The complete suite of new and revised standards consists of

• ISA 700 (Revised) Forming an Opinion and Reporting on Financial Statements
• ISA 701 Communicating Key Audit Matters in the Independent Auditor's Report
• ISA 570 (Revised) Going Concern
• ISA 705 (Revised) Modifications to the Opinion in the Independent Auditor's Report
• ISA 706 (Revised) Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report
• ISA 260 (Revised) Communication with Those Charged with Governance and
• Conforming Amendments to ISAs 210, 220, 230, 510, 540, 580, 600, and 710

The new and revised auditor reporting standards will be effective for audits of financial statements for periods ending on or after 15 December 2016.

Our comment letter offers an anylsis of the main points of the discussion paper and we agree that that the hybrid scheme described as 'defined rate regulation' captures many of the features of regulatory regimes encountered in practice. We also agree that a focus on the rights and obligations arising from rate regulation is necessary to determine whether these give rise to assets and/or liabilities that meet the criteria for recognition per the Conceptual Framework for Financial Reporting. We recommend that the next step in the project be an accounting discussion paper preceding the development of any new Standard or amendment to existing standards.

Please click for a summary of our main points and access to the full comment letter. 

Key findings from the report, which is based upon a number of reports and surveys, are as follows:

Governance and reporting

• 94 per-cent of FTSE 350 companies comply with all, or all but one or two, of the UK Corporate Governance Code’s 54 provisions
• 61 per-cent of FTSE 350 companies fully comply with all 54 provisions
• Progress has been made in the area of diversity.  The target of 25% female directorships by 2015 set by Lord Davies “is well within reach” with 22.8% of FTSE 100 directorships now held by women.  Improvements have also been seen in the level of female executive directors in FTSE 100 companies, although there has been a “marginal decrease” in the FTSE 250.  The level of female non-executive directors across the FTSE 100, FTSE 250 and small cap companies.    
• The 2012 edition of the UK Corporate Governance Code brought in an expectation that companies should set out their policies on boardroom diversity and report on the progress against any measureable objectives they had set themselves.  The report highlights that 98 per-cent of FTSE 100 companies “make some reference to diversity” with 85 per-cent having a “clear policy”.  The figures were 56% for FTSE 250 companies and is an “area where more improvement is required”.
• There has been an improvement in audit committee reporting with approximately two-thirds of audit committees now providing a “good or detailed discussion of significant accounting issues”.
• Disclosure in relation to appointing the auditor, safeguarding objectivity and independence relative to the use of non-audit services has “generally been of a good standard”, although the report identifies the need for improved disclosure in the expected timing of an audit tender.
• For a sample of FTSE 350 annual reports, the FRC found that the standard of explanations for departures from the UK Corporate Governance Code provisions “continues to be variable”.
• Improvements are still required in the board’s assessment that the company’s annual report and accounts taken as a whole is fair, balanced and understandable.  There is a variation in the nature of the board’s assessment in FTSE 350 annual reports – 10 per-cent of FTSE 350 companies currently provide no explanation at all. 

Stewardship and engagement

• The report highlights “encouraging signs” that “more engagement on a wider range of issues is taking place between large companies and their major shareholders” but this is not the case across the listed sector or across all signatories.
• Companies and investors are calling for “more proactive and better quality engagement”, especially in the area of the binding vote on remuneration.
• The FRC are concerned about the quality of reporting against the seven principles of the Stewardship Code (link to FRC website).  For its annual sample of signatories’ statements against the Stewardship Code in 2014, the FRC found that “not all are reporting against all seven principles of the Code”.  For those that did report against all of the principles, the FRC comments that “the depth of statements continues to vary considerably”.  The report highlights that “the FRC will look to signatories to make better efforts to report sufficiently across the seven principles and the instances where explanations are required”.

Based on these findings and others highlighted in the report, the FRC considers the following to be the key issues for investors and companies in 2015:

The importance of good corporate culture and embedding sound governance behaviours throughout companies;

Board composition and ensuring suitable succession planning is in place;

Effective board evaluation and reporting;

Active engagement between boards and investors and improved reporting in this area;

Early consideration of the new viability statement;

Maintaining effective risk management and internal controls;

Focussing on the quality of explanations under both Codes; and committing to clear and concise reporting.

The FRC will also continue to focus on the issue of company culture and behaviour and in 2015 and, among other things, will:

• assess how effective boards are at establishing company culture and practices and embedding good corporate behaviour, and will consider whether there is a need for promoting best practice.
• re-emphasise the value of ‘comply or explain’ in achieving good governance
• begin an project to study how best it can promote a culture of stewardship and its benefits; and how it can increase scrutiny of adherence to the Stewardship Code in order to improve the quality of practice and reporting.
• focus on the role of proxy advisors

Click for:

• Press release (link to FRC website).
• Full report (link to FRC website).
• Our Governance in brief publication

The proposals set out a new standard on interim reporting for entities that apply FRS 102 in their annual financial statements. The proposed standard is based on IAS 34, the international standard on interim reporting and will replace the existing ASB Statement 'Half-yearly financial reports'

Our key comments are as follows:  

• we agree that the ASB Statement on Preliminary Announcements is now of little practical use and can be withdrawn without replacement;
• we agree with the proposal to replace the ASB Statement: Half-yearly Financial Reports with a pronouncement based on IAS 34 but with necessary amendments to enable it to work within the context of UK accounting standards.  However, we believe that the proposed draft FRS 104 deviates more than necessary from the text of IAS 34 and that greater consistency would be preferable; and
• we question whether it is appropriate to badge the document as a Financial Reporting Standard given the complications that will arise because it will not be an ‘accounting standard’ for legal purposes. 

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

The full agenda for the meeting, dated 10 January 2015, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

As the IASB concluded that diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12, the proposed amendments (in Exposure Draft (ED) 2014/3) consist of some clarifying paragraphs and an illustrating example.

EFRAG is supportive of the core proposals contained within the ED.  However it has “some concerns and wording suggestions” which it suggests the IASB takes into account when finalising the amendments “to ensure that the welcomed clarifications are fully effective”. 

The full comment letter is available on the EFRAG website.

In light of experience over the 2014 AGM season and recent developments, the Group felt that there were a number of issues included within the 2013 Guidance that required further supplementary guidance and a number of areas that could be further clarified to promote best practice reporting.

Further supplementary guidance is provided in the following areas:

• Assurances regarding remuneration policies.  The Group highlights that some remuneration committees have published assurances about the way aspects of their proposed policies would be implemented.  The 2014 Statement indicates that such assurances should be provided on the accounts and reports section of a company’s website and in the remuneration reports in the following years of the policy’s term as a disclosure regarding policy implementation in those years,
• 2014 UK Corporate Governance Code – impact on remuneration policies previously approved – malus and clawback.  The Group suggests that companies which plan to extend withholding and recovery provisions in response to the 2014 UK Corporate Governance Code “may wish to consider (in consultation with investors) deferring this to the next scheduled policy renewal, presenting for approval a new policy amended accordingly or devising some other solution, for which they may wish to seek appropriate advice (e as regards any risk of making awards or payments ‘inconsistent’ with approved policy”.
• Information about the approved policy in subsequent remuneration reports.  The Group does not consider that the full policy needs to be included in every report but that “sufficient information should be included to help shareholders easily assess the reported remuneration in the context of relevant aspects of the policy, and that at least the policy table should be included”.  The Group also highlight that the full policy should be available and signposted on the company’s website.

In addition, the 2014 Statement seeks to clarify the following areas:

• Linking remuneration to company strategy
• Applying the GC 100 and Investor Group guidance on discretion
• Performance targets – protecting genuine commercial sensitivity yet achieving transparency
• Remuneration component maxima
• Shareholding requirements – compliance, time to comply and enforcement by remuneration committees
• Remuneration committees should aim to improve clarity

Click for:

• The 2014 Statement (link to the GC 100 pages on the Practical Law website).
• Our previous story on the GC 100 and Investor Group guidance.