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New TCFD status report, additional and updated guidance

15 Oct 2021

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a fourth status report providing an overview of the extent to which companies in their 2020 reports included information aligned with the core TCFD recommendations published in June 2017.

The TCFD found that:

  • Disclosure increased more between 2019 and 2020 than in any previous year assessed, consistent with global momentum around climate-related reporting. However, significant progress is still needed as an average of only one in three companies reviewed disclosed climate-related information aligned with the TCFD recommendations.
  • Companies remain more likely to disclose information on their climate-related risks and opportunities than on any other recommended disclosure, with over half of the companies reviewed including such information in their 2020 reports.
  • Disclosure of the resilience of companies’ strategies under different climate-related scenarios is still the least reported recommended disclosure, however, disclosure increased from 5% of companies in 2018 to 13% in 2020.
  • Although the TCFD recommends disclosure of governance regardless of materiality, the Governance recommendation remains the least disclosed recommendation with the two Governance recommended disclosures the second and third least disclosed.
  • Materials and buildings companies now lead on disclosure. The average level of disclosure across the 11 recommended disclosures for fiscal year 2020 was 38% for materials and buildings companies.
  • The insurance industry significantly increased its average level of disclosure by 11 percentage points between 2019 and 2020, and now leads all groups by at least 15 percentage points in disclosure of risk management processes.
  • Europe remains the leading region for disclosures, with average level of reporting across the 11 recommended disclosures from fiscal year 2020 now at half of European companies assessed. European companies have increased their average disclosure by 15 percentage points since 2019, and now disclose 16 percentage points more than the next closest region.

The TCFD has also published two additional documents: Guidance on Metrics, Targets, and Transition Plans to support preparers in disclosing decision-useful information and linking those disclosures with estimates of financial impacts and Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, which updates and replaces Implementing the Recommendations of the TCFD initially published in 2017.

Please click for the following additional information on the FSB website:

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Third IVSC perspectives paper on ESG and business valuation

15 Oct 2021

The International Valuation Standards Council (IVSC) has published a third perspectives paper 'ESG and Real Estate Valuation' that focuses on environmental factors that relate to real estate valuations, especially on valuations of existing real estate.

The paper is a follow-up to the perspectives papers A Framework to Assess ESG Value Creation released in May 2021 and ESG and Business Valuation released in March 2021, which explore how ESG characteristics are, or can be, incorporated into the value measurement process.

Please click to access ESG and Real Estate Valuation on the IVSC website.

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IASB video on proposed reduced disclosure IFRS

14 Oct 2021

The IASB has posted a video hosted by IASB Board Member Jianqiao Lu which provides an overview of the exposure draft (ED), ‘Subsidiaries without Public Accountability: Disclosures’.

On 26 July 2021, the IASB issued the ED that would permit eligible subsidiaries that are small and medium-sized entities (SMEs) to apply IFRSs but with reduced disclosure requirements. Comments on the ED are due by 31 January 2022.

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

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FRC publishes thematic review findings on IAS 37

14 Oct 2021

The Financial Reporting Council (FRC) has published the results of its thematic review into IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. The review identifies areas of good practice, opportunities for improvement and outlines the FRC's expectations for future reporting.

A sample of 20 companies' annual reports from a range of industry sectors were reviewed to determine how effectively they met the disclosure requirements and provided other relevant information.  Whilst the FRC found a number of instances of good reporting , it highlights that there is still room for improvement in several areas, in particular in:

  • The disclosure of quantitative information on expected timing of future economic outflows (i.e the phasing of outflows that companies expect to see as they utilise their provisions), the key assumptions used to estimate those outflows, and the associated uncertainties.
  • Describing the nature of the costs included in certain types of provision, for example acquisition and integration provisions.
  • Disclosure of more specific accounting policies to include, for example the approach to recognising and measuring different provision classes.
  • The provision of more quantitative information about contingent liabilities, for example giving an indication of both the timescale for obtaining greater certainty and the level of confidence that an economic outflow was less than probable but more than remote.

The FRC expects companies to consider the better disclosures in the report in the forthcoming reporting season.  It has identified that good disclosure should include all of the following, where material and relevant to the company's financial reporting:

  • Concise and entity specific descriptions of the significant accounting policies adopted in respect of provisions and contingencies.
  • Clear and specific descriptions of the nature of each material exposure, the timeframe over which it is expected to crystallise and the basis for determining the best estimate of the probable or possible outflow.
  • Quantitative information about expected or maximum exposures to contingent liabilities, or a clear and justified statement that it is not practicable to provide an estimate of the financial effect; negative confirmation can be helpful where users may otherwise expect the company to report an exposure.
  • ‘Indications of uncertainty’ in timing and/or amount that help users understand the potential financial effect (which may arise beyond the next financial year) of additional or reduced costs and/or earlier or later timing of outflows.
  • Explanation of significant judgement exercised by management in determining the recognition and measurement of provisions, setting out the rationale for management’s conclusion and the effect on the financial statements of taking an alternative view.
  • Quantitative and qualitative information about critical estimation uncertainty affecting the next financial year, including disclosure of key assumptions and sensitivities.
  • Management commentary on significant year end balances and unrecognised exposures, and on significant movements recognised during the period (whether additions, new provisions, utilisations or reversals).

A press release and the full publication are available on the FRC website.  A webinar to discuss the report will be held on October 20.  A press release including details of how to register for the webinar is available on the FRC website.  

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Agenda for the October 2021 DPOC meeting

14 Oct 2021

The Due Process Oversight Committee (DPOC) will hold its next meeting on 19 October by conference call.

The agenda for the DPOC meeting is summarised below.

Tuesday, 19 October 2021 (13:15–14:00)

  • Introduction and actions from the DPOC meeting held on 16 June 2021
  • Monitoring compliance with due process:
    • Technical activities
    • Annual reports on Board and IFRS Interpretations Committee activities:
      • Consultative groups
      • Annual reporting protocol
      • Educational material due process
  • DPOC matters
    • Correspondence: update since the agenda was circulated
  • Summary

Agenda papers for the meeting are available on the IASB's website.

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EFRAG final comment letter on the IASB's agenda consultation

13 Oct 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter on the International Accounting Standard Board’s (IASB's) request for information asking for views on the strategic direction and balance of the IASB's activities, the criteria for identifying projects and which financial reporting issues it should prioritise.

​EFRAG considers that the overall balance of the activities of the IASB is generally appropriate and should not be substantially modified over the 2022–2026 period.

EFRAG further suggests the the IASB identifies a separate area of its activity to address the connectivity between financial reporting and sustainability reporting and increases the resources devoted to digital reporting. 

EFRAG considers that the priorities for the IASB should be to focus on finalising projects in its active work plan and conducting on a timely basis the Post-implementation Reviews (‘PIR’) of IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases and, towards the end of the 2022-2026 period, IFRS 17 Insurance Contracts

EFRAG understands that there is only capacity to add a limited number of projects to the IASB's agenda and indicates that, when deciding which projects to add, the IASB should primarily rely on their relevance and urgency rather than the level of resources involved.  EFRAG identifies the following high priority projects for the IASB, ranked according to their priority:

  • Intangibles;
  • Sustainability in financial reporting, starting from climate (including connectivity and pollutant pricing mechanisms); and
  • Crypto assets-liabilities.

In addition, EFRAG is of the view that the treatment of financial instruments with ESG features under IFRS 9 is an urgent and prevalent issue and requests the IASB to address this in the short term.

Other high priority projects identified by EFRAG are:

  • Discontinued operations and disposal groups;
  • Statement of cash flows and related matters; and
  • Variable and contingent consideration.

EFRAG strongly encourages the IASB, in its research activities, to continue to build on the work of other organisations and create synergies.

Moreover, EFRAG considers that the seven criteria suggested in the RFI are useful and suggests that the IASB consider updating the Due Process Handbook to reflect them. 

The press release and the final comment letter are available on the EFRAG website. 

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EFRAG final comment letter on the IASB's discussion paper on business combinations under common control

13 Oct 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter on the International Accounting Standards Board's (IASB's) discussion paper DP/2020/2 'Business Combinations under Common Control'.

EFRAG welcomes the discussion paper and the IASB's efforts to explore possible reporting requirements for business combinations under common control (BCUCC) that would reduce diversity in practice, improve comparability and consistency of reporting and provide more relevant information for users of financial statements.

EFRAG considers that the scope of the project should be extended to include how to measure investments in subsidiaries in the separate financial statements. EFRAG observes that all other transactions under common control are important and need to be discussed in a future comprehensive project. EFRAG also makes further suggestions on defining the scope in order to ensure the appropriate application of the IASB’s proposals.

With regards to the selection of a measurement method, EFRAG agrees that a single measurement approach is not appropriate for all BCUCC transactions. EFRAG considers that establishing an appropriate dividing line between applying the acquisition method and a book-value method to BCUCC is crucial for achieving the project’s objectives.  It considers that the economic substance should be the key element for selecting the measurement method for BCUCC transactions.  Due to practical considerations, EFRAG acknowledges that the IASB’s proposed decision tree may offer a proxy to operationalise the decision about which measurement method to apply. However, EFRAG encourages the IASB to elaborate further, clarify and provide guidance on the notion of ‘affecting non-controlling shareholders’ (NCS) and explore the possibility of having a rebuttable presumption when applying this concept to select the relevant measurement method.  EFRAG also recommends that the IASB clarify and provide guidance on identifying the receiving company.

EFRAG considers that applying the acquisition method to BCUCC which affect the non-controlling shareholders of the publicly traded receiving company would produce more relevant information and that the book value method should be applied in all other BCUCC where the controlling party's ownership interest remains unchanged. 

EFRAG considers that additional guidance is needed to make the optional exemption from the acquisition method for privately-held entities workable in practice and considers that the related party exception should be optional rather than required. 

EFRAG’s consultation and outreach resulted in mixed views regarding recognition as a contribution to equity of the excess fair value of the identifiable net assets over the consideration paid when applying the acquisition method to BCUCC transactions. Consequently, EFRAG suggests that the IASB further explores the possible approaches in order to provide relevant information to users of financial statements.  Where consideration is in excess of the fair value of the identifiable acquired assets and liabilities (using the acquisition method) EFRAG suggests that this excess should be recognised as goodwill consistent with IFRS 3.

When applying a book-value method, EFRAG proposes two accounting policy options to allow the use of the carrying amounts in the consolidated financial statements of the transferred company’s controlling party and to provide pre-combination information retrospectively. 

With regards to disclosures, EFRAG considers that the proposed disclosure requirements for BCUCC accounted for under both the acquisition method and the book-value method would provide relevant information about the BCUCC transactions.

Finally, in its comment letter, EFRAG makes a number of recommendations to improve the IASB’s proposals.

The press release and the comment letter are available on the EFRAG website. 

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Latest report highlights further progress in the numbers of women on corporate boards

13 Oct 2021

Cranfield School of Management has published 'The Female FTSE Board Report 2021' ('the report'). The report highlights that there has been further progress in terms of the number of women on corporate boards.

The percentage of women in FTSE 100 boards now stands at 38% and for FTSE 250 boards is 35%.  Both of these figures exceed the 33% target set by Hampton-Alexander.  However, there continues to be considerable variance across the boards. 21% of the FTSE 100 boards and 32% of FTSE 250 boards have yet to reach the 33% target.  The report also identifies that in contrast to the continuing progress of women in non-executive director roles, there has been no progress in executive roles across the FTSE 350. 

The key findings in the Cranfield report are:

FTSE 100:

  • The percentage of women on FTSE 100 boards stands at 38%.
  • 79 companies have now met the target of 33% women on their boards by the end of 2020.
  • There were 15 more directors across the FTSE 100 boards compared to the prior year with a slight decrease in the number of executive directors and an increase in the number of non-executive directors.

FTSE 250:

  • The progress of women on FTSE 250 boards parallels that of FTSE 100 boards.
  • The percentage of women on FTSE 250 boards stands at 35%.
  • 169 companies have now met the target of 33% women on their boards.
  • There are only 47 women holding executive roles.
  • Results were better in senior non-executive director roles where women accounted for 14% of Chair roles, 30% senior independent director roles and 37% were board committee chairs.  However the report indicates that 'there is still a long way to go'.

Click for:

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Three articles on business combinations under common control

12 Oct 2021

The Australian Accounting Review has published three articles relating to business combinations under common control (BCUCC), one of them by IASB Board member Ann Tarca.

The article by Ms Tarca explains the Board’s preliminary views for accounting for business combinations under common control that aim to reduce diversity in practice and to improve the information provided to investors so they can understand the effects of these transactions and compare companies that undertake them.

The second article discusses the controlling entity’s perspective in a BCUCC and suggests some issues for the Board to consider in its redeliberations of its preliminary views.

The third article discusses the choice of the controlling party or transferred business book values, the principles and objectives of the IASB's discussion paper and the relationship with related party disclosures.

All three articles can be accessed through the press release on the IASB website.

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12 Oct 2021

The thirty-eighth session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) will be held in Geneva on 9 - 12 November 2021.

The two main topics for the meeting will be:

  • Review of practical implementation, including measurement, of core indicators for entity reporting on the contribution towards the attainment of the Sustainable Development Goals; and
  • Climate-related financial disclosures in mainstream entity reporting: good practices and key challenges.

The background papers for these two topics are available in Arabic, Chinese, English, French, Spanish, and Russian and can be accessed here.

The workshop before the ISAR meeting this year (8 November 2021) will focus on "Impact of COVID 19 on company financial and non-financial reporting“.

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