In its draft comment letter, EFRAG notes that the impairment requirements in IFRS 9 generally work as intended.

Nevertheless, EFRAG identifies some issues of application or diversity in practice with different levels of priority that should be further considered by the IASB in the context of this project. These include:

• cash shortfalls used to measure expected credit losses and
• the interaction between modification, impairment, and derecognition requirements.

Comments on EFRAG's draft comment letter are requested by 13 September 2023. For more information, see the press release and the draft comment letter on the EFRAG website.

ED/2023/2 was published by the IASB in March 2023.

• amending paragraph B3.1.6 of IFRS 9 Financial Instruments to include how an entity should apply settlement date accounting to financial liabilities;
• that the IASB carefully considers the impact of the proposed requirements about “magnitude” and “contingent event specific to the debtor” on existing financial instruments currently meeting the SPPI requirements; and
• either deleting paragraph 20B(b) of the ED (as a preferred solution) or limiting the scope of contingent events to be disclosed to what users of financial statements would deem relevant and useful for their analysis.

The press release and final comment letter are available on the EFRAG website.

EFRAG recommends the endorsement of the Amendments. EFRAG’s initial assessment is that the Amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.

Comments are requested by 11 September 2023.

For more information, see the press release, the draft endorsement advice letter and the invitation to comment on the EFRAG website.  EFRAG has also updated its endorsement status report to reflect the draft endorsement advice.

The update reports on the EFRAG Financial Reporting Board (EFRAG FRB) webcast meeting on 20 June 2023 and the EFRAG Financial Reporting Technical Expert Group (FR TEG) webcast meeting on 6 June 2023. 

The update also lists EFRAG publications issued in May including: 

• EFRAG's final endorsement advice regarding Amendments to IAS 12 International Tax Reform—Pillar Two Model Rules

The update also covers EFRAG's sustainability reporting and related activities.

Please click to download the June 2023 EFRAG Update from the EFRAG website.

The EU Accounting Directive (as amended by the Corporate Sustainability Reporting Directive (CSRD)) requires large companies and listed small and medium-sized companies, as well as parent companies of large groups, to include in a dedicated section of their management report the information necessary to understand the entity’s impacts on sustainability matters, and the information necessary to understand how sustainability matters affect the company’s development, performance and position.

The Commission was required to adopt the first set of sustainability reporting standards specifying the information that companies are to report in accordance with the CSRD. EFRAG developed draft European Sustainability Reporting Standards (ESRS) and submitted them to the Commission in November 2022 in the form of technical advice. The Commission considered these and feedback from various European agencies and other stakeholders and launched a consultation on a draft delegated regulation supplementing the European Accounting Directive as regards sustainability reporting standards in June 2023.

To ensure proportionality and to facilitate the correct application of the standards by undertakings, the Commission introduced modifications to EFRAG’s technical advice with regard to the materiality approach, the phasing-in of certain requirements, the conversion of certain requirements into voluntary datapoints, the introduction of flexibilities in a number of disclosure requirements, the introduction of technical modifications to ensure coherence with the EU’s legal framework and enhance interoperability with global standard-setting initiatives, as well as editorial modifications.

The Commission has now adopted its final delegated act. The ESRS to be used by entities for their sustainability reporting are set out in Annex I and Annex II of the draft regulation.

The regulation would enter into force four months after the date of adoption. The regulation, and therefore the ESRS, would apply from 1 January 2024 for financial years beginning on or after 1 January 2024. The regulation would be binding in its entirety and directly applicable in all member states.

Please click for access to the adopted final delegated act and its annexes through this European Commission website (scroll down to "Commission adoption") - this page also offers access to translations of the texts into the other official European languages. A question and answer document on the ESRS is also available.

In statement on its website, IOSCO has welcomed the publication of the ESRS "and, in particular, the announcement by the European Commission that it has integrated the ISSB Standards into them."

The IFRS Foundation has also published a statement commenting especially on interoperability. It notes:

The European Commission, EFRAG and the ISSB have worked jointly to improve the interoperability of their respective climate-related disclosure requirements in the overlapping climate disclosure standards.  This work has successfully led to a very high degree of alignment, reduced complexity and duplication for entities wishing to apply both the ISSB Standards and ESRS.

EFRAG is alsready working on an IFRS-ESRS mapping table that is available in draft version on the EFRAG website.

The ESRS delegated act adopted by the Commission today will be formally transmitted in the second half of August to the European Parliament and to the Council for scrutiny. The scrutiny period runs for two months, extendable by a further two months. The European Parliament or the Council may reject the delegated act, but they may not amend it.

For more information, see Deloitte's Need to know newsletter.

Following the first paper The Case for Realigning Reporting Standards with Modern Value Creation published in September 2021, the second paper Human Capital Introspective published in June 2022, the third paper Rethinking Brand Value published in September 2022, a fourth paper Deciphering Technology can now be accessed through the press release on the IVSC website.

In December 2021, the Organisation for Economic Co-operation and Development (OECD) published its Pillar Two model rules. The rules are part of a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The Pillar Two model rules:

• aim to ensure that large multinational groups pay a minimum amount of tax on income arising in each jurisdiction in which they operate; and
• would achieve that aim by applying a system of top-up taxes that results in the total amount of tax payable on profit in each jurisdiction representing at least the minimum rate of 15%.

The amendments to FRS 102 introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules, alongside targeted disclosure requirements.  They follow similar amendments to IAS 12 Income Taxes issued by the International Accounting Standards Board in May 2023.

FRS 101 has been amended to introduce an exemption for qualifying entities from certain disclosures introduced by the amendments to IAS 12 that are primarily relevant to the consolidated financial statements of a group, provided that equivalent disclosures are included in the consolidated financial statements in which the qualifying entity is included.  A similar amendment has been made to FRS 102 for qualifying entities.

The temporary exception introduced into FRS 102 applies immediately and retrospectively upon issue of the amendments. The effective date for the disclosure requirements is accounting periods beginning on or after 1 January 2023, with early application permitted.

A press release, including links to the Amendments are available on the FRC website.

The FRC welcomes the opportunity to provide comments on the ISSB's consultation and agrees the the proposed approaches outlined in paragraph 9 of the exposure draft will lead to improved international applicability of the Sustainability Accounting Standards Board's (SASB's) standards.  However, whilst the FRC considers that the exposure draft is a 'reasonable initial effort which will result in incremental improvements to the SASB standards', it believes that there should be a more comprehensive follow up review of the SASB standards 'if they are genuinly to be fully internationally applicable and consistent with other IFRS Sustainability Disclosure Standards'.  The FRC suggests that this review should consider:

• the appropriateness of the Sustainable Industry Classification System (SICS);
• whether the industry-based requirements are principally industry-specific or industry-relevant requirements;
• the underlying research that informs the content;
• the structure of the content and how it fits with other IFRS Sustainability Disclosure Standards; and
• reframing the disclosure topics to focus on sustainability-related risks and opportunities to support the application of IFRS S1.

An appendix provides detailed responses to the specific questions posed in the exposure draft.

A press release and the full comment letter are available on the FRC website.

The FRC Lab’s ESG Data production report issued in September 2022 looked at the production of ESG data from the company’s perspective.

This second report of the project examines how investors access and collect ESG data (distribution) and how they use it (consumption). The report then identifies what companies can do to facilitate this.

A press release, the full report and podcast on the topic are available on the FRC website. 

Of the 100 audits inspected, 77% were categorised as good or requiring limited improvements compared to 75% in 2021/22.  The results indicate that over the last four years there has been a 10% increase in this measure of audit quality.

For the FTSE 100 audits inspected, none were identified as requiring significant improvements.  The percentage requiring no more than limited improvements was 81%, which is higher than the 77% across all audits but lower than the prior year (93%).  Of the 27 FTSE 250 audits reviewed, 82% achieved this standard compared to 85% in 2021/22.

Despite the improvements made the FRC highlights that it continues to identify inconsistency in application of methodology and guidance.  The report highlights that common inspection findings related to areas such as estimates, impairment and revenue with good practices identified for areas such as group audits, fraud risk and climate risk.

The press release and links to individual reports are available on the FRC website.  A podcast is also available on the FRC website here.