The report highlights that there has been a 'step change' in the diversity of boards of FTSE companies primarily driven by the Hampton Alexander review and more recently the Parker review.  The report seeks to address three questions:

• How have board effectiveness and dynamics been impacted by the increased gender and ethnic diversity of board membership?
• What attributes, skills and experience do today’s board members expect to be needed in the diverse boardrooms of the future?
• How can nomination committees be helped to take a more objective
  and diversity-friendly approach to board recruitment?

Data was assembled from multiple, publicly available sources to create a large data set looking at gender and ethnic diversity and its effects over the medium and long term – between 2001 and 2019 – on EBITDA margins, stock returns and shareholder dissent.  In the second phase of the research, a representative sample of 25 boards was asked to complete an assessment of the culture and dynamics in their board, as well as respond to a series of open-ended questions.

The research highlights that it is the responsibility of the board to drive inclusion.  It also highlights that in order to maximise the benefits of diversity, the board should recognise that change takes time and that diversity without inclusion is unlikely to encourage new talent to the board.  Additionally the research identifies that diversity, over time, improves the performance of boards and the businesses they lead.

The research found that:

• higher levels of gender diversity of FTSE350 boards positively correlate with better future financial performance (as measured by EDITDA margin).
• FTSE350 boards with well-managed gender diversity contribute to higher stock returns and are less likely to experience shareholder dissent.
• Diversity affects boardroom dynamics and that the percentage of women is highly correlated with an emphasis on boardroom relationships and collaboration.  The research found that the hallmarks of boards with more women included:
  • significantly greater decentralisation in how they operate where committees have strong delegated powers;
  • increased likelihood of reaching consensus before important decisions are taken, rather than undertaking decisions that a substantial part of the board opposes (e.g. by voting);
  • stronger belief and action on ensuring fair outside search when recruiting directors because standards should apply to everyone equally; and
  • reduced overconfidence about the board’s problem-solving skills.
• the skills needed in the diverse boardrooms of the future included adaptability and resilience, strategic thinking, stakeholder engagement, interpersonal skills and embracing diversity.
• there are a number of actions that the Nomination Committees can take to encourage diversity.  These include ensuring that the Nomination Committee is itself diverse and has a clear mandate to work with search firms that access talent from wide and diverse pools

The report concludes that whilst many board members are committed to diversity and many have made effort to change, there is still a 'very long way to go to fully access the takent and reflect the population of the UK'. 

The press release and the research report are available from the FRC website.

The ED contains proposed guidance for when the IASB is developing and drafting disclosure requirements for future IFRS Standards as well as proposed amendments to IFRS 13 'Fair Value Measurement' and IAS 19 'Employee Benefits' that result from applying the proposed guidance to those standards.

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

The report highlights the increasing calls for better information on how companies are having regard for their stakeholders and how key decisions have taken their perspectives into account.  It emphasises that investors are ultimately focused on how a company is progressing towards fulfilling its purpose and achieving long-term success noting that information on stakeholders and on decisions can help with that understanding.  With consideration of stakeholders and consequences of decisions being part of the Section 172 duty, the report indicates that the Section 172 statement can be a helpful bridge between the two types of information.  The report sets out what investors are looking for in reporting on these areas and how companies can improve their reporting to better meet their needs.  The report is divided into three sections:

Information on stakeholders 

In the first section, the report highlights that investors view information on a company’s key stakeholders as critical to understanding the company and its prospects. It outlines how investors want to see information on stakeholders’ relevance to the business model and strategy, the strength of stakeholder relationships, risks and opportunities, and performance and metrics. 

In particular, investors want companies to set out clearly:

• who are the stakeholders relevant to a company’s success and how they influence the operation of the business model and delivery of strategy.  This would include information on:
  • who the key stakeholders are;
  • why they are important including how the strategy and business model depend on them, how they have been considered strategically and what value is created through the stakeholder relationship; and 
  • what is important to the company's stakeholders.
• how the company builds and maintains strong relationships with its stakeholders and understands their interests, needs and concerns to enable it to pursue long-term success.  This would include information on:
  • the actions the company is taking to build and maintain strong relationships with its key stakeholders;
  • the board's role in engagement as well as information the board receives about stakeholders and engagement; and
  • the feedback received and the outcomes of engagement.
• what could affect the company’s relationships with its stakeholders and how these relationships could affect the company’s pursuit of success.  This would include information on:
  • market factors and trends or regulatory changes that have affected or could affect the company’s key stakeholders;
  • the risks that could affect key stakeholders and the company’s relationship with them, as well as the risks that the stakeholder relationships give rise to;
  • the mitigating actions taken to address these risks; and
  • the opportunities arising from key stakeholders which the company is considering strategically.
• what is measured, monitored and managed in relation to stakeholders, to understand the strength of a company’s relationships with its stakeholders and how they are contributing to the company’s success.  This would include information on:
  • metrics used by managment and the board to monitor and assess stakeholder relationships;
  • prior-years’ comparatives, targets and industry benchmarks to allow trend analysis; and
  • explanations of what affected the performance, whether a trend is likely to continue, and related actions to address performance issues.

Information on decisions

In the second section, the report highlights that investors want to know what the strategic decisions were during the period, how such decisions were made, including how stakeholders were considered in reaching them, the difficulties encountered, and the outcomes of these decisions.

In particular, investors want companies to set out clearly the significant decisions taken during the year and how they link to the company’s purpose and strategic priorities, and for each significant decision:

• how the board or management reached the decision, including information used to back it up and any long-term considerations;
• how stakeholders were considered in reaching the decision, including consideration of feedback and engagement activities, and the impacts of the decision on different stakeholders;
• the difficulties or challenges in making the decision, including how different stakeholder needs or concerns are balanced, and any short-term negative consequences which are offset by long-term benefits; and
• the expected and/or actual outcomes of the decision, including how they are reflected in current performance and metrics, and the long-term implications on the company.

Section 172 statements

The third section addresses better practice Section 172 statements.  It highlights that the statements are not just about stakeholder engagement, but should reflect all aspects of the Section 172 duty to allow a better understanding of how a company is progressing in its pursuit of its purpose and long-term success. 

Investors indicate that more useful Section 172 statements:

• do not only focus on stakeholder engagement, but consider the other aspects of Section 172;
• discuss principal decisions (linking to the long-term success of the company) and how stakeholders and other factors were considered in making those decisions;
• bridge information on stakeholders and decisions by considering them in a two-way approach, and incorporate both in the statement even if by cross-referencing;
• can be a standalone source of information which is still concise if cross-referencing is used well; and
• fit into a connected narrative linking to business model, strategy and how business is done (through consideration of governance and culture), demonstrating how the company is progressing in its pursuit of its purpose and long-term success.

Each section includes examples of current reporting practice to illustrate possible helpful ways of addressing some the aspects highlighted by investors.  The report builds on the tips on Section 172 statements report published in October 2020.  

The Financial Reporting Lab has also published a summary of the questions for companies to consider in determining what information to report on stakeholders and decisions which meets investors’ needs.  A podcast is also available which discusses the importance of linking information on stakeholders and decisions to strategy and the long-term success of the company.

The press release, report, and a podcast are available on the FRC website. 

The Trustees discussed progress and next steps on  to establish a new board focused on sustainability-related disclosure standards. They were also updated about a recent meeting of some of the Trustees with the Monitoring Board that allowed the Trustees to provide a detailed update on progress and next steps in their work to establish the proposed International Sustainability Standards Board. The Chair of the Trustees reported on his participation in a policy panel on regulations, disclosures, financial risk and private financing for the green economy. The Trustees also noted the G20 support for the IFRS Foundation’s work to establish a new board.

Please click to access the full meeting summary on the IASB website.

In its final endorsement advice on IFRS 17, the European Financial Reporting Advisory Group (EFRAG) noted that it could not reach consensus on one aspect of the standard: the requirement to apply annual cohorts to intergenerationally-mutualised and cash-flow matched contracts. Seven EFRAG Board members believed that the annual cohorts requirement meets the EU endorsement criteria, whereas seven EFRAG Board members believed it does not, and two EFRAG Board members abstained.

While the final meeting document is not yet available in the EU Comitology register and the positive vote is only reflected in the updated EFRAG status report, it was expected that the ARC would include in the final vote an optional exemption from applying the annual cohort requirement (while disclosing the fact when doing so). Such an exemption had been suggested by some EFRAG stakeholders. Companies wishing to apply IFRS 17 as issued by the IASB would still be able to do so.

The topics for discussion are:

• [Draft] Due Process Handbook—Processes for thought leadership, research programme, and post-implementation reviews
• IFRS 17 – Technical paper 
• IFRS 17 Insurance Contracts – Narrow-scope amendment    
• Business Combinations Under Common Control: final letter to IASB and Feedback Statement 
• Disclosure Requirements in IFRS Standards – A Pilot Approach: Draft Project Initiation Plan and Draft Comment Letter 
• Lack of Exchangeability: draft Project initiation plan and draft comment letter   
• IFRS Foundation proposals sustainability standards board: Comment letter 

The meeting, agenda papers and details of how to register are available on the UKEB website. 

Update 23 July 2021 - A recording of the meeting is available on the UKEB website here.

The publication includes:

• information related to membership, students, income, costs and staffing of the seven accountancy bodies;
• information related to the supervision of statutory auditors;
• information on the registered audit firms with public interest entity clients and;
• a focus on the profession's track record on diversity and inclusion.

A press release and the full publication is available on the FRC website.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, covering the period from November 2019 to July 2020, include:

Click for access to the full report (link to ESMA website). The ESMA has also published an updated overview of all enforcement decisions ever published.

This is the first meeting chaired by the new IASB Chair Andreas Barckow.

Post-implementation Review of IFRS 9: The Board will discuss the feedback from outreach and the staff analysis and recommendations on the matters to examine further in phase 2, i.e. which questions should be asked in the Request for Information (RFI). Most stakeholders said that generally the classification and measurement requirements are working well in practice. However, some users of financial statements and academics said that IFRS 9 is complex and thus difficult to understand.

The staff recommend the Board examine the business model assessment for financial assets, contractual cash flow characteristics assessment for financial assets, the option for equity instruments to present fair value changes in other comprehensive income, financial liabilities designated as fair value through profit or loss, modifications to contractual cash flows and transition to IFRS 9. The staff expect the RFI will be publish around the end of September 2021.

Post-implementation Review of IFRS 10-12: In December 2020, the Board published an RFI as part of its post-implementation review (PIR) of IFRS 10-12 which was open for comment until 10 May 2021. The Board will consider the feedback received within the comment letters and from an updated academic literature review. Many stakeholders agree with the use of control as the single basis for consolidation in IFRS 10 and the need to take a holistic and qualitative assessment of all legal, contractual and other facts and circumstances and stressed the importance of application guidance and illustrative examples. Some respondents noted difficulties in some situations applying the definition of an investment entity and expressed concerns about the loss of information when an investment entity measures at fair value a subsidiary that is itself an investment entity. Respondents highlighted the usefulness of the IFRIC agenda decisions in applying IFRS 11 and some asked for these to be incorporated into the Standard. Feedback from respondents noted that IFRS 12 had resulted in significant improvements to financial reporting, however there were some requests for additional information. The Board will not be asked to make any decisions during this meeting and will present its findings in a feedback statement after completing its deliberations.

Taxonomy: The Board published the Proposed IFRS Taxonomy Update PTU/2021/1 Disclosure of Accounting Policies and Definition of Accounting Estimates on 21 April 2021. The Board received five comment letters. The staff plan to issue the final IFRS Taxonomy Update along with the final taxonomy files in Q4 of 2021. No decisions will be asked of the Board.

Disclosure Initiative—Targeted Standards-level Review of Disclosures: The staff recommend that the Board extend the deadline for comments for the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach from 21 October 2021 to 12 January 2022.

Goodwill and Impairment: The Board will continue its discussion of feedback on particular aspects of the DP—focusing this month on the location of the information resulting from, and practical challenges related to, the Board’s preliminary views on improving disclosures; improving the effectiveness of the impairment test; and the subsequent accounting for goodwill, including whether to reintroduce amortisation of goodwill. The Board will not be asked to make any decisions at the meeting.

Primary Financial Statements: The Board will continue to discuss the approach for classifying items of income and expenses in the financing category of the statement of profit or loss.

The staff recommend that the income and expenses from hybrid contracts with host liabilities and embedded derivatives be classified: for separated host liabilities in the same way as for other liabilities; for separated embedded derivatives in the same way as for stand-alone derivatives; and for contracts that are not separated to be classified in the same way as income and expenses on other liabilities.

For gains or losses on financial instruments designated as hedging instruments the staff recommend that they be classified in the category affected by the risk the entity manages, except when it would involve grossing up gains or losses in which case they would be classified as operating. They recommend the Board apply the same requirements to derivatives used for risk management even if they are not designated as hedging instruments. However, if this creates undue cost or effort the gains or losses would be classified as operating.  

Gains or loses on derivatives not used for risk management would be classified as operating. However, if the derivative relates to financing activities and is not used in the course of the entity’s main business activities it would be classified as financing. FX differences would be classified in the same way as the item that gave rise to the differences, unless there is undue cost or effort, in which case the FX differences would be classified as operating.  

Maintenance and Consistent Application:

Classification of Debt with Covenants as Current or Non-Current—Transition, Early Application and Due Process: At its meeting in June 2021, Board tentatively decided to propose narrow-scope amendments to IAS 1 to modify the requirements introduced by Classification of Liabilities as Current or Non-current (the 2020 amendments) on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances. The proposed amendments would also defer the effective date of the 2020 amendments to no earlier than 1 January 2024. The staff recommend that the Board require entities to apply the proposed amendments retrospectively in accordance with IAS 8, not provide a transition exemption for first-time adopters, permit an entity to apply the amendments earlier than their effective date and set a comment period of no less than 120 days for the Exposure Draft.

Supplier Finance Arrangements—Transition, Early Application and Due Process At its meeting in June 2021, the Board decided to add a narrow-scope, disclosure-only standard-setting project to its workplan related to supplier finance arrangements (for example, reverse factoring or similar arrangements). The project involves the Board proposing amendments to IAS 7 and IFRS 7. The staff recommend that the Board require entities to apply the proposed amendments retrospectively in accordance with IAS 8 and not provide an exemption for first-time adopters. Early application would be permitted and the proposals would have a comment period of no less than 120 days.

IFRS Interpretations Committee The Board will be given the opportunity to ask questions about the most recent meeting of the IFRS Interpretations Committee.

Education session with the FASB

The purpose of the meeting is for the boards to share views on projects related to largely converged Standards, common projects and their agenda consultations. The boards will discuss their reviews of the accounting for goodwill and impairment. They will also discuss the work undertaken to date, and recent tentative decisions made, on their respective projects on supplier finance. No decisions will be made.

Our pre-meet­ing summaries is available on our July meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.

The topic of the panel discussion was "Regulations, disclosures, financial risk and private financing for the green economy". A recording of the one-hour debate is available on YouTube.