entity’s capitalised borrowing costs. If there is only a debt return on an asset not yet available for use, the entity must not reflect the return in the statement of financial performance during the construction period if the entity capitalises its borrowing costs.

Maintenance and consistent application

International Tax Reform (Pillar Two Model Rules)—the IASB decided to amend IAS 12 to introduce a temporary exception from accounting for deferred taxes arising from legislation enacted to implement the OECD’s Pillar Two model rules (including any qualified domestic minimum top-up tax). The exception would apply until such time that the IASB decides to either remove it or make it permanent.

Supplier Finance Arrangements—the IASB decided to proceed with its proposals in the ED with some changes.

Amendments to the Classification and Measurement of Financial Instruments

The IASB discussed a sweep issue related to contractually linked instruments (CLI) and the derecognition requirements in IFRS 9 for the settlement of a financial asset or a financial liability via electronic cash transfers. The IASB decided to clarify that when determining whether a transaction is in the scope of the CLI requirements, an entity excludes any instruments held by the sponsor that has transferred the underlying assets to the issuer. For electronic transfers, the IASB also decided to clarify that an entity applies settlement date accounting when recognising and derecognising financial assets (except for regular way transactions) and financial liabilities. In relation to the accounting alternative for derecognising a financial liability before settlement date, the IASB decided to refine the criteria to require an entity to have no ability to withdraw, stop or cancel an electronic payment instruction; to have lost the practical ability to access the cash as a result of the electronic payment instruction; and the settlement risk associated with the electronic payment instruction to be insignificant.

Goodwill and Impairment

The IASB decided to retain the impairment-only model for goodwill.

Business Combinations under Common Control (BCUCC)

The IASB continued discussing the selection of the measurement method to apply to a BCUCC. The staff set out their initial views, but did not make any recommendations. The IASB agreed with the general direction set out in its preliminary views to, in principle, apply the acquisition method to a BCUCC that affects non-controlling shareholders but that the IASB should consider some potential exceptions. If the BCUCC does not affect non-controlling shareholders a book-value method would apply, with no exceptions.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures

The IASB confirmed that the subsidiaries eligible to apply the Standard are a ‘subsidiary at the end of the reporting period’ that has an ultimate or intermediate parent that produces consolidated financial statements complying with IFRS Accounting Standards. The IASB also decided, by a bare majority, not to proceed with the proposal that the parent’s consolidated financial statements are ‘available for public use’.

An analysis of how the IASB’s work plan has changed after the meeting is available on here.

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

FRC publishes a policy paper outlining its approach to competition in the audit market

07 Dec, 2022

The Financial Reporting Council (FRC) has published a policy paper providing an overview of its approach to competition in the audit market.

The policy paper has been published in light of the publication of the government’s response to the Department for Business, Energy and Industrial Strategy (BEIS) White Paper Restoring trust in audit and corporate governance and follows the FRC’s July 2022 position paper which set out how it would support the Government’s reforms as it transitions into the Audit, Reporting and Governance Authority (ARGA).  In that paper the FRC indicated that it would develop and consult on a policy paper setting out its approach in respect of the Government’s proposed market resilience/competition objective for the ARGA and the work which will be undertaken to prepare ahead of legislation.

The policy paper sets out the need for a market that consistently delivers high quality and is resilient.  It focuses on promoting competition to drive audit quality and improve resilience within the whole audit market and not just the FTSE 350.  It covers:

  • The FRC’s approach to competition in the audit market;
  • Recent developments with competition in the audit market; and
  • The FRC’s current work on competition in the audit market.

Comments on the policy paper are welcomed by 28 February 2023.

A press release and the full policy paper are available on the FRC website.

FRC consults on annual review of FRS 101

07 Dec, 2022

The Financial Reporting Council (FRC) has published Financial Reporting Exposure Draft 81 'FRS 101 Reduced Disclosure Framework – 2022/23 cycle' (FRED 81) proposing no amendments to FRS 101 ‘Reduced Disclosure Framework’.

Given the nature of the amendments issued by the International Accounting Standards Board (IASB) that have been considered in the review for the 2022/23 cycle, the FRC is not proposing to make any amendments to FRS 101.

Overall, the FRC believes that FRS 101 will continue to have a positive impact on the cost-effectiveness of the preparation of the financial statements

The FRC is requesting comments on FRED 81 by 28 February 2023.  A press release and consultation paper are available on the FRC website.

EFRAG publishes November 2022 issue of EFRAG Update

07 Dec, 2022

The European Financial Reporting Advisory Group (EFRAG) has published an ‘EFRAG Update’ summarising public technical discussions held and decisions made during November 2022.

The update reports on the EFRAG Financial Reporting Technical Expert Group (EFRAG FR TEG) webcast meeting on 3 November, the EFRAG FR TEG hybrid meetings on 9 and 30 November and the EFRAG FR TEG and EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) hybrid meeting on 30 November 2022.  The update also covers EFRAG’s sustainability reporting and related activities as well as webinars and online outreaches and changes in the EFRAG governance structure.  This includes the delivery of the first set of draft European Sustainability Reporting Standards to the European Commission.

The update also reports on the issuance of EFRAG's draft endorsement advice letter and separate invitation to comment on the IASB's Lease Liability in a Sale and Leaseback (Amendments to IFRS 16).

Please click to download the November EFRAG update from the EFRAG website.

Webcast with an overview of the IFRS for SMEs ED

06 Dec, 2022

On 8 September 2022, the IASB published an Exposure Draft (ED) of proposed amendments to its 'International Financial Reporting Standard for Small and Medium-sized Entities' (IFRS for SMEs). The IASB has now released a webcast offering an overview of the ED.

The 13-minute webcast:

  • provides a brief background on the IFRS for SMEs;
  • describes the approach taken in the second comprehensive review of the standard that led to the publication of the ED; and
  • summarises the main proposals in the ED.

The webcast can be accessed through the press release on the website of the IFRS Foundation.

UKEB adopts three narrow-scope amendments to IFRS Accounting Standards

06 Dec, 2022

The UK Endorsement Board (UKEB) has adopted three narrow-scope amendments to IFRS Accounting Standards which were published by the International Accounting Standards Board (IASB) in 2021 .

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