In the draft comment letter, EFRAG expresses its appreciation for the IASB’s swift response and delivery of the exposure draft. Also, EFRAG commends the IASB for addressing most of the comments raised by European constituents in this area. Overall, EFRAG agrees with the IASB proposals in the exposure draft as they form a clear improvement over the current situation.

Comments on EFRAG's draft comment letter are requested by 15 September 2021. For more information, see the press release and the draft comment letter on the EFRAG website.

The feedback statement follows the discussion paper A Matter of Principles: The Future of Corporate Reporting, published in October 2020. In the feedback statement, the FRC discusses the feedback received from respondents and the next steps it plans to take, after taking into consideration the feedback received, over the short, medium and long term.

Feedback from respondents was broadly supportive of a reporting model that accommodates the information needs of investors and wider stakeholders; the development of guiding principles; the concept of the reporting network; and the development of standards for non-financial reporting. There was also support for the importance of firms providing information about how they view their obligations in respect of the public interest although support was more muted for a standalone Public Interest Report.

Respondents also called for the FRC to consider the practical challenges of implementing the proposals, including the level of audit and assurance over the different reports within the network.

The FRC received mixed views on whether an objective-driven model that was audience-neutral should replace the current model where the content of the report is determined by reference to the information needs of the primary users. One of the challenges identified with the objective-driven approach was determining materiality.

The press release and full feedback statement are available on the FRC website.

The report reveals that the FRC’s Enforcement Division has grown by 44% in the last year, to enable the swifter resolution of cases, while the number of investigations opened also increased.  Further growth is planned for the year ahead. 

The report highlights the FRC’s continued focus on driving audit quality improvements, with a significant number of cases resolved through constructive engagement. In matters which have been subject to enforcement action, 28 non-financial sanctions have resulted, including a number of requirements and conditions. These have included requirements for audit firms to undertake root cause analysis to ensure the underlying reasons for any failures are swiftly addressed and for training programmes to be implemented in areas of identified weakness.

Last year to assist in driving audit quality the report included themes from past audit cases. This year, with a view to improving the quality of financial statements by demonstrating behaviours to be avoided, the report includes themes from past cases against those responsible for preparing
financial statements.  It also highlight challenges for accountants and auditors in addressing future uncertainties arising from EU Exit, climate change and the pandemic.

The press release and Annual Enforcement Review are available from the FRC website. 

The update reports on the EFRAG Board webcast meeting on 7 July and the EFRAG TEG webcast meeting on 14 -15 July. The update also covers the activities of the European Reporting Lab as well as webinars and online outreaches.

The update also lists EFRAG publications issued in July including:

• EFRAG's final endorsement advice letter on Definition of Accounting Estimates (Amendments to IAS 8);
• EFRAG's final endorsement advice letter on Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• EFRAG's draft endorsement advice letter and separate invitation to comment on Deferred Tax related to Assets and Liabilities arising from a single transaction (Amendments to IAS 12);
• EFRAG's  draft comment letter in response to the IFRS PRactice Statement Exposure DRaft ED/2021/6 Management Commentary.

Please click to download the July EFRAG Update from the EFRAG website.

In view of the resources likely to become available, the IPSASB proposes adding two major projects:

• Presentation of Financial Statements; and 
• Differential Reporting.

In addition, the IPSASB proposes to add up to four smaller scope projects:

• IPSAS 21, Impairment of Non-Cash-Generating Assets; 
• IPSAS 31, Intangible Assets; 
• IPSAS 33, First-Time Adoption of Accrual Basis IPSASs; and 
• Making Materiality Judgements.

Comments on the consultation are requested by 30 November 2021. Please click for access to the consultation document, an At a Glance introduction and explanatory videos on the IPSASB website.

The updates include a new chapter on inventory as part of the intangible asset standards, technical revisions consulted on throughout 2020 and 2021 as well as updates to the introduction, the glossary, the IVS Framework, IVS 104, IVS 105, IVS 200, and IVS 400.

More information is available through the press release on the IVSC website.

Highlights of the podcast include discussions on:

• the post-implementation review of IFRS 9, IFRS 10, IFRS 11, and IFRS 12; 
• decisions taken regarding changes to the Board’s preliminary views in the primary financial statements project;
• redeliberations in the goodwill and impairment project 
• thoughts from new Chair Andreas Barckow. 

The podcast can be accessed through the press release on the IASB website.

Please click to view the detailed notes taken by Deloitte observers for the IASB meeting.

We support the project to develop requirements for regulatory assets and liabilities and generally agree with the proposals. However, we have concerns about the proposed accounting for timing differences between the recognition of the regulatory base and the application of IFRS Standards. In addition, we suggest that removing the proposed requirement to recognise regulatory assets and liabilities when there are timing differences between the regulatory base and the IFRS Standards compliant base would fundamentally improve the remaining proposals related to the financial reporting by regulated entities.

Please click to access the full comment letter.

The paper, The Auditor’s Response to the Risks of Material Misstatement arising from estimates made in applying IFRS 17 Insurance Contracts, focuses on the auditor’s approach to auditing estimates and associated judgements made in the application of IFRS 17, taking into account the requirements set forth by the relevant International Standards on Auditing (ISA’s).

In February 2020 two papers have already been issued by the GPPC related to implementation considerations for IFRS 17.

The FCA is consulting on changes to its Listing Rules (LR) to require, as an ongoing listing obligation, UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA's Official List, to publish annually in their annual financial report: 

• a ‘comply or explain statement’ on whether they have achieved certain targets for gender and ethnic minority representation on their boards; and 
• data on the composition of the board and most senior level of executive management in terms of gender and ethnicity.

The FCA is proposing to exclude open-ended investment companies, and ‘shell companies’ as defined in LR5.6.5AR from the companies in scope of the proposal.  It is also not proposing to apply the proposals to issuers of debt securities, securitised derivatives or miscellaneous securities at this stage.  The FCA propose to change LR 9.8.6R and LR 14.3 by adding in a new requirement (LR 9.8.6R(9) and LR 14.3.27R(1)) that in scope companies include a statement in their annual financial report setting out whether the listed company has met the following targets on board diversity, as at a specific date within the accounting period selected by the listed company (referred to as the ‘reference date’): 

• At least 40% of the board are women (including those self-identifying as women).
• At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is held by a woman (including those self-identifying as a woman).
• At least one member of the board is from a non-White ethnic minority background (as referenced in categories recommended by the Office for National Statistics (ONS)).

In cases where in scope companies have not met all of the targets, the FCA propose to require them also to indicate the targets they have not met and to explain the reasons for not meeting the target(s).  New listing Rules 9.8.6R(10) and LR 14.3.27R(2) would be introduced to require publication of the numerical data on gender and ethnic diversity of the board and most senior level of executive management.

The FCA is also proposing changes to the Disclosure Guidance and Transparency Rules (DTR) - specifically DTR 7.2.8AR - to require companies in scope to ensure that any existing disclosure on diversity policies addresses key board committees and also considers broader aspects of diversity such as ethnicity, sexual orientation, disability and lower socio-economic background.  Under the proposals DTR 7.2.8AR would be amended to:

a. indicate that this disclosure should also include how any diversity policies apply to the key committees of the board, specifically the committees on remuneration, audit and nominations, and
b. clarify that the aspects of diversity to which the diversity policy may relate could include, for example, ethnicity, sexual orientation, disability and socio-economic background (in addition to the aspects of diversity already referred to in the rule)

The FCA also propose to add separate guidance, at DTR 7.2.8CG, which would encourage the publishing of fuller data on the diversity of their board and relevant board committees, where currently there is relatively little information.

It is proposed that the new Listing Rule requirements will apply to accounting periods beginning on or after 1 January 2022.  The FCA encourages companies to consider making disclosures on a voluntary basis in annual financial reports published before then.  The FCA encourages issuers to consider their disclosures under DTR 7.2.8AR in light of its proposals as soon as possible. However, in order to provide them with more opportunity to address these matters, it proposes that the changes to DTR 7.2.8AR and the new guidance would come into force at the same time and for the same accounting period as its new LR requirements.

Comments are requested by 20 October 2021.

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