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FRC publishes FRED 72 'Draft amendments to FRS 102 – Interest rate benchmark reform'

12 Jul 2019

The Financial Reporting Council (FRC) has published FRED 72 'Draft amendments to FRS 102 – Interest rate benchmark reform'.

The exposure draft proposes narrow scope amendments to specific hedge accounting requirements in Section 12 of FRS 102 to provide relief that will avoid unnecessary discontinuation of hedge accounting as interest rate benchmarks are reformed.  Entities will apply those hedge accounting requirements assuming that the interest rate benchmark relevant to the hedge accounting is not altered as a result of interest rate benchmark reform.

FRED 72 is based on similar proposals issued by the IASB, and has a proposed effective date of 1 January 2020, with early application permitted.  Comments are requested by 20 September 2019.

A press release and the exposure draft are available on the FRC website.

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FRC publishes amendments to FRS 101

12 Jul 2019

The Financial Report Council (FRC) has issued 'Amendments to FRS 101 Reduced Disclosure Framework - 2018/19 cycle' which amends the definition of a qualifying entity so that insurers cannot apply FRS 101 from the effective date of IFRS 17 Insurance Contracts.

FRS 101 requires the application of the recognition and measurement requirements of EU-adopted IFRS with reduced disclosures. Unlike accounts that apply IFRS in full (IAS accounts), those prepared in accordance with FRS 101 (non-IAS accounts) must comply with detailed accounting requirements set out in company law. Some of these requirements conflict with the requirements of IFRS 17 Insurance Contracts. The primary conflict is in relation to Schedule 3 formats of the primary statements; the approach and methodology that underpins IFRS 17 is so fundamentally different that presenting amounts determined in accordance with that standard, within the formats laid down in law for non-IAS accounts, is not possible.

Consequently, the amendments change the definition of a ‘qualifying entity’ such that entities that are required both to comply with Schedule 3 to the Regulations and have contracts within the scope of IFRS 17 may not be qualifying entities. This means that these entities cannot apply FRS 101 from the effective date of IFRS 17. The amendment is necessary to ensure that insurance companies that are not required to, and choose not to, prepare IAS accounts, continue to comply with company law requirements by only applying FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 103 Insurance Contracts.

The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time.

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

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IFRS Foundation issues Formula Linkbase 2019

11 Jul 2019

The IFRS Foundation has issued the 2019 IFRS Taxonomy Formula Linkbase. The Formula Linkbase is updated from the 2018 version; it is designed to help improve the data quality of IFRS Taxonomy filings and to provide additional guidance for both technical and financial reporting audiences so that they can better understand the IFRS concepts and their meanings.

For more information, see the press release on the IASB's website.

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FRC publishes audit quality inspection reports of the major audit firms

11 Jul 2019

The Financial Reporting Council (FRC) has published individual audit quality inspection reports for the major audit firms.

The results highlight that 75% (73% in 2017/18) of FTSE 350 audits reviewed were assessed as “good” or “requiring limited improvements”. No firms achieved the FRC’s audit quality target for 90% of FTSE 350 audits to have “no more than limited improvements” by 2018/19.  For 2019/20, the FRC will extend the 90% quality target for FTSDE 350 audits to all audits inspected.  It has also indicated that it will set a new target for audit firms that from 2020/21 onwards, 100% of audits inspected should require no more than limited improvement. 

The FRC indicates that "overall, there has been no improvement on last year" and highlights that 25% of assessed audits were "below an acceptable standard".

The reports set out the principal findings arising from the audit quality inspection work carried out by the FRC’s Audit Quality Review (AQR) team for 2018/19. 

The reports focus on the key findings from the reviews, why such findings are important and actions the individual firms are taking to address them in order to safeguard and enhance audit quality.

The press release and links to individual reports are available on the FRC website.

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EFRAG publishes a feedback statement on its discussion paper on non-exchange transfers

10 Jul 2019

The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement on its 2018 discussion paper on non-exchange transfers.

The discussion paper Non-exchange transfers: A role for societal benefit? explored the accounting for transfers in which an entity received (or gives) value without directly giving (or receiving) approximately equal value in exchange.

The feedback statement describes the main comments received by EFRAG in response to its discussion paper.

Please click to access the feedback statement on the EFRAG website.

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Recent sustainability and integrated reporting developments

09 Jul 2019

A summary of recent developments at IOSCO, UNCTAD/IIRC, IIRC, ANC, the UK Government, METI, JPX, ECA, and the EC.

The Growth and Emerging Market Committee (GEMC) of the International Organization of Securities Commissions (IOSCO) has published a report Sustainable finance in emerging markets and the role of securities regulators, which provides 10 recommendations for emerging market member jurisdictions to consider when issuing regulations or guidance regarding sustainable financial instruments. Among other things, the recommendations include requirements for reporting and disclosure of material Environmental, Social and Governance (ESG) specific risks, aimed at enhancing transparency. Please plick to access the report on the IOSCO website.

The United Nations Conference on Trade and Development (UNCTAD) and the International Integrated Reporting Council (IIRC) have signed an updated Memorandum of Understanding to reaffirm their commitment to integrating the United Nation’s Sustainable Development Goals (SDGs) into the corporate reporting cycle. Please click to access the press release on the IIRC website.

The IIRC has announced that its Chief Executive Officer Richard Howitt has stepped down after nearly three years’ service. Charles Tilley OBE has been appointed interim CEO. For more information, please see the press release on the IIRC website.

The Autorité des Normes Comptables (ANC), the French standard-setter, has released a report analysing ways of consolidating the development of extra-financial reporting by companies, so that, in the long run, it gradually takes on a status comparable to that of financial information. The report aims to define the conditions for the development of high-quality extra-financial information. In addition, the report aims to encourage greater harmonisation and comparability of extra-financial information. After an overview of the various existing standards and initiatives, the report assesses the relevance of extra-financial information in terms of quality, reliability, presentation, implementation cost and verifiability, as well as its association with financial data. Please click to access the report on the ANC website.

The UK Government has launched its first Green Finance Strategy, outlining a wide range of actions to support financial system that supports and reaps the opportunities of a low-carbon and environmentally sustainable economy. In response, the Financial Reporting Council (FRC) has issued a joint statement with other financial regulators, including the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) welcoming the strategy.

The Japanese Ministry of Economy, Trade and Industry (METI) has announced the inauguration of a new body called the “TCFD Consortium” as an opportunity for holding discussions on effective corporate information disclosure and efforts for leading disclosed information to appropriate decision making on investment by financial institutes and other entities. The Meti itself, the Financial Services Agency (FSA) and the Ministry of the Environment (MOE) will participate in the consortium as observers. Please click for more information on the METI website.

The Japan Exchange Group (JPX) has published a Japanese translation of the SSE Model Guidance on reporting ESG information to investors and encourages listed companies to make use of this resource. Please click to access the press release and the translation on the SSE website.

The European Court of Auditors (ECA) has published a review taking stock of the status of reporting on the achievement of the SDGs and sustainability at EU level as well as reporting by individual EU institutions and agencies. There is no specific legal obligation for the Commission or other EU institutions to produce sustainability reports. However, since the EU has committed itself to the SDGs and to achieving sustainable development in general, sustainability reporting would be expected to be an integral part of reporting on performance and results. Please click to access the report on the ECA website.

The European Commission welcomes the latest step to drive forward sustainable finance in the EU, with the launch of a call for feedback on a classification system – or “taxonomy” – for environmentally-sustainable economic activities. The consultation is being launched by the Technical Expert Group (TEG) on Sustainable Finance.

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FRC issues revised Practice Note on The Audit of Banks and Building Societies in the United Kingdom

08 Jul 2019

The Financial Reporting Council (FRC) has published a revision of ‘Practice Note 19: The audit of banks and building societies in the United Kingdom’.

The revisions reflect:

  • revisions to UK auditing standards (ISAs (UK)), in particular ISA (UK) 540 (Revised December 2018), Auditing Accounting Estimates and Related Disclosures;
  • guidance relevant to the audit of estimates for expected credit losses;
  • changes in relevant legislation and regulation (at the time of publication, certain EU regulations, including binding technical standards, apply directly to UK banks and building societies. References to these are made in this revised Note. When the UK ceases to be a member of the EU (Brexit) the FRC indicates that these references will be updated accordingly); and
  • the establishment of the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) in place of the Financial Services Authority (FSA).

The press release, the revised Practice Note 19 and the feedback statement and impact assessment: the revision of practice note 19 are all available on the FRC websitare all available at FRC website. the FRC website.are all available on the FRC website.

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Keynote address at the stakeholder event at the meeting of the Trustees of the IFRS Foundation

08 Jul 2019

At the stakeholder event at the meeting of the Trustees of the IFRS Foundation in Munich on 26 June 2019, Dr Nicolas Peter, Chief Financial Officer of BMW AG, gave the keynote address.

In his speech, Dr Peter lauded the work of the IFRS Foundation/IASB and the German standard-setter DRSC, which he noted has become a strong voice in Europe in recent years.

He then went on to state that BMW decided in 2001 to follow IFRSs and that looking back that was "definitely the right decision" as uniform accounting standards are more valuable today than ever before.

He admitted that such a comprehensive set of rules also raises certain challenges for ongoing business operations and that BMW had to spend a substantial amount of money on personnel and IT costs. And he also noted that not all reported figures are truly comparable and that increasingly earnings are being adjusted permanently for one-time effects - which, as he said, BMW does not do.

Dr Peter also noted while companies are busy implementing new standards, stakeholders' interest in forecasts is increasing - as is the interest in non-financial information. However, he noted, he sees limited possibilities for standardisation in this area.

Concluding his speech, Dr Peter turned to Europe again and noted growing efforts by the European Commission to regulate European companies even more closely and even to discuss the possibility of “EU-IFRS” yet again. He stated:

We firmly believe in the benefits of a globally standardised body of rules — which has always been the core idea of IFRS. For that reason, we oppose the concept of special EU-IFRS. In the volatile global political environment in which we currently find ourselves, it is more important than ever to stress the importance of a common regulatory space. It is easy to forget how far the introduction of common standards has brought us. We now take many of these things for granted.

Please click to access the full transcript of the speech of Dr Peter on the IASB website.

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IASB presentation slides

08 Jul 2019

The IASB has posted to its website the slides of two full presentations and one breakfast talk given by IASB members at the recent annual congress of the European Accounting Association (EAA).

The presentations were given by IASB Board member Ann Tarca and IASB Technical Staff Anne McGeachin. They covered the following topics (links to the slides on the IASB website):

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New IASB podcast series

08 Jul 2019

The IASB has launched a new series of quarterly podcasts on the work of the IASB and and IFRS Interpretatins Committee.

The first podcast (25 minutes) focuses on the June 2019 meeting of the Interpretations Committee. Among the topics covered are questions about applying the new financial instruments, revenue recognition and leases Standards — IFRS 9, IFRS 15 and IFRS 16 — as well as the accounting for holdings of cryptocurrencies.

Please click to access the podcast through the press release on the IASB website.


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