The FRC launched this market study to understand how well the UK sustainability assurance market is functioning and whether it is delivering desirable outcomes, including high quality assurance. The study will also consider how the market for sustainability assurance might develop in the future.

We believe this market study provides a timely opportunity to critically assess the current sustainability assurance market in the UK.  Our comment letter outlines a number of key points that we believe the FRC should consider as it develops policy proposals or plans in response to this market study. These include:

• The importance of ensuring a regulatory landscape where competition and choice are not pursued at the expense of quality and where appropriately skilled capacity is able to develop to meet growing demand, including the increasing demand for sustainability assurance to be integrated with the provision of the statutory audit.
• The need to develop an overarching supervisory framework for sustainability assurance comprised of a professional framework and ethical code for sustainability assurance providers, and a regulatory framework which provides oversight and monitoring by the FRC or another appropriate body.
• The important role that a supervisory framework should play in establishing a baseline for quality for sustainability assurance across the UK market. While this may present a barrier for some existing and new market participants, we believe that establishing minimum requirements for consistent high quality sustainability assurance is critical for a well-functioning market.
• To embrace the significant opportunity to bring together international standards for reporting, assurance, ethics and quality management into a cohesive, integrated and harmonized ecosystem for sustainability reporting and assurance.
• The importance of developing a roadmap setting out plans for the UK sustainability assurance market. We believe providing transparency including on key milestones will give clarity on the direction of travel, allowing stakeholders to make plans and investments with confidence, and enable a proportionate and structured transition to a new regime.

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

Background

Constituent feedback in the IASB' Agenda consultation 2011 revealed a level of criticism of the equity method of accounting.

Concerns raised by constituents included:

• whether the information provided by the equity method is useful to users
• complexities and inconsistencies with other IFRS requirements, e.g. goodwill impairment, share-based payments and joint arrangements.

Therefore, the IASB added a research project to its agenda aimed at a fundamental assessment of the equity method of accounting in terms of usefulness to investors and difficulties for preparers. However, the IASB later modified the project objective as a fundamental review would require more time and resources than available. The project objective is now to assess whether application problems with the equity method, as set out in IAS 28 Investments in Associates and Joint Ventures, can be addressed in consolidated and individual financial statements by identifying and explaining the principles of IAS 28. 

Suggested changes

The proposed amendments in exposure draft IASB/ED/2024/7 Equity Method of Accounting — IAS 28 'Investments in Associates and Joint Ventures (revised 202x) are intended to answer application questions about how an investor applies the equity method in the following instances:

• Change in the ownership interest of the investor on obtaining significant influence or joint control.
• Change in the ownership interest of the investor while retaining significant influence or joint control. This includes
  • the purchase of an additional ownership interest in the associate or joint venture,
  • the disposal of an ownership interest in the associate or joint venture, and
  • other changes in an associate’s or joint venture’s net assets that change the investor’s ownership interest (for example the issuance of new shares).
• Recognition of the share of losses of the investor. This includes the following proposed decisions:
  • whether an investor that has reduced its investment in an associate or joint venture to nil is required to ‘catch up’ losses not recognised if it purchases an additional interest in the associate or joint venture and
  • whether an investor that has reduced its interest in an associate or joint venture to nil recognises its share of the associate’s or joint venture’s profit or loss and its share of the associate’s or joint venture’s other comprehensive income separately.
• Transactions with associates or joint ventures. This would include, for example, regard the recognition of gains or losses that arise from the sale of a subsidiary to its associate or joint venture, in accordance with the requirements in IFRS 10 and IAS 28.
• Deferred tax effects on initial recognition. This relates to measuring at fair value the investor’s share of the associate’s or joint venture’s identifiable assets and liabilities of the associate or joint venture.
• Contingent consideration.
• Assessment of a decline in the fair value. This regards the question whether a decline in the fair value of an investment in an associate or joint venture is objective evidence that the net investment might be impaired.

As part of the proposals in the exposure draft, the IASB also proposes to abandon the 2014 amendments  Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28), which were issued in September 2014 but saw an indefinite deferral of the effective date in December 2015.

Comments on the proposed changes are requested by 20 January 2025.

Effective date

The exposure draft does not specify an effective date for the amendments. The effective date will be decided when the IASB redeliberates the proposals. 

Additional information

Please click for:

• IASB press release
• Access to the exposure draft on the IFRS Foundation website
• Access to the basis for conclusions on the IFRS Foundation website
• Snapshot overview of the proposals on the IFRS Foundation website
• Our UK Accounting Plus project page on Equity method of accounting

Stakeholders highlighted the Statement of Cash Flows, governed by IAS 7, as an area for improvement. The IASB’s review project will involve research, including consultations with stakeholders, an examination of existing studies on cash flow report, and the extent of the perceived deficiencies in current reporting practices and assess the potential benefits of introducing new financial reporting requirements. The IASB has outlined a tentative timeline for the review process, with plans to evaluate the initial research findings and outline subsequent steps by the first quarter of 2025.

For more information, see the press release on the IFRS’s website.

Guarantees issued on obligations of other entities: The IFRS IC received a submission about how an entity, in its separate financial statements, accounts for guarantees that it issues on obligations of its joint venture in certain fact patterns. As the fact patterns submitted are highly specific and subtle differences in the specific facts and circumstances could change the conclusion, the staff considered that it would be inappropriate for the IFRS IC to conclude on the matter. Instead, the staff recommended that the IFRS IC publish a tentative agenda decision identifying the IFRS Accounting Standards an entity considers in accounting for guarantees that it issues. All IFRS IC members agreed with the decision not to conclude on how the three submitted fact patterns are accounted for and supported the approach of providing a framework and a flow chart decision tree to help entities determine which standards to apply.

IFRS 15—recognition of revenues from tuition fees: The IFRS IC received a submission about the period over which an entity that provides educational services recognises revenue from tuition fees when applying IFRS 15. The staff concluded that there is no evidence of diversity in how those educational institutions recognise revenue from tuition fees and recommended that the IFRS IC publish a tentative agenda decision explaining the reasons for not adding this matter to its agenda. Most of the IFRS IC members agreed that there is no sufficient evidence for diversity in the ‘over time’ recognition of the tuition fee described in the fact pattern and agree publishing a tentative agenda decision with some changes.

IFRS IC input into IASB projects:

• Pollutant pricing mechanisms: The purpose of the session was to obtain IFRS IC members’ input on the prevalence and significance of pollutant pricing mechanisms, and whether IFRS IC members have observed deficiencies in the accounting for these mechanisms. This information will contribute to the IASB’s horizon scanning activities and helping the IASB make an informed decision on whether to prioritise a project on the topic. In the meeting, IFRS IC members shared their views and thoughts on each of the areas.
• Post-implementation review (PIR) of IFRS 16: The purpose of this session was to seek IFRS IC members’ views on the implementation and ongoing application of IFRS 16 and to identify matters to include in the forthcoming request for information (RFI) for public consultation. In the meeting, IFRS IC members shared their thoughts on the various aspects of the PIR.

More In­for­ma­tion

Please click to access the detailed notes taken by Deloitte observers.

The following topics are on the agenda:

An investor perspective on the ISSB’s work plan: The ISSB will receive a presentation about the investor perspective on its work plan.

Biodiversity, ecosystems and ecosystem services, and human capital: The ISSB will discuss connections between the content in the industry-based Sustainability Accounting Standards Board (SASB) standards and the ISSB’s new research projects. No decisions will be asked of the ISSB.

Enhancing the SASB standards: In this session, the ISSB will examine the general structure of the industry-based SASB standards and analyse several disclosure topics and metrics in detail. The ISSB will not be asked for any decisions.

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

The following topics are on the agenda:

Power purchase agreements: The IASB will discuss staff recommendations on the scope of the amendments proposed in Exposure Draft (ED) Contracts for Renewable Electricity and the proposed own-use amendments.

Dynamic risk management: The IASB will discuss potential disclosure requirements for the dynamic risk management model and the circumstances for discontinuation of the model by an entity.

Amortised cost measurement: The IASB will be asked to make the project active and discuss the project direction.

Management commentary: The IASB will be given the opportunity to comment on the staff’s proposed approach in developing targeted refinements to the ED Management Commentary and will be asked for decisions on the suggested targeted refinements to proposals on Chapters 1-3 in the ED.

Statement of cash flows and related matters: The IASB will announce that the project is moving from the research pipeline to the research work plan. In addition, IASB members will be invited to ask questions on topics arising from its third agenda consultation and the academic literature review on this topic, and the planned research to support the decision on the scope of the project.

Addendum to the ED Third edition of the IFRS for SMEs Accounting Standard: The IASB will discuss feedback received in response to the ED Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard. The staff recommends to finalise the proposals and asks for permission to ballot the third edition of the IFRS for SMEs standard.

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

The agenda items for discussion are as follows:

• Amendments to the Classification and Measurement of Financial Instruments – Draft Endorsement Criteria Assessment  
• Exposure Draft: Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures – Draft Comment Letter
• Exposure Draft: Climate-related and Other Uncertainties in the Financial Statements – Draft Comment Letter
• IASB General Update

The meeting agenda and papers and details of how to register are available on the UKEB website.

The session on dynamic risk management has been moved to 16 September (previously 17 September) while the session on the addendum to the Exposure Draft Third edition of the IFRS for SMEs has moved to 17 September (previously 16 September).

The full agenda for the meeting can be found here.

A press release and the podcast are available on the FRC website.

The update lists EFRAG sustainability publication, namely, EFRAG publishes XBRL Taxonomy for ESRSs set 1, issued in August 2024.

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

Please click to download the August 2024 EFRAG Update from the EFRAG website.