This second webcast discusses the benefits and impact of the forthcoming new accounting standard from a regulatory perspective.

Please click to access all webcasts in the series so far on the IFRS Foundation website.

• Part one gives an overview of the new standard (9 minutes)
  
• Part two discusses the standard from a regulatory perspective (8 minutes)

The FRC report highlights the extent of incomplete local government audits with 88% of 31 March 2022 audit not being complete by the publishing date of 30 November 2022 and a backlog of earlier audits from prior years.  As a result of the number of incomplete audits, the FRC's ability to inspect higher profile and higher risk audits was restricted.

Due to what the FRC calls 'failings in timeliness', for the 2022/23 inspection cycle the FRC selected local government audits for inspection from those finished in the 2022 calendar year (regardless of the financial year the audit related to) and had to temporarily reduce the number of local government inspections performed.  As a result, 10 inspections (six health and four local government audits) were performed in contrast to 20 inspections in previous years.    

The FRC indicates that all ten audits inspected required no more than limited improvements.  It highlights that all financial statement audits inspected were assessed as good or limited improvements required and comments that 'despite the severe restrictions placed on our monitoring by failings in timeliness, auditors have achieved the level of quality we expect on the audits that were available for us to inspect'.  However, the report does note that due to the restrictions on the FRC's ability to perform audit quality inspections, the results of its reviews 'cannot be relied upon to give a proper indication of audit quality in local government'.  The FRC also adds that its assessment of audit quality may reduce when it is able to inspect audits of higher profile and higher risk local government bodies.

The report identifies a number of areas where the FRC believes improvements in audit quality are required including audit procedures over expenditure and the auditor's work on the valuation of operational property and pensions.

To support the measures being developed to clear the backlog, the FRC announced its plans to perform no routine inspections of local government audits for financial years up to 2022/23, unless clear public interest demands it. The FRC will resume inspections once the system has been reset, which the FRC hopes will follow the implementation of the package of measures currently being developed by Government.

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

The update reports on the EFRAG roundtables on the statement of cash flows held on 17 November, 27 November, 1 December and 4 December 2023, EFRAG's Financial Reporting Board (EFRAG FRB) webcast meeting on 7 November 2023, the EFRAG Financial Reporting Technical Expert Group (FR TEG)-CFSS meeting on 29 November 2023 and the EFRAG Financial Reporting Technical Expert Group (EFRAG FR TEG) webcast meetings on 2 November 2023 and 29 November 2023.

The update also lists EFRAG publications issued in November including: 

• EFRAG's Draft Comment Letter in response to the IASB’s Exposure Draft IASB/AI/ED/2023/1 Annual Improvements-Volume 11
• EFRAG's EFRAG-supported academic study on the effects of the adoption of IFRS 15 Revenue from Contracts with Customers on preparers and users of financial statements

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

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

Companies are still grappling with significant uncertainty due to the ongoing uncertain macroeconomic and geopolitical environment, which includes the persistent effects of climate change, high interest rates and inflation, energy security concerns, cyberattacks, and international conflicts and tensions such as the Russia-Ukraine war.  Investors and regulators are expecting companies to be transparent in how they are dealing with this challenging reporting landscape. 

Companies therefore need to consider how to assess and address these sources of uncertainty when preparing their annual and interim reports. Whilst companies may by now be more familiar with the challenges of reporting in times of uncertainty, timely and high-quality reporting that reflects the ongoing uncertainties companies face and their response to those uncertainties remains as important to investors, creditors, and broader stakeholders as ever. 

The FRC’s Annual Review of Corporate Reporting 2022/23 and ESMA’s Common Enforcement Priorities provide guidance on appropriate reporting and meeting investor expectations and highlight areas of regulatory scrutiny that reporters of all sizes should focus on in their forthcoming reporting. Messages contained within recent FRC thematic reviews should also be considered when preparing annual and interim reports.

UK public interest entities, AIM companies, banking and traded LLPs, and other UK companies and LLPs with more than £500m turnover whose accounting period begins on or after 6 April 2022 will need to comply with new climate-related financial disclosure requirements with exemptions for companies and LLPs with 500 or fewer employees. And, for accounting periods beginning on or after 1 April 2022, premium and standard listed companies will need to provide enhanced disclosures on board and leadership diversity. 

Whilst the majority of amendments to both UK GAAP and IFRS Accounting Standards have been relatively minor, companies will need to reflect the impact of IFRS 17 Insurance Contracts, effective for accounting periods beginning on or after 1 January 2023, within their annual financial statements for the first time.  Additionally, amendments to IAS 12 Income taxes and Section 29 of FRS 102 will provide relief for affected companies from accounting for deferred taxes arising from the implementation of the Pillar Two model rules. 

Our Closing Out publication covers all these topics and more, providing an invaluable guide to the issues affecting today’s corporate reporting landscape.

In its final comment letter, EFRAG welcomes the package of the annual improvements included in the exposure draft and agrees with the majority of the proposed amendments.  In EFRAG's view, they would improve consistent application and understandability of the IFRS Accounting Standards.

However, EFRAG recommends the IASB to clarify the interaction between IFRS 9 and IFRS 16 as part of a narrow-scope standard-setting project and does not recommend to amend paragraph 2.1(b)(ii) as part of the Annual Improvements – Volume 11.  EFRAG also recommends a reconsideration of the proposed amendment to IFRS 10 on de facto agents.

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

Entities admitted to trading on UK regulated markets are required to produce their annual financial reports in a structured digital format (i.e. using iXBRL tagging) and submit that report to the Financial Conduct Authority (FCA) for filing in the National Storage Mechanism (NSM) under the UK implementation of the European Single Electronic Format (ESEF).  

The report is based on a review of 50 reports filed to the FCA's National Storage Mechanism and highlights the growing importance placed by investors on structured digital reports. 

The insights report focuses on three key areas: tagging, design and usability and process.  It provides some good practice tips with respect to tagging which build upon its 2021 and 2022 reports and highlights that most tagged report rejections are as a result of basic errors such as an incorrect file format, naming and structure.  

The Lab reminds companies that even if the tagging process is outsourced, they are responsible for the quality of the report.  It provides a number of areas for companies to consider when assessing the overall quality of their reports prior to submission.   

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

The following topics are on the agenda:

ISSB consultation on agenda priorities: ISSB members will review of the summary of feedback on the ISSB’s request for information (RFI) from users of general-purpose financial reporting who self-identified as an ‘investor” when submitting their response to the RFI.

IFRS sustainability disclosure taxonomy: The ISSB will be asked to confirm the principle for creating elements for narrative information and asked if they support targeted amendments to the modelling of specific taxonomy elements to refine and enhance the Taxonomy as well as minimising the gap in how similar requirements in IFRS S2 and ESRS E1 are modelled (specifically with regards to granularity and data type).

International applicability of the SASB Standards: The staff will seek ratification by the ISSB of amendments to the SASB Standards; seek ratification of the related updates to the digital SASB Standards Taxonomy; and ask the ISSB to confirm it is satisfied that it has complied with the applicable due process requirements to publish the updated SASB Standards.

Our pre-meet­ing summaries are available on our December meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.

The Boards are keen to appoint members with experience in the preparation or consumption of digital financial reports or from emerging economies. Applications are requested by 26 January 2024. For more information, please see the press release on the IFRS Foundation website.

The following topics are on the agenda:

Power Purchase Agreements: In this meeting, the staff will present the research on how to address accounting issues related to power purchase agreements. Based on the findings of the research and other input received from stakeholders the staff recommends that the IASB undertake narrow-scope standard-setting to amend IFRS 9 to better reflect power purchase agreements in the financial statements with the next project milestone to be an exposure draft and explore an approach to this standard-setting that includes amending the ‘own use’ and hedge accounting requirements in IFRS 9.

Work plan: The IASB will receive an update on its work plan. In addition, the IASB will make decisions about the timing of the post-implementation reviews of IFRS 16 and the hedge accounting requirements in IFRS 9.

Rate-regulated Activities: The IASB will make decisions on the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities, in particular with regard to unit of account and offsetting, presentation and items affecting regulated rates only when related cash is paid or received.

Maintenance and consistent application: The IASB will discuss potential amendments to IAS 21 to require an entity to translate all items (assets, liabilities, equity items, income and expenses, including comparatives) at the most recent closing rate if the entity has a non-hyperinflationary functional currency and presents its financial statements in a hyperinflationary presentation currency; or translates the results and financial position of a foreign operation that has a non-hyperinflationary functional currency into a hyperinflationary presentation currency.

Climate-related and Other Uncertainties in Financial Statements: The staff will inform the IASB about current initiatives in progress to address issues related to the reporting of climate-related and other uncertainties in financial statements, including their status and upcoming steps

Management Commentary: The IASB will receive an update on the project. Potential next steps could include collaborating with the ISSB in advancing the project; proceeding with the IASB project and drawing on input from the ISSB where necessary; or pausing the project until the new reporting landscape becomes more settled.

Provisions—Targeted Improvements: The IASB will discuss the direction of the project. The staff recommend that the IASB continue developing proposed amendments to IAS 37 and make the next project milestone the publication of an exposure draft for stakeholder comment.

Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard: The IASB will discuss the staff recommendation to publish an addendum exposure draft that proposes amendments to the IFRS for SMEs Standard to align Section 7 Statement of Cash Flows with Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) and Section 30 Foreign Currency Translation with Lack of Exchangeability (Amendments to IAS 21).

Second Comprehensive Review of the IFRS for SMEs Accounting Standard: In this session, the IASB will continue the redeliberation of its proposals in the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard. The staff recommends that the IASB should finalise the proposals for the new Section 12 Fair Value Measurement without significant amendments to its overall content. The staff further recommends that the IASB does not amend Section 9 Consolidated and Separate Financial Statements to include requirements for investment entities and to remove the requirement from Section 22 Liabilities and Equity to present the amount receivable as an offset to equity in its statement of financial position if the equity instruments are issued before the entity receives the cash or other resources.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures: The IASB will decide whether to update the Exposure Draft Subsidiaries without Public Accountability: Disclosures for disclosure requirements in the forthcoming IFRS 18 Presentation and Disclosure in Financial Statements.

Our pre-meet­ing summaries is available on our December meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.

The FRC’s programme of corporate reporting reviews and audit quality inspections will pay particular attention to the following areas:

• Risks related to the current economic environment (for example: going concern, impairment, recoverability and recognition of tax assets/liabilities)
• Climate related risks, including Task Force on Climate-related Financial Disclosures (TCFD)
• Implementation of IFRS 17 Insurance Contracts
• Cash flow statements

In selecting corporate reports and audits for review, the FRC will give priority to construction and materials, food producers, gas, water and multi-utilities, industrial metals and mining and retail.

A press release is available on the FRC website.