CP 13/15 proposed a number of changes that affect premium listed companies with a controlling shareholder and also proposed a number of changes that affect all premium listed companies, whether or not they have a controlling shareholder.

The new rules were published by the FCA today and come into effect on 16 May 2014. 

Amongst other changes, LR 9.8.4CR has been added, requiring the annual report include all the information required under LR 9.8.4 R in a single identifiable section, unless the annual financial report includes a cross-reference table indicating where that information is set out.

Listing Rule 9.8.4R(14) has also been added requiring extra disclosure in the annual report if the listed company has a controlling shareholder (as per LR6.1.2AR a "controlling shareholder" means any person who exercises or controls on their own or together with any person with whom they are acting in concert, 30% or more of the votes able to be cast on all or substantially all matters at general meetings of the company – further details are included in LR 6.1.2 on which voting rights are disregarded for the purposes of this calculation).

On 16 May the FCA published the related policy statement (link to FCA website), including its response to feedback on the new rules.

Click for:

• Press release (link to FCA website).
• Our previous UK Accounting Plus news item on the proposals contained within CP 13/15.

The existing rules in section 11 of FRS 102 have been widely criticised as too restrictive, forcing some common debt instruments (and in particular, some for which measurement at amortised cost would be permitted by IAS 39 or IFRS 9) to be measured at fair value through profit or loss.  In response to this, the FRC published FRED 54, which sets out proposed amendments to address these issues.

Although overall we support the proposals, we do still have some concerns.  In particular:

• The proposed new rule regarding linkage to inflation does not clearly rule out classification of instruments where such a link is leveraged as basic.
• In our view, the existing rules regarding investments in preference shares require all such investments to be accounted for at fair value through profit or loss.  This applies regardless of whether these preference shares are in substance debt rather than equity, which is not a position that we support.
• Where an issuer has the option to redeem debt early but must pay a penalty (in excess of compensation for lost interest, which would be allowed), the proposals would require measurement of this instrument at fair value through profit or loss. Where such an option exists only to provide a disincentive for early prepayment (for example, in the case of some UK mortgages), we do not believe that fair value measurement is necessary as measurement at amortised cost would adequately reflect the risks associated with this instrument.

Apart from these specific issues, we urge the FRC to maintain their stated position in the exposure draft that not all instruments are basic just because they are common, and to resist calls from vested interests to widen the classification boundaries further.

Further comments and a full response to all questions raised in the invitation to comment are contained within the comment letter.

Statements of Recommended Practice ("SORPs") are developed in the public interest and set out current best accounting practice. SORPS, issued by ‘SORP-making bodies’ are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique within specialised industries or sectors.  SORPs are issued on subjects on which it is not considered appropriate to issue an accounting standard at the time. 

SORPs cannot be taken as authority to depart from the requirements imposed by accounting standards, nor to extend the scope of accounting standards to include entities or circumstances which are otherwise excluded from specific accounting standards or accounting standards in general.

The SORP ‘Policy and Code of Practice’ provides the policy which industry or sectoral bodies must follow if they are to become a recognised ‘SORP-making’ body.  The SORP ‘Policy and Code of Practice’ also contains a Code of Practice for such bodies on developing SORPS.

The updated ‘Policy and Code of Practice on SORPS’ can be obtained from the FRC website.

The IPSASB Governance Review Group consists of members from the International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD), the World Bank, Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the International Organization of Supreme Audit Institutions (INTOSAI). The Review Group published its proposals in January 2014.

In our comment letter, we note that the sovereign debt crisis has placed increasing importance on the review of the governance of the IPSASB, and support the ongoing work of the IPSASB in establishing high-quality accounting standards for the public sector. In supporting the objective of bringing the IPSASB's governance within the governance framework of the IFRS Foundation, we believe the oversight and monitoring provided by the IFRS Foundation Trustees and IFRSF Monitoring Board would strengthen the IPSASB's independence.

Whilst we acknowledge that the 2010-2012 Strategy Review of the IFRS Foundation Trustees concluded that the short-term primary focus of the IFRS Foundation and the International Accounting Standards Board (IASB) should remain on developing standards for for-profit corporate entities, we think that it is appropriate to revisit this conclusion within its own due process arrangements. We note that the IFRS Foundation has announced a Strategic and Operational Review that will commence in 2015, and believe this would give the IFRS Foundation Trustees an opportunity to begin the discussion about bringing oversight of the IPSASB within its ambit. In the meantime, we support the IPSASB remaining under the auspices of the International Federation of Accountants (IFAC) to allow its standard-setting activities to continue within existing funding arrangements.

In terms of the potential impact on the membership of the IFRS Foundation Trustees, our comment letter notes the following:

In our view, the IFRS Foundation Trustees would be able to provide appropriate oversight of the work of the IPSASB, given that at least half of the Trustees have public sector/public policy experience. As such, we think that the Trustees already possess a broad understanding of the needs of users of public sector accounts. Any actual or perceived deficiencies could be addressed as new Trustees are appointed.

Similarly, we do not believe issues with membership and remit of the Monitoring Board are insurmountable as it "already represents the public interest (the members being primarily public authorities), and capital markets under their supervision are accessed by governments and other public sector entities".

We however note concerns regarding the impact on funding of an expanded IFRS Foundation:

More problematic might be funding expanded operations of the IFRS Foundation, if it is to address public sector standard-setting. The IFRS Foundation has struggled to establish a stable, independent funding base for its current private sector activities: adding public sector responsibilities could strain the funding challenges still further. Any involvement of IFAC Member Bodies in funding the IPSASB would likely be as contentious as it was when the IASC was being restructured in 1998-2000, and would need to be severed if the IPSASB were to be held to the same standards of independence as the IASB.

Notwithstanding these concerns, we believe that a common governance framework and due process, together with likely staff resource synergies, may represent a less significant incremental cost than establishing the IPSASB as a separate standard-setter, an option we see as "challenging at present and sub-optimal in the long run".

Click for access to the full comment letter.

Current status

The revised time table for the major projects is now as follows:

* Indicates a change since the prior work plan update.
^† According to the April 2014 summary of the DPOC meeting, this may change to the beginning of the third quarter 2014.
^‡ Now a research project.

 

Changes concerning narrow scope projects are:

• Equity Method in Separate Financial Statements — a final pronouncement is now expected in Q2 2014;
• Clarification of Acceptable Methods of Depreciation and Amortisation — target IFRS moved from first to second quarter of 2014;
• The EDs on Elimination of gains or losses arising from transactions between an entity and its associate or joint venture and Recognition of Deferred Tax Assets for Unrealised Losses have been moved back by one quarter to Q3 2014;
• A new project has been added to the work plan regarding a topic that came up from IFRIC (Clarifications of classification and measurement of share based payment transactions) – an exposure draft expected in Q3 2014.

Click for the IASB work plan dated 30 April 2014 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

The summary of the meeting includes the following reports:

Report of the Trustees’ Executive session

• Public consultation on the International Public Sector Accounting Standards Board (IPSASB) Governance Review
  To improve public sector accounting, the Trustees agreed to establish a joint monitoring and oversight body, consisting primarily of members of the IPSASB review group.
• IFRS developments around the world
  • Saudi Arabia — Updated on developments from the Chairman’s meeting with the Gulf Co-operation Council Accounting and Auditing Organisation (GCCAAO).
  • United States — The Chairman discussed his meeting with US authorities, including the Securities and Exchange Commission (SEC).
  • Japan — Updated on developments regarding Japan’s transition to IFRS.
  • Europe — The Trustees discussed the EU’s contribution to the funding of the IFRS Foundation.
  • G20 — The Trustees discussed meetings held with representatives of the Australian Treasury and the Australian Securities and Investment Commission (ASIC) to promote a single set of global accounting standards.
• Governance and control developments
  The Trustees reviewed the Foundation’s overall risk management and controls processes and procedures, which were considered to be generally effective. The Trustees asked the staff to start the preparatory work for the organisation’s next review of structure and effectiveness as soon as possible in the second half of 2014, rather than wait for 2015 when it was scheduled to start.
• Communications strategy for 2014
  The Trustees discussed developing a revised overarching narrative for the organisation, enhanced co-ordination of policy-level outreach and media activity.
• Presentations
  The Trustees received presentations from:
  • The Education and Content Services Committee
  • The Audit and Finance Committee

Report of the Chairman of the IASB

Hans Hoogervorst, Chairman of the IASB, provided the Trustees with an update on the IASB’s activities including its disclosure initiative and the joint leases project. Ian Mackintosh, Vice-Chairman of the IASB, provided an update on the revenue recognition project.

Report of the Chairman of the Due Process Oversight Committee

Scott Evans, Chairman of the Due Process Oversight Committee (DPOC) reported on the recent activities of the DPOC. See our previous news item on topics covered during the separate DPOC meeting.

Regional outreach activity

As part of the Trustees’ meeting, the IFRS Foundation hosted a joint event with the Institute of Chartered Accountants in Australia and CPA Australia at which the Trustees and the leadership of the IASB met with representatives of key stakeholders to discuss issues under the theme The future of global financial reporting.

The full summary of conclusions of the IFRS Foundation Trustees' meeting is available on the IASB website.

Of the options provided in the public consultation paper, the IFRSF believe that the practical option is to have a single monitoring and oversight board, while the IPSASB remains under the auspices of the IFAC. To gain greater acceptance, the IFRSF stated the monitoring and oversight be “provided by the international treaty and other organisations represented on the IPSASB Governance Review Group, with the possible addition of the United Nations.” Another advantage to this option is that the current funding could be maintained. Also, the IFRSF suggested that the monitoring and oversight board should be responsible for creating operating procedures, consultative arrangements and due process.

The IFRS Foundation plans to conduct its next strategic review in 2015, when it may consider whether to expand its scope of activities to include the IPSASB.

For more information, see the full response on the IASB website.