A sample of 20 companies' annual reports from different industry sectors was selected for review.  It was found that, generally disclosures around the use of APMs were of good quality.  The FRC saw more companies providing reconciliations of APMs to their equivalent IFRS or UK GAAP measures and also some improvement in the labelling of APMs and in their definitions.  However, against these areas of improvement the FRC also found that companies in the sample:

• provided greater prominence or authority to APMs over GAAP measures in some areas of reporting (c50% of the sample reviewed).
• sometimes obscured relevant GAAP information by using large numbers of APMs.  The FRC encourages companies to consider the number of APMs that they present in this regard, for example removing those multiple variants of similar APMs or avoiding using APMs with only immaterial adjustments to IFRS measures.
• adjusted for more costs than income when calculating profit-based APMs.  In the sample reviewed, 19 of the 20 excluded more expenses than income from their APMs with the result that they reported more favourable adjusted results than GAAP results.  The FRC reminds companies to be even-handed in the treatment of gains and losses when classifying amounts as adjusting items.
• could have improved explanations for APMs by providing more granular information. 
• provided reconciliations for the most commonly used APMs but there were examples where reconciliations for some APMs were omitted, where explanations for reconciling items could have been improved or where APMs were not reconciled to a GAAP number.
• adjusted for the effects of significant multi-year restructuring programmes, but they did not disclose relevant information such as cumulative costs, total expected cash costs and expected durations of the programmes.
• used terms such as 'underlying profit', 'non-underlying items' and 'core operations' without an explanation of what these terms meant.
• did not provide disclosures about tax relating to individual categories of adjusting items
• did not always disclose the cash flow implications of certain adjusting items such as restructuring and litigation costs.

The FRC expects companies to consider the better disclosures in the report in the forthcoming reporting season.  It expects preparers to:

• Ensure that APMs are not presented in ways that give them greater prominence than amounts stemming from the financial statements.
• Avoid comments that imply APMs have more authority than amounts stemming from the financial statements.
• Provide specific, tailored explanations for the inclusion of individual APMs in their reports, as well as the basis for classifying amounts as adjusting items.
• Explain terms such as ‘underlying profit' or 'core operations' and the basis for identifying adjustments as 'non-underlying' or non-core’.
• Ensure that APMs are reconciled to the most directly reconcilable line items, subtotals or totals presented in the financial statements, and not to other APMs.
• Disclose relevant information for any significant multi-year restructuring programmes that are classified as adjusting items.
• Disclose the cash flow impact of material adjusting items and exceptional items.
• Explain tax matters relating to APMs by:
  • Including tax matters in their accounting policies for APMs (including accounting policies for classifying material or unusual tax amounts as adjusting items).
  • Providing granular information on the effective tax rate on adjusting items, where necessary.

A press release and the full report is available on the FRC website.  A webinar to discuss the report will be held on October 20.  A press release including details of how to register for the webinar is available on the FRC website.  

Completion of the questionnaire should take approximately 20-30 minutes. The survey deadline has been extended to 30 November 2021. Please click for more information and access to the survey on the EFRAG website.

In its final comment letter EFRAG expresses its appreciation for the IASB’s swift response and delivery of the exposure draft.  EFRAG welcomes and supports the IASB's proposal as it will allow insurance entities to provide more useful information about their activities during the comparative period and also reduce operational challenges.  EFRAG also commends the IASB for addressing most of the comments raised by European constituents in this area.

Overall, EFRAG agrees with the IASB proposals in the exposure draft but does flag some remaining concerns that it would like the IASB to address when finalising the amendment.  For example, ​EFRAG recommends that the IASB aligns the scope of the classification overlay and the temporary exemption from applying IFRS 9 (which is under IFRS 4 Insurance Contracts) due to operational complexity and presentation inconsistencies in the consolidated financial statements.

Also, EFRAG suggests that the IASB states explicitly that the classification overlay may be applied from a date pre-dating the publication of the ED or the final amendment. 

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

The TRWG provides technical observations and proposals for consideration which supports early standard-setting activities for the International Sustainability Standards Board. For more information, see the press release on the IASB’s website.

The letter includes thematic findings on IFRS 9 expected credit loss accounting (ECL) and thematic findings relating to the global benchmark reform.  It also sets out how the PRA intends to use next year’s round of written auditor reporting to explore risks related to climate change.

The full letter is available on the PRA website.

The report discusses ‘the state of play and the drivers of current reporting practices, the application of technological solutions, and suggests a path to improvement in the reporting of sustainability risks, opportunities and their linkage to the business model’. The supplementary document provides selected examples of good or leading reporting practices by companies related to improvements to reporting sustainability risks, and opportunities.

For more information, see the press release on the EFRAG website. The report will be introduced in a webinar on 3 November 2021. Please click for more information here.

In addition, the EFRAG will introduce a series of three podcast on the report:

1. Key findings of the report.
2. Insights on the good reporting practices identified in the report.
3. Highlights the current and potential role of technology in sustainability reporting.

Update 7 December - a summary report and the recording from the webinar are available on the EFRAG website.

At the outreach event, the IASB will present its proposals and participants will have the opportunity to provide their views on the ED.

More information, including how to attend the outreach event can be found on the FRC website.

The update reports on the EFRAG Board webcast meeting on 7 September, the EFRAG TEG webcast meetings on 7 September, 15-16 September and 28 September and the EFRAG TEG and EFRAG CFSS webcast meeting on 15 September. The update also covers the activities of the European Reporting Lab as well as webinars and online outreaches.

The update also lists EFRAG publications issued in September including:

• EFRAG's final comment letter and feedback statement on the IASB's Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities.
• EFRAG's final comment letter on the IASB’s Exposure Draft ED/2021/4 Lack of Exchangeability.
• EFRAG's draft comment letter on the IASB's Exposure Draft ED/2021/7 Subsidiaries without Public Accountability: Disclosures.

Please click to download the September EFRAG Update from the EFRAG website.

Investors and other stakeholders are increasingly interested in disclosures on the environmental and social impact of companies’ activities and their governance arrangements. This project will look at the production, distribution and consumption of ESG data. The first phase of the project will focus on the production of ESG data.

The scope of this first project phase will be determined in conjunction with participants but is expected to cover:

• what ESG data companies collect;
• what methodologies companies use to measure ESG data;
• what systems they use to collect and produce the data;
• how they get comfort on the accuracy of the data; and
• how they transform the data into useful external disclosure.

Interested parties are invited to communicate their interest by 15 November 2021.

Further information including the press release and the Call for Participants is available on the FRC website.

The May 2020 Amendments comprise three Annual Improvement amendments (from the IASB’s Annual Improvements to IFRS Standards 2018–2020) and three Narrow-Scope amendments.

The Annual Improvement amendments covered in the draft endorsement assessment criteria assessment are:

• Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards—Subsidiary as a First-time Adopter.
• Amendments to IFRS 9 Financial Instruments—Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities.
• Amendments to IAS 41 Agriculture—Taxation in Fair Value Measurements.

The Narrow-Scope Amendments covered in the draft endorsement assessment criteria are:

• Amendments to IAS 16 Property, Plant and Equipment—Proceeds before Intended Use
• Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Onerous Contracts—Cost of Fulfilling a Contract.
• Amendments to IFRS 3 Business Combinations—Reference to the Conceptual Framework.

The UKEB secretariat's initial assessment concludes that:

• the May 2020 Amendments meet the criteria of relevance, reliability, comparability and understandability required of the financial information needed for making economic decisions and assessing the stewardship of management, as required by SI 2019/685 (see Regulation 7(1)(c)); and
• application of the May 2020 Amendments is not contrary to the principle that an entity’s accounts/consolidated accounts must give a true and fair view, as required by SI 2019/685 (see Regulation 7(1)(a)).

Additionally the UKEB secretariat initially concludes that the May Amendments will improve the quality of financial reporting and that the benefits of the May 2020 Amendments are likely to outweigh the costs.

Comments on the draft UK Endorsement Criteria Assessment are requested by 30 November 2021.

The draft UK Endorsement Criteria Assessment and the Invitation to Comment can be accessed on the UKEB website.