The full agenda for the meeting is sum­marised below:

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

This EC side event to COP 26 will highlight the Corporate Sustainability Reporting Directive (CSRD) proposal and in particular EFRAG’s work on EU sustainability reporting standards. 

Against the backdrop of COP26, this event will consider EFRAG’s work in the context of key global initiatives, including the standards of the Global Reporting Initiative, the plans of the IFRS Foundation and its future International Sustainability Standards Board, and the work of the Task Force on Climate-related Financial Disclosures (TCFD). 

Further details and how to register for the event are available on the EFRAG website. 

The IFRS Foundation initiated the new compilation series in October 2019 and will continue it by publishing new volumes biannually in April and October. For more information, see the press release and compilation on the IASB website.

The Board will continue yesterday's discussion on Friday at 9:30. We have updated our agenda for the meeting accordingly.

Update: During the meeting session on 28 October, the IASB has decided to have its session on primary financial statements on 28 October as it finished early with the discussions on rate-regulated activities. The primary financial statements discussions will now begin at 14:45 on Thursday 28 October.

The FRC indicates that, despite the continuing challenges of Covid-19, its detailed monitoring work did not identify a decline in the quality of corporate reporting. It notes that although there have been improvements in certain areas such as better APM disclosures (definitions, reconciliations and labelling), some improvements in judgements and estimates disclosures and incremental improvements in aspects of narrative reporting (with respect to the quality of information and linkage to the financial statements) there are still “opportunities for further improvement”.

These include better disclosures with respect to IFRS 15 Revenue from contracts with customers, IFRS 16 Leases and financial instruments (IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures), improvements in cash flow statement disclosures (where the FRC continues to be concerned” by the number of queries raised) and improvements in climate-related disclosures. On the latter, whilst the FRC has identified some improvements, for example, better explanations of net zero commitments and scenarios, it highlights that “there is considerable scope for further enhancements in this area”.

The findings follow a review of 246 annual reports and accounts with 72% of those reviews in the FTSE 350. The FRC stresses that as well as meeting the detailed disclosure requirements of the standards companies need to consider the overall objectives of financial reporting as “providing only the specifically required disclosures may not always be sufficient to comply with the overall objectives”.

The report identifies that the ten most frequently raised topics where improvements to reporting quality are needed are:

• Judgement and estimates
• Revenue
• Statement of Cash Flows
• Impairment of assets
• Alternative Performance Measures
• Financial instruments
• Strategic Report and Companies Act
• Provisions and Contingencies
• Leases
• Income Taxes
• Fair value measurement
• Business Combinations

Each of these topics is analysed in detail in the report with key findings and significant issues encountered from the reviews. Example disclosures that would meet the FRC’s expectations are also provided.

Whilst not in the ‘top ten’ list of areas noted above, the FRC also draws attention to issues it has encountered with respect to presentation of primary financial statements (for example classification of assets and liabilities as current or non-current and instances of inappropriate offsetting) as well as other disclosure areas such as not providing an accounting policy for material transactions.

Going forwards the FRC has signalled its intention to focus its attention on:

• disclosures with respect to judgements and estimation uncertainty in light of the continuing impacts of Covid-19 especially with respect to going concern and viability; and
• how companies have disclosed climate-related risks including how they have disclosed their compliance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations on a comply-or-explain basis. It expects material climate-change policies, risks and uncertainties to be included in narrative reporting and appropriately considered and reflected in the financial statements. Attention will also be focused on compliance with Streamlined Energy and Carbon Reporting (SECR) disclosure requirements.

The report highlights the FRC’s key disclosure expectations for 2021/22. It expects:

• clear explanations of the significant judgements made by management, including those used in their assessment of going concern, with sufficient detail to understand the specific judgements made and their financial reporting effects.
• clear descriptions of key assumptions underlying major sources of estimation uncertainty, including information about the sensitivity of amounts recognised in the financial statements to changes in assumptions.
• information in the financial statements to be consistent with that reported in the rest of the annual report and accounts.
• material climate change policies, risks and uncertainties to be discussed in narrative reporting and appropriately considered and disclosed in the financial statements, particularly where investors may reasonably expect a significant effect on the expected life or fair value of an asset or liability.
• the nature and extent of material risks arising from financial instruments and related risk management to be adequately addressed, including: the use of factoring and reverse factoring in working capital financing; the approach to and significant assumptions made in the measurement of expected credit losses; concentrations of risks and information about covenants (where material).
• APMs not to be given greater prominence or authority than amounts stemming from the financial statements and the basis for classifying amounts as adjusting, ‘non-underlying’ or ‘non-core’ to be explained.
• information that meets the disclosure objectives of the relevant accounting standards, as well as the specific disclosure requirements.
• material information that is not obscured by immaterial items.

Alongside the report the FRC has also issued a Bulletin aimed at CEOs, CFOs and Audit Committee Chairs which complements the messages in the review and provides key focus areas for the coming reporting season. The bulletin covers key messages from:

• the FRC’s Annual Review of Corporate Reporting,
• its recent thematic reviews into interim reporting, viability and going concern, Provisions, Contingent Liabilities and Contingent Assets, Alternative Performance Measures and Streamlined Energy and Carbon Reporting
• its recent Financial Reporting Lab reports into Stakeholders, decisions and Section 172, Risks and scenarios and European Single Electronic Format
• its recent review of corporate governance reporting, its report on improving the quality of ‘comply or explain’ reporting, its remuneration, workforce engagement and diversity reports
• the FRC’s Statement of intent on Environmental, Social and Governance challenges and its climate thematic review.

A press release, summary report and full report and the Bulletin are available on the FRC website.  Our related Governance in brief publication is available here.

The World Business Council for Sustainable Development (WBCSD) has released the 2021 edition of Reporting matters. The press release on the WBCSD website offers a summary of the key findings and access to the full report.

The Carbon Tracker initiative has released Flying blind: The glaring absence of climate risks in financial reporting showing that over 70% of reviewed companies fail to disclose climate risk in their financials reporting. Key findings and access to the full report are available on the Carbon Tracker website.

The United Nations Environment Programme Finance Initiative (UNEP FI) has published a global investor statement urging governments to undertake five priority actions before COP26, including committing to implementing mandatory climate risk disclosure requirements aligned with the TCFD recommendations. The statement can be accessed here.

The G20 Presidency has published the G20 Sustainable Finance Roadmap that contains as Action 6 "G20 to welcome the work program of the IFRS Foundation to develop a set of internationally consistent, comparable, and reliable baseline standards for disclosure of sustainability-related information on enterprise value creation." The roadmap can be accessed on the G20 website, the full Action 6 is on page 9.

The Center for Audit Quality (CAQ) of the American Institute of Certified Public Accountants (AICPA) has published Audited Financial Statements and Climate-Related Risk Considerations discussing items that public companies a re currently reporting and how that information is material to their financial statements. The report can be downloaded from the CAQ website.

The Global Reporting Initiative (GRI) has announced that they have revised and strengthened their Universal Standards and have published their first sector-specific standard (for oil and gas). More information is available on the GRI website.

The International Integrated Reporting Council (IIRC) has published Transition to integrated reporting: A Guide to getting started as companion publication to the <IR> Framework. In addition, the <IR> Framework is now available in an Italian and a Turkish translation.

The UK Financial Reporting Council (FRC) has published FAQs on International Sustainability Standards Setting. The purpose of the FAQs is to inform stakeholders of developments in sustainability standard setting by the IFRS Foundation. Please click to access the FAQs on the FRC website.

The FRC has also released Taskforce on Climate-related Financial Disclosures (TCFD): ahead of mandatory reporting to help companies prepare for mandatory TCFD reporting in the UK. The report and a snapshot of the status of current reporting against the TCFD framework can be accessed through the press release on the FRC website.

The Prince of Wales' Accounting for Sustainability Project (A4S) has published a guide to TCFD Climate Scenario Analysis. Scenario analysis is a key recommendation of the TCFD and allows a company to understand and quantify the risks and uncertainties it may face under different hypothetical futures. The guide can be downloaded from the A4S website.

The Sustainability Accounting Standards Board (SASB) has formally released the SASB Standards XBRL Taxonomy to facilitate reporting in accordance with its 77 Industry Standards using structured data. More information is available here.

The New Zealand External Reporting Board (XRB) began consultation with business on the first part of the Government’s proposed climate-related disclosure standards by releasing its first climate-related disclosure consultation document. More information is available here.

Japan's Financial Accounting Standards Foundation (FASF) has announced that it has revised its organisation charter to include sustainability reporting standards in its purpose and business, in addition to its existing purpose/business on accounting standards. This move is for the organisation to become the counterparty of the IFRS Foundation's ISSB in Japan. The press release is only available in Japanese.

The Canadian Securities Administrators (CSA) have also published for comment proposed climate-related disclosure requirements. The requirements contemplate disclosure largely consistent with the TCFD recommendations. The proposed requirements can be accessed through the press release on the CSA website.

The European Federation of Accountants and Auditors for SMEs (EFAA) has released a podcast The Future of Corporate Reporting in Europe: What are the Implications and Next Steps for Europe’s Small- and Medium-Sized Practices? The podcast is available on YouTube.

The task force on sustainability reporting of the European Financial Reporting Advisory Group (EFRAG) has released a working paper on the basis for conclusions for the prototype for the climate standard they are working on. The paper is for information only and not open for public comments. Please click to access the paper here.

The Deloitte firms in the European Union have responded to the EFRAG consultation paper EFRAG Due Process Procedures on EU Sustainability Reporting Standard-Setting. Please click to access our comment letter.

The aspects of the project addressed in the webcasts are:

• Why and why now?
• Value creation
• Disclosure objectives
• Key matters and materiality
• Terminology

Each of the webcasts is about ten minutes long. They can be accessed through the press release on the IASB website.

The signatories to the letter point out that preparers and consumers of environmental, social and governance (ESG) data all over the world are struggling with a profusion of reporting frameworks and standards that do not enable consistent and comparable disclosures. At the same time, the standardisation that has taken place in financial reporting has proved to be a success. Therefore, the letter expresses strong support for the initiative of the International Financial Reporting Standards (IFRS) Foundation to create an International Sustainability Standards Board (ISSB) to develop globally accepted standards for sustainability reporting that can be adopted worldwide.

The letter also acknowledges that there are jurisdictions that are more advanced in their ESG reporting initiatives and might want to go further and faster to meet specific policy priorities. Therefore, the 57 organisations support the International Organisation of Securities Commissions (IOSCO) and the IFRS Foundation in their recommendation of a ‘building block approach’ for the establishment of a globally-consistent foundation of sustainability standards, upon which national and regional standard-setters may build supplementary standards that serve their needs. They also note that this building blocks approach has recently been endorsed by G7 and G20 finance ministers and central bank governors. The letter notes:

Global alignment of reporting standards is crucial to provide a comprehensive view of a company’s sustainability performance. We encourage the European Commission to support the establishment of the International Sustainability Standards Board and actively and urgently promote cooperation between EFRAG and the new Board. Increased international cooperation in aligning and harmonising sustainability reporting standards is essential to ensure a global level playing field.

Finally, the letter points to IOSCO’s proposal for a multi-stakeholder consultative committee to operate within the IFRS Foundation structure to help promote consistency and comparability with jurisdiction-specific reporting standards. The appropriate presence of multilateral bodies and major stakeholders in such a body, including the European Commission, could provide the necessary support for achieving a global baseline and an effective mechanism for cooperation with national or regional standard-setters.

Please click to access the full letter on the World Economic Forum website.

AASB are currently surveying preparers/auditors of financial statements about IAS 38 Intangible Assets. They would be very interested in hearing views from the UK. Note references in the survey to AASB 138 can be read as references to IAS 38.  

The survey can be accessed from here.

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The guides, which build on those published in June 2020, are focussed on risk management, scenario analysis, disclosure, innovation, and climate data and metrics. 

A press release and guides are avail­able on the FCA website.