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News

IASB (International Accounting Standards Board) (blue) Image

IASB updates work plan in view of COVID-19 developments

27 Mar 2020

The IASB has postponed to May 2020 the publication of several narrow-scope amendments to IFRS Standards originally planned for March and April 2020. This consolidation of publications is intended to facilitate more efficient post-publication procedures by the stakeholders. The work plan has been updated accordingly.

Below is an analysis of all changes made to the work plan since our last analysis on 21 March 2020. We also note the projects the IASB intends to move forward with in April 2020.

Standard-setting projects

  • No changes

Maintenance projects

  • Annual improvements — 2018-2020 cycle — Final amendments are now expected in May 2020 (formerly April 2020). The following projects are part of the annual improvements:
    • Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities (Amendments to IFRS 9)
    • Lease Incentives (Amendment to Illustrative Example 13 accompanying IFRS 16)
    • Subsidiary as a First-time Adopter (Amendment to IFRS 1)
    • Taxation in Fair Value Measurements (Amendment to IAS 41)
  • IBOR Reform and its Effects on Financial Reporting — Phase 2 — An exposure draft is still expected in April 2020
  • Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) — An IFRS amendment is now expected in May 2020 (formerly Q2 2020)
  • Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) — An IFRS amendment is now expected in May 2020 (formerly March 2020)
  • Updating a Reference to the Conceptual Framework (Amendments to IFRS 3) — An IFRS amendment is now expected in May 2020 (formerly April 2020)

Research projects

  • Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12 — The rescheduled research review is still expected to take place in April 2020

Other projects

  • Due Process Handbook Review — Final amendments are still expected in April 2020

The above is a faithful comparison of the IASB work plan at 21 March 2020 and at 27 March 2020. For access to the current IASB work plan at any time, please click here.

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IASB publishes statement on IFRS 9 and COVID-19

27 Mar 2020

The International Accounting Standards Board (IASB) has published a document responding to questions regarding the application of IFRS 9 'Financial Instruments' during the period of enhanced economic uncertainty arising from the COVID-19 pandemic.

The document is intended to support the consistent application of requirements in IFRSs. Therefore, it highlights requirements within IFRS 9 Financial Instruments that are relevant for companies considering how the pandemic affects their accounting for expected credit losses; it does not change, remove nor add to, the requirements of IFRS 9.

Please click to access the document on the IASB website.

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New UK Accounting Plus resource page

27 Mar 2020

We have set up an UK Accounting Plus resource page on accounting considerations related to COVID-19. The page includes news items and resources in connection with COVID-19 developments that highlight some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19.

Please click to access our new resource page.

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FCA Image

FRC, FCA and PRA issue Covid-19 guidance for companies and auditors

26 Mar 2020

The Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) have published a joint statement relating to the impact of Covid-19 on financial reporting.

The statement recognises that investors and other stakeholders rely on financial reporting – backed by high-quality auditing and recognises that companies and their auditors currently face unprecedented challenges in preparing and auditing financial information.

In response to the current situation with Covid-19, the FCA, FRC and PRA have announced a series of actions:

  • A statement by the FCA allowing listed companies an extra 2 months to publish their audited annual financial reports.
  • Guidance from the FRC for companies preparing financial statements in the current uncertain environment. This is complemented by guidance from the PRA regarding the approach that should be taken by banks, building societies and PRA-designated investment firms in assessing expected loss provisions under IFRS 9 Financial Instruments.
  • Guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.

The statement also recognises that in these extraordinary circumstances, previous market practices relating to the timing and content of financial information and the audit work that is done must change. These changes are likely to include:

  • Modified audit opinions where auditors have been unable to gather the necessary audit evidence to complete the audit in full: for example, by limiting the scope of the audit opinion.
  • Given the uncertainty about the immediate outlook for many companies, more audited financial statements that include disclosures that management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern.
  • Changes to timetables for publication of financial information that had been set before the full implications of Covid-19 were clear.

Reporting timetable for listed companies

The FCA’s statement provides temporary relief for listed companies granting them an extra two months to publish their financial statements. The FCA has indicted that the policy is intended to be temporary and its application will be kept under review.

The FCA had also issued a statement on 21 March 2020, requesting companies observe a moratorium of at least 2 weeks on the issuance of preliminary announcements and signing of audit reports until 5 April 2020.

Further measures to allow companies and auditors to focus on the delivery of information to investors and the capital markets include guidance from Companies House permitting a delay to the filing of accounts by companies for up to three months and also a relaxation of a number of deadlines for regulatory reporting.

Guidance for preparers of financial statements

The FRC’s guidance is intended to highlight some key areas of focus for boards in maintaining strong corporate governance and provide high-level guidance on some of the most pervasive issues that should be considered when preparing annual reports and other corporate reporting.

With respect to corporate governance the key messages to board are to:

  • develop and implement mitigating actions and processes to ensure that they continue to operate an effective control environment, addressing key reporting and other controls on which they have placed reliance historically but which may not prove effective in the current circumstances;
  • consider how they will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities; and
  • pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain to continue to meet the company’s needs.

The guidance is intended to focus the minds of boards on those areas of reporting that are of most interest to investors and to encourage them to provide clarity on the use of key forward-looking judgements. The guidance covers:

  • the need for narrative reporting to provide forward-looking information that is specific to the entity and which provides insights into the board’s assessment of business viability and the methods and assumptions underlying that assessment;
  • going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis;
  • the increased importance of providing information on significant judgements applied in the preparation of the financial statements, sources of estimation uncertainty and other assumptions made; and
  • judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which qualitative or quantitative disclosures may be appropriate.

More detailed guidance is provided on the following specific areas:

  • Corporate governance
  • Management information
  • Risk management and internal controls systems
  • Dividends and capital maintenance
  • Corporate reporting
  • Strategic Report and Viability Statement
  • Financial statements – going concern and material uncertainties, significant judgements and estimation uncertainty and events after the reporting date.

Guidance for auditors

The FRC’s bulletin for auditors provides guidance for auditors in relation to the impact of Covid-19 on audit engagements. The Bulletin contains a non-exhaustive list of factors auditors should be considering when carrying out audit engagements in the current circumstances, along with guidance on how they might be addressed. The FRC has indicated that it may issue further guidance, if it is required as the situation develops.

The key messages are:

  • the need for more time, for both auditors and as importantly Boards/companies and management in preparing additional analysis;
  • there is a likelihood of increased numbers of opinions with material uncertainties in relation to going concern;
  • to issue an opinion not subject to disclaimer or a scope limitation always requires sufficient appropriate audit evidence; and
  • a reminder that there are particular reporting obligations on auditors in certain circumstances.

Click for (all links to FRC website):

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IFRS Foundation Trustees and Due Process Oversight Committee hold February 2020 meeting

26 Mar 2020

The IFRS Foundation Trustees and the Due Process Oversight Committee (DPOC) met in Brussels on 19–20 February 2020.

Meeting ac­tiv­i­ties included the following:

  • Executive session:
    • Report of the Executive Director — The Trustees received a report from the Executive Director Lee White on ac­tiv­i­ties since the last meeting.
    • Strategy review — The Trustees discussed non-fi­nan­cial reporting including sus­tain­abil­ity reporting and climate change.
    • Gov­er­nance issues — The Trustees approved a change to (1) the IFRS Foundation Constitution regarding the IFRS Advisory Council’s role and (2) amendments to the IFRS Foundation’s Bylaws.
    • Op­er­a­tions analysis — The Trustees received pre­sen­ta­tions on the analysis of jurisdictional compliance with IFRS Standards.
    • Committee reports — The Trustees discussed reports from the Business Process and Tech­nol­ogy Committee, the Audit and Finance Committee, the Human Capital Committee, the Nom­i­nat­ing Committee, and the DPOC. (A report of the DPOC meeting is attached to the meeting summary.)
  • IASB Chairman’s report — The Chair of the IASB provided the Trustees with a general update on the IASB’s technical ac­tiv­i­ties, es­pe­cially on the proposed amend­ments to IFRS 17 and the project to revise IFRS Practice Statement 1 Management Commentary.
  • External en­gage­ment — The Trustees met with IFRS Foundation Monitoring Board. In addition, they held a stake­holder event with the EFRAG entitled Financial reporting: remaining relevant in a changing environment.

For more in­for­ma­tion, see the press release, which also offers an article on the stake­holder event, and the full summary on the IFRS Foun­da­tion Trustees’ and DPOC meeting on the IASB’s website. Our own report of the stakeholder event is available here.

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EFRAG sends letter to the IASB on IFRS 17 amendments

26 Mar 2020

In September 2018, the European Financial Reporting Advisory Group (EFRAG) submitted a letter to the IASB regarding IFRS 17 'Insurance Contracts' noting a number of concerns of EFRAG's constituents.

EFRAG has now sent a second letter sincerely appreciating the IASB’s efforts to address issues associated with the implementation of IFRS 17 identified in the September 2018 letter. However, while EFRAG is appreciative of the changes made, this new letter expresses regret that some of the conclusions reached by the Board deviate from EFRAG’s recommendations. In particular, EFRAG refers to the annual cohort requirement. In February 2020, the IASB discussed the issue but came to the conclusion that it was not possible to specify an exemption without the use of ‘bright lines’ and without developing a particularly complex set of criteria.

Please click to access the letter on the EFRAG website.

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FRC launches consultation to adopt International Standard on Assurance Engagements (ISAE 3000)

25 Mar 2020

The Financial Reporting Council (FRC) has launched a consultation on the proposed adoption in the UK of International Standards on Assurance Engagements (ISAE) 3000, 'Assurance Engagements Other Than Audits or Reviews of Historical Financial Information'.

ISAE 3000 was developed by the International Auditing and Assurance Standard Board (IAASB) and contains requirements and application and other explanatory material specific to reasonable and limited assurance attestation engagements, other than audits or reviews of historical financial information.

The FRC is proposing that compliance with ISAE (UK) 3000 will be mandatory only for such types of engagement the FRC specifies. These will ordinarily be particular engagements for which there is a requirement in law or regulation for an assurance report to be provided by an auditor or other assurance practitioner, or where a clear need has been identified to serve the public interest. Voluntary application to other assurance engagements will be permitted unless a subject matter specific standard relevant to the engagement has been issued by the FRC, in which circumstances that subject matter specific standard is required to be complied with.

A small number of edits to the international standard are proposed to reflect that in the UK assurance practitioners are subject to the FRC's Ethical Standard and the ethical pronouncements of their professional body, and that the FRC is not adopting the other, subject matter specific, ISAEs issued by the IAASB. Text related to the International Code of Ethics that remains relevant is being updated to take account of the conforming changes that the IAASB consulted on in 2019. No edits are proposed that would result in non-compliance with the IAASB's requirements in ISAE 3000.

Comments are requested until 22 May 2020.

A press release and the exposure draft can be found on the FRC website here.

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ESMA statement on the accounting implications of the COVID-19 economic support and relief measures

25 Mar 2020

The European Securities and Markets Authority (ESMA) has issued a public statement on some accounting implications of the economic support and relief measures adopted by EU Member States in response to the COVID-19 outbreak. The measures include moratoria on repayment of loans and have an impact on the calculation of expected credit losses in accordance with IFRS 9.

ESMA has issued the statement in order to promote consistent application of IFRSs in the EU and avoid divergence in practice on the application of IFRS 9 Financial Instruments in the specific context of the COVID-19 outbreak, specifically as regards the calculation of expected credit losses and related disclosure requirements. In ESMA’s view, the principles-based nature of IFRS 9 includes sufficient flexibility to faithfully reflect the specific circumstances of the COVID-19 outbreak and the associated public policy measures.

Please click to access the statement on the ESMA website.

The European Banking Authority (EBA) has also issued a related statement regarding the prudential framework and accounting implications of COVID-19. The two statements are consistent as regards financial reporting. The statement can be accessed on the EBA website.

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FRC publishes its plan and budget for 2020/21

24 Mar 2020

The Financial Reporting Council (FRC) has published its plan and budget for 2020/21.

The strategy has been developed in light of the recommendations made to the government by three independent reviews of the FRC. The FRC indicates that the 2020/2021 strategy sets out its initial response to those recommendations and that the strategy will be replaced in 2021 with a longer-term strategy once the government’s final positions to the recommendations made to it are finalised.

The FRC indicates that moving forward it will reorganise into four divisions consisting of:

  • Regulatory Standards and Codes;
  • Supervision;
  • Enforcement; and
  • Corporate services.

The plan and budget sets out the FRC’s strategic priorities in these four areas:

Regulatory Standards and Codes

  • Promote the Stewardship Code, support signatories to the Code and ensure significant take up. Assess early reporting of implementation.
  • Undertake an annual assessment of adherence with the Corporate Governance Code as well as the Wates Code for private companies.
  • Update the guidance for the UK Corporate Governance Code and/or related enhanced requirements on internal controls, risk management, going concern and resilience/viability.
  • Publish a thought leadership paper on the Future of Corporate Reporting.
  • Deliver FRC Lab projects on Technology and Future Horizons in reporting.
  • Update UK GAAP for recent international developments.
  • Launch a post-implementation review of the Technical Actuarial Standards and establish the necessary capacity to undertake regulatory duties over actuaries.
  • Support the Government’s green finance strategy to embed climate-related issues into corporate reporting and investment decision making.
  • Consider the merits and otherwise of endorsing a framework to measure the impact of companies on society and the environment
  • Assist the Government with creating new structures for setting accounting standards after leaving the EU, specifically the UK Endorsement Board.
  • Establish an audit market monitoring function and devise an appropriate strategy.

Supervision

  • Taking a risk-based approach, increase the scope and number of Audit Quality Reviews (from 130 in 2019/20 to between 145-165 in 2020/21) and Corporate Reporting Reviews (from 215 in 2019/20 to between 240 and 260 in 2020/21) undertaken.
  • Improve transparency by publishing more information about these individual reviews as well as thematic reviews on key cross-market issues e.g. climate reporting, the use of technology by audit firms and audit quality indicators. 
  • Build and deepen its supervision of the major audit firms, including governance, structure, audit quality management, culture and resilience and report views on each firm accordingly.
  • Expand oversight of the professional bodies and make significant progress on moving decision-making about auditor registration to the FRC in line with the Kingman Review recommendation
  • Develop and publish the FRC’s views on what constitutes good external audit.

Enforcement

  • Deliver robust, fair and transparent regulatory outcomes.
  • Continue to improve the timeliness of its work and ensure more enforcement cases deliver their primary reports to related parties within two years
  • Report on regulatory outcomes and progress through the Annual Enforcement Review and public messaging.
  • Conclude its Carillion related factual investigations and decide upon any enforcement action required.

Corporate services

  • Deliver within budget.
  • Improve management information and publish externally on an agreed regular basis.
  • Improve staff morale and wellbeing.
  • Deliver an integrated communications and stakeholder management strategy to ensure it gets the insights it needs to develop policies, maximise the impact of its work and regularly and clearly communicate with its stakeholders.
  • Assess organisational capability gaps and close them.
  • Monitor risks to achieving its objectives and put controls in place to mitigate where possible.

The plan and budget also covers the actions the FRC will take in relation to its reform, changes to its governance and also resourcing.

The FRC also sets out its budget for 2020/21 for expenditure and funding. Expenditure is being increased in the areas of audit regulation, monitoring the quality of corporate reporting and enforcement.

The press release and Plan and Budget 2020/21 are available from the FRC website.

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Companies House issues advice on filing deadlines in light of Covid-19

24 Mar 2020

In light of the impact of Coronavirus (Covid-19) on companies, Companies House has issued guidance on delaying filing deadlines.

Companies wishing to seek an extension should apply before the filing deadline – a delay of up to three months can be requested.

Details are available here including a link to apply online and details of how to apply by post.

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