In the foreword to the report, the Chairman of the FRC, Sir Winfried Bischoff, comments that “a healthy culture both protects and generates value”.  He also comments that “strong governance underpins a healthy culture, and boards should demonstrate good practice in the boardroom and promote good governance throughout the business.  He indicates that in taking action on culture, those involved should consider:

• Connecting a company’s purpose and strategy to culture.
• Aligning values and incentives which support and encourage behaviours consistent with the company’s purpose, values strategy and business model.
• Assessing, measuring and reporting on company culture.

Through undertaking a project on corporate culture, the FRC aimed to:

• gain a better understanding of how boards are addressing culture;
• encourage discussion and debate; and
• identify and share good practice to help companies.

The FRC focused its attention on the following aspects of company culture:

• The role of the board in delivering sustainable success.
• Engagement with employees, customers, shareholders and other stakeholders.
• How to embed the desired culture.
• How to assess culture. 

The report highlights that “companies and boards are taking action to shape their culture in order to encourage investment”.  It also encourages those that have yet to take action to consider the benefits action will bring.  Overall it “aims to stimulate thinking around the role of boards in relation to culture, and encourage boards to reflect on what they are currently doing.” 

The FRC has concluded that “culture is key to sustainable growth.” They found that boards are spending more time discussing culture than five years ago. 39% of the FRC’s survey respondents reported that ethics and culture was a full board agenda item at least once every six months. 

Key findings taken directly from the report include:

• Recognise the value of culture: A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value. It is the board’s role to determine the purpose of the company and ensure that the company’s values, strategy and business model are aligned to it. Directors should not wait for a crisis before they focus on company culture.
• Demonstrate Leadership: Leaders, in particular the chief executive, must embody the desired culture, embedding this at all levels and in every aspect of the business. Boards have a responsibility to act where leaders do not deliver.
• Be Open and Accountable: Openness and accountability matter at every level. Good governance means a focus on how this takes place throughout the company and those who act on its behalf. It should be demonstrated in the way the company conducts business and engages with and reports to stakeholders. This involves respecting a wide range of stakeholder interests.
• Embed and Integrate: The values of the company need to inform the behaviours which are expected of all employees and suppliers. Human resources, internal audit, ethics, compliance, and risk functions should be empowered and resourced to embed values and assess culture effectively. Their voice in the boardroom should be strengthened.
• Assess, Measure and Engage: Indicators and measures used should be aligned to desired outcomes and material to the business. The board has a responsibility to understand behaviour throughout the company and to challenge where they find misalignment with values or need better information. Boards should devote sufficient resource to evaluating culture and consider how they report on it.
• Align Values and Incentives: The performance management and reward system should support and encourage behaviours consistent with the company’s purpose, values, strategy and business model. The board is responsible for explaining this alignment clearly to shareholders, employees and other stakeholders.
• Exercise Stewardship: Effective stewardship should include engagement about culture and encourage better reporting. Investors should challenge themselves about the behaviours they are encouraging in companies and to reflect on their own culture. 

Over the coming year the FRC will be monitoring reporting on culture by companies and investors. No changes to the UK Corporate Governance Code are planned as a result of this exercise. The FRC will use the observations in this report, and any feedback received, to update the Guidance on Board Effectiveness, which was last updated in early 2011.  Feedback on the report is welcomed. 

Click for: 

• Press release (link to FRC website)
• Corporate Culture and the role of Boards – Report of observations (link to FRC website)
• Our UK Accounting Plus project page on corporate culture
• Our related Governance in brief publication

The main change in the work plan presentation is that the Board’s active research projects and standard-setting projects are presented on one page, with research appearing before standard-setting. This was done to indicate that research projects typically lead on to standard-setting projects (if the research provides sufficient evidence that standard-setting is needed), to avoid implying that standard-setting projects are automatically more important or more urgent than research projects, and to avoid the confusion caused by some projects appearing on both the research and major projects pages.

The research projects now also include milestones for progress made and expected, however, they are of the same kind as the ones used for major projects so that slippage cannot be detected from one month to the next. Also, research projects are no longer classified as being in either the assessment or the development phase as the distinction was confusing to users. Projects that are in the “research pipeline” are no longer presented in the work plan at all.

The page dedicated to narrow scope amendments and IFRS maintenance now also includes IFRS Taxonomy activities and developments in the post-implementation reviews.

Changes to the projects itself include:

Research projects

• Disclosure initiative: Principles of Disclosure: Updated to indicate that the discussion paper is expected in October/November 2016 (had been announced as coming out “within six months” since July 2015)

Standard-setting and related projects (major projects)

• Disclosure initiative: Materiality Practice Statement: Updated to indicate that a decision on the direction of the project is now expected within 3 months; previously it was within 6 months
• Amendments to IFRS 4: Applying IFRS 9 with IFRS 4: Updated to indicate that the final amendments are now expected within 3 months (September); previously it was within 6 months

Implementation projects (narrow scope amendments)

• Changes in Accounting Policies and Estimates: Updated to indicate that an exposure draft is now expected within 6 months; previously it was after 6 months
• Definition of a Business and Accounting for Previously Held Interests: Updated to indicate that the project is currently in the public consultation phase with a decision on the direction of the project to occur after 6 months
• Annual improvements 2014–2016: Updated to indicate that the project is currently in the drafting phase and the amendments are expected within 6 months
• Annual improvements 2015–2017: Updated to indicate that the project is currently in the drafting phase and an exposure draft is expected within 6 months.

The revised IASB work plan is available on the IASB's website.

The Natural Capital Coalition has launched the Natural Capital Protocol, a standardised framework bringing together and building on a number of approaches that already exist to help business measure and value natural capital. The Natural Capital Protocol is freely available on the Natural Capital Coalition website.

The Sustainability Accounting Standards Board (SASB) has issued industry-by-industry engagement guidance for investors to assist asset owners and asset managers in using SASB standards and asking the right questions about material sustainability factors. Please click to download the guidance from the SASB website.

The Global Reporting Initiative (GRI) has announced that Chief Executive Michael Meehan will leave the organisation. Former Deloitte Partner Eric Hespenheide has been appointed Interim Chief Executive and stands down from his position as Chair of the Global Sustainability Standards Board (GSSB) in line with governance procedures. Please click for the press release on the GRI website.

The outreach event provided investors an opportunity to learn about the main changes between IFRS 16 and IAS 17 as well as the differences between IFRS 16 and the US GAAP equivalent standard. In addition, participants provided their views on the leases standard, which included discussions on:

• Advantages and disadvantages of IFRS 16 for financial statement users.
• Population of contracts captured by the scope of IFRS 16.
• IFRS 16 presentation requirements.
• Non-GAAP measures.
• Overall impact of IFRS 16.

For more in­for­ma­tion, see the feedback summary on the EFRAG’s website.

In light of the expected impact and importance of the implementation of IFRS 15, ESMA highlights the need for consistent and high-quality implementation of IFRS 15 and the need for transparency on its impact to users of financial statements. The statements addresses the following topics:

• Transparency on implementation and effects of IFRS 15;
• Specific considerations;
• Illustrative timeline and good practices of disclosures; and
• Next steps.

Please click to download the IFRS 15 public statement from the ESMA website.

In November 2016, ESMA published a similar statement on the application of IFRS 9. ESMA expects that the statements will be taken into account and reflected in the 2016 and 2017 annual and 2017 interim financial statements.

The present mandate period of six of the sixteen EFRAG TEG members expires on 31 March 2017 and the mandate of three country liaison members expires on 30 November 2016. All existing members are eligible for reappointment.

More information is available on the EFRAG website.

The ITCG discussed:

• update on the Board’s work to improve communication of financial information, including the IFRS Taxonomy;
• use of structured electronic reporting, including the IFRS Taxonomy;
• IFRS Taxonomy implementation guidance;
• IFRS Taxonomy content areas for review;
• IFRS Taxonomy educational materials; and
• ITCG member updates.

For more information, see the meeting notes on the IASB website.

Please click through for direct access to the notes:

Monday, 18 July 2016

• Insurance and IFRS 9
• IFRS Implementation issues
• Conceptual Framework

Tuesday, 19 July 2016

• Financial instruments with characteristics of equity
• Research programme
• Agenda consultation

You can also access the pre­lim­i­nary and un­of­fi­cial notes taken by Deloitte observers for the entire meeting.

One of the responses to the paper is also Deloitte's new Thinking Allowed publication on the future of corporate reporting.

Please click for access to all responses on the FEE website.

Local authorities in the United Kingdom are required to keep their accounts in accordance with ‘proper practices’. This includes compliance with the terms of the Code of Practice on Local Authority Accounting in the United Kingdom prepared by the CIPFA/LASAAC Local Authority Accounting Code Board (CIPFA/LASAAC). 

The exposure draft includes a number of key proposals for change including:

• Narrative reporting.  CIPFA/LASAAC propose to incorporate specific narrative reporting requirements into the Code from 2017/18.  It is CIPFA/LASAAC’s view that “narrative reporting requirements should encourage local authorities to tell their story and not be overly prescriptive in nature”.  The proposed amendments to narrative reporting are based on “high level principles”.  Proposed requirements have been derived by reference to the elements required in an Integrated Report and also by reference to the Financial Reporting Council’s (FRC’s) Guidance on the Strategic Report.
• Going concern reporting.  Changes are proposed to reinforce the requirements in relation to going concern.
• Review of accounting policies.  CIPFA/LASAAC propose to remove the list of accounting policies at paragraph 3.4.2.87 and to include more guidance for local authorities on the inclusion of significant accounting policies in the financial statements.  It is hoped that this will “encourage local authorities to avoid a ‘boilerplate’ approach to their significant accounting policies”.  CIPFA/LASAAC also encourage local authorities to “consider innovative ways of including their accounting policies in their financial statements to engage the users of the financial statements and ensure that the accounting policies tell the individual authority’s story”.   
• New disclosure of transaction costs for pension fund investments.  It is proposed that the current recommended disclosure at paragraph 6.5.5.2 in relation to disclosure for pension fund transaction costs be mandatory.  
• Consideration of the effects of a number of narrow scope amendments to International Financial Reporting Standards (IFRSs) including amendments to IAS 7 Statement of Cash Flows (Disclosure initiative) and IAS 12 Income Taxes (recognition of deferred taxes for unrealised losses)
• Legislative changes. 

The exposure draft also includes two proposed appendices for inclusion in the 2017/18 Code.  These appendices are in relation to provisions required to adopt IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.  Both of these appendices will apply only to the 2018/19 Code but are proposed to be included to allow local authorities adequate time to prepare and understand the requirements of the new standards.

Comments on the exposure draft are invited until 7 October 2016.  

Click for (all links to the CIPFA website):

• Press release
• The 2017/18 Code of Practice on Local Authority Accounting in the United Kingdom - Invitation to comment