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EFRAG (European Financial Reporting Advisory Group) (dk green) Image
European Union Image

EFRAG's final advice on the measurement of long-term investments in equity instruments

31 Jan 2020

In 2018, the European Financial Reporting Advisory Group (EFRAG) received a request from the European Commission (EC) to advise on alternative accounting treatments on the measurement of long-term investments in equity instruments. EFRAG has now submitted its final advice.

EFRAG did not find sufficient evidence to determine whether the non-recycling treatment of equity instruments within IFRS 9 Financial Instruments has an impact on investor behaviour. However, EFRAG also notes that the reasoning behind the IASB's decision for prohibiting recycling is not one of the reasons stated in the revised Conceptual Framework for doing so. EFRAG, therefore, advises the EC to recommend to the IASB a review of the non-recycling treatment of equity instruments in IFRS 9, testing whether the revised Conceptual Framework would justify recycling of fair value gains and losses accumulated in other comprehensive income on such instruments when realised. EFRAG also recommends that if recycling was to be reintroduced, the IASB should also consider the features of a robust impairment model, including the reversal of impairment losses.

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


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Auditing Image

FRC issues consultation on revisions to ISA (UK) 315

29 Jan 2020

The Financial Reporting Council (FRC) has launched a consultation proposing to revise ISA (UK) 315 (Revised – June 2016) - Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment.

The FRC’s proposed changes reflect revisions to the international standards on auditing issued by the International Auditing and Assurance Standards Board (IAASB).  Those revisions are designed to establish a more robust and consistent risk identification and assessment.

The FRC is proposing to update the ISA (UK) to reflect all of the changes made by the IAASB without any new UK requirements.

When finalised, the revised UK standard is proposed to be effective, in line with the international standard, for audits of financial statements for periods beginning on or after 15 December 2021. Early adoption of the revised standard will be permitted and is encouraged.

The FRC is at the same time consulting on conforming amendments to other UK standards.

The consultation runs until 4 April 2020.

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

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Recent sustainability and integrated reporting developments

29 Jan 2020

A summary of recent developments at Carrots & Sticks/the Reporting Exchange, CDSB, IRC, A4S, GRI, ICAEW, EFRAG, and SSE.

Carrots & Sticks and the Reporting Exchange have collaborated to improve access to reliable and comparable information by aligning taxonomies. Jointly, the newly aligned systems give public and private sector users an overview of hundreds of reporting provisions covering the world’s 70 largest economies. This includes mandatory and voluntary requirements and guidance from regulators, capital markets, professional associations, industry bodies and other organisations. Please click for more information and access to the systems.

The Climate Disclosure Standards Board (CDSB) has announced the launch of a consultation with the aim of accelerating the rate of nature-related financial disclosures at scale by organisations globally and exploring the role of the CDSB Framework in facilitating this. Please click for more information and access to the consultation.

The Integrated Reporting Committee (IRC) of South Africa has developed an information paper to assist organisations with their disclosure of the information regarding outlook. The paper aims to inform those preparing integrated reports, as well as executives and members of the governing body who are responsible for guiding and approving integrated reports. Please click for more information and access to the information paper.

Accounting for Sustainability (A4S) has released Financing our Future (Update), which updates the September 2018 report of the same title and also contains five overarching recommendations, one of which regards sustainability reporting and calls for the adoption of global reporting standards and the use of consistent terminology. Please click for more information and access to the original and the updated report.

The Global Reporting Initative has announced the launch of a new tax reporting standard that seeks to ensure multinationals are much clearer about how much – and where – they pay their taxes (more information) as well as the launch of a new toolkit to advance reporting on modern slavery (more information).

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar looking at the Task Force on Climate-related Financial Disclosures' recommendations in more detail. Please click for more information.

The European Corporate Reporting Lab @EFRAG announces a launching event of a report on Climate-related Reporting, on 6 February. The report focuses on good reporting practice examples from Europe and beyond related to general climate-related disclosures and scenario analysis. Please click for more information and registration.

The United Nation's Sustainable Stock Exchanges (SSE) initiative announces that The Athens Stock Exchange, a member of the initiative since 2018, published its first ESG reporting guide. Please click for more information and access to the guide.

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Executive Vice President of the European Commission calls for European non-financial reporting standards

28 Jan 2020

Speaking at a conference on implementing the European Green Deal today, Executive Vice President Valdis Dombrovskis announced that the European Commission will support a process to develop European non-financial reporting standards.

Mr Dombrovskis said that later this year he would present a renewed sustainable finance strategy, which would include a revision of the Non-Financial Reporting Directive. This would require companies to increase disclosure on their sustainable activities and give adequate reliable information on sustainability risks and opportunities. However, he said, not every detail can - or should - be fixed in law. There was also a need for clear reporting standards for companies to apply. Mr Dombrovskis went on to say:

So today, I can tell you that the European Commission will support a process to develop European non-financial reporting standards. I will soon invite the European Financial Reporting Advisory Group [EFRAG] to begin preparatory work for these standards as quickly as possible. The many overlapping international reporting standards and set-ups confuse companies and investors. They also find it expensive. The EU is well placed to address this situation – and show leadership in building consensus for a set of standards that can be widely accepted.

Mr Dombrovskis conceded that the European Commission cannot do this alone. Therefore, he stated, the best and most widely accepted elements of what exists today will be the starting point and expert assistance from those organisations and individuals who can best contribute to the process will be used. 

Please click for the full text of Mr Dombrovskis' speech on the European Commission website.

EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG updates case studies on IFRS 17

28 Jan 2020

In 2018, the European Financial Reporting Advisory Group (EFRAG) conducted two case studies to determine whether IFRS 17 'Insurance Contracts' meets the criteria in the IAS Regulation to be endorsed for use in the EU.

In light of the amendments the IASB has proposed to the standard, EFRAG has now launched a limited update of the 2018 case studies.

Please click for more information on the EFRAG website.

CAQ (US Center for Audit Quality) (light green) Image

Hyperinflationary economies - updated IPTF watch list available

27 Jan 2020

IAS 29 'Financial Reporting in Hyperinflationary Economies' defines and provides general guidance for assessing whether a particular jurisdiction's economy is hyperinflationary. But the IASB does not identify specific jurisdictions. The International Practices Task Force (IPTF) of the Centre for Audit Quality (CAQ) monitors the status of 'highly inflationary' countries. The Task Force's criteria for identifying such countries are similar to those for identifying 'hyperinflationary economies' under IAS 29.

The IPTF's discussion document for the 19 November 2019 meeting is now available and states the following view of the Task Force:

Countries with three-year cumulative inflation rates exceeding 100%:

  • Argentina
  • South Sudan
  • Sudan
  • Venezuela
  • Zimbabwe

Countries with projected three-year cumulative inflation rates exceeding 100%:

  • Islamic Republic of Iran

Countries where the three-year cumulative inflation rates had exceeded 100% in recent years:

There are no countries in this category for this period.

Countries with recent three-year cumulative inflation rates exceeding 100% after a spike in inflation in a discrete period:

  • Angola
  • Suriname

Countries with projected three-year cumulative inflation rates between 70% and 100% or with a significant (25% or more) increase in inflation during the current period

  • Democratic Republic of Congo
  • Liberia
  • Yemen

The IPTF also notes that there may be additional countries with three-year cumulative inflation rates exceeding 100% or that should be monitored which are not included in the analysis as the necessary data is not available. An example cited is Syria.

The full list, including exact numbers, detailed explanations of the calculation of the numbers, and observations of the Task Force is available on the CAQ website. We also offer the overview of the IPTF's assessment of hyperinflationary jurisdictions at the end of our summary of IAS 29.

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EFRAG publishes a feedback statement on the IASB Exposure Draft ED/2019/6 Disclosure of Accounting Policies

24 Jan 2020

The European Financial Reporting Advisory Group (EFRAG) has published its feedback statement on the International Accounting Standards Board (IASB's) Exposure Draft ED/2019/6 Disclosure of Accounting Policies.

EFRAG published its final comment letter on 12 December 2019.

This feedback statement summarises the comments received by EFRAG on its draft comment letter and explains how those comments were considered by EFRAG during its technical discussions leading to the publication of EFRAG's final comment letter.

A press release and the feedback statement are available on the EFRAG website.

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Pre-meeting summaries for the January IASB meeting

24 Jan 2020

The IASB will meet in London on 28–30 January 2020 to discuss twelve topics. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed, we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Provisions (Thu 0945-1030): The staff recommend that the Board add a project to amend IAS 37 to align the IAS 37 liability definition and requirements for identifying liabilities with the Conceptual Framework (including potentially withdrawing IFRIC 21); clarifying which costs to include in the measure of a provision; and specifying whether the rate at which an entity discounts a provision for the time value of money should reflect the entity’s own credit risk.

Amendments to IFRS 17 Insurance Contracts (Thu 1320-1535): The Board will discuss some of the topics where it had decided to consider the feedback from respondents further, specifically:

  • the scope exclusion from IFRS 17 for some credit card contracts (recommend confirm the proposed scope exclusion with some changes);
  • Transition—the prohibition from applying the risk mitigation option retrospectively (recommend to retain, unchanged);
  • Business combinations—contracts acquired in their settlement period (recommendation to retain, unchanged);
  • Interim Financial Statements (recommend changing the requirements); and
  • Asset for insurance acquisition cash flows—transition and business combinations (recommend changing the requirements).

IBOR Reform and the Effects on Financial Reporting (Thu 1050-1220): The Board will consider recommendation from the staff in relation to the end of application of the Phase 1 exceptions from specific hedge accounting requirements in IFRS 9 and IAS 39 in the context of interest rate benchmark reform (IBOR reform); the potential effects of IBOR reform on IFRS Standards other than those related to financial instruments accounting; and potential disclosure requirements to accompany the tentative decisions the Board has made during Phase 2 of the IBOR project.

Pension Benefits that Depend on Asset Returns (Wed 1530-1600): The staff are recommending that the Board consider amending IAS 19 to cap the projected cash flows when benefits vary with the level of returns on specified assets, so that they do not exceed the discount rate specified by IAS 19. The change would be to address the inconsistency in IAS 19 that the variability (risk) in the future asset returns is reflected only in the cash flows and not in the discount rate applied to those cash flows. The staff are asking Board members for comments.

Disclosure Initiative (Wed 1630-1800): The Board will continue its discussions of potential revisions to the disclosure requirements in IAS 19 and recommend that the Board refine some of its tentative decisions relating to defined benefit plans, multi-employer plans and group plans. 

IFRS 3 reference to the Conceptual Framework (Thu 0930-0945): The staff recommend that the effective date of the updated references to the Conceptual Framework in IFRS 3 be 1 January 2022. The new references would apply to business combinations that occur in any annual reporting period starting after that date, with earlier application permitted.

Subsidiaries that are SMEs (Tue 1100-1230): The staff recommend that the Board develop an ED as soon as possible proposing reduced disclosure requirements for subsidiaries that are SMEs.

Business Combinations under Common Control (Wed 1400-1530): The Board has decided that the acquisition method, as set out in IFRS 3, should be required for listed acquirers that have NCI. They have received feedback from some sectors that a predecessor should apply to all common-control business combinations. The staff recommend no change to the decisions already made.  The staff also set out their recommendations for recognition and measurement applying a predecessor approach.

The staff will give updates on:

  • the feedback received on the proposed update to the IFRS Taxonomy to reflect the amendments made to IFRS Standards in 2019 in response to IBOR reforms (Thu 1535-1605);
  • the ED for rate-regulated activities (Thu 1045-1050);
  • work being undertaken on research projects and the research pipeline (Thu 1030-1045); and
  • recent activities of the IFRS Interpretations Committee (Wed 1600-1615).

More information

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

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Leaf - sustainability (green) Image

IBC discusses Big4 report on reporting sustainability information at WEF

24 Jan 2020

At the World Economic Forum (WEF), the chief executive officers of many of the world’s largest companies expressed support for aligning on a core set of metrics and disclosures in their annual reports on the non-financial aspects of business performance such as greenhouse gas emissions and strategies, diversity, employee health and well-being and other factors.

The International Business Council (IBC) of the WEF discussed a proposal prepared by the Forum in collaboration with the Big Four accounting firms – Deloitte, EY, KPMG and PwC – titled Toward Common Metrics and Consistent Reporting of Sustainable Value Creation. The proposal recommends a set of core metrics and recommended disclosures. The intent is for the metrics to be reflected in the mainstream annual reports of companies on a consistent basis across industry sectors and countries.

The proposed metrics and recommended disclosures have been organized into four pillars that are aligned with the UN Sustainable Development Goals (SDGs) and principal Environmental, Social, and Governance (ESG) domains. They are:

Principles of Governance Planet People Prosperity
aligned with SDGs 12, 16 and 17 aligned with SDGs 6, 7, 12, 13, 14 and 15 aligned with SDGs 1,3, 4, 5 and 10 aligned with SDGs 1, 8, 9 and 10
focuses on a company’s commitment to ethics and societal benefit looks at the themes of climate sustainability and environmental responsibility examines the roles human and social capital play in business focuses on business contributions to equitable, innovative growth

The metrics are drawn, wherever possible, from existing standards and disclosures such as GRI, SASB, TCFD, CDSB and others. Instead of reinventing the wheel by creating a new standard, they aim to amplify and elevate the rigorous work that has already been done by these initiatives, bringing their most material aspects into mainstream reports on a consistent basis.

Adoption of such recommended universal metrics and disclosures by IBC companies is intended to be a catalyst for greater alignment and synergy among existing ESG standards and ultimately a system-wide solution, such as a generally accepted international accounting or other reporting standard drawn from best practice.

Please click to download Toward Common Metrics and Consistent Reporting of Sustainable Value Creation from the WEF website.

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New report from the International Integrated Reporting Council (IIRC): ‘Integrated Thinking & Strategy: State of play report’

23 Jan 2020

The International Integrated Reporting Council’s (IIRC's) Integrated Thinking & Strategy Group has published a new report setting out how best to adopt integrated thinking and enhance strategy to achieve long-term value creation.

The group is made up of over 50 organisations globally that have convened to develop a model and share expert insights.

The model that they have developed is defined as follows: ‘Integrated thinking is a multi-capital management approach that enables organizations to deliver their purpose to the benefit of their key stakeholders overtime. It is about creating and preserving value and enabling better decision-making based on interconnected, multi-capital information.’

The group’s underlying thinking comes from the fundamental concepts and other aspects of the International <IR> Framework and therefore aims to make an explicit link between reporting and enhanced decision-making within the organisation. The report therefore considers, for example:

  • How taking a broader and more integrated view of the resources (‘capitals’) that organisations rely on to create value can be used in decision-making.
  • Better understanding of factors in value creation and how these are realised over time – especially in the longer term.
  • Better alignment of the company with its role in relation to society and the environment (which the report calls ‘system value’).
  • An enhanced ability to understand and make decisions on optimising value creation, taking into account longer-term performance, the needs of stakeholders, and the impacts on the capitals that are used in the value creation process.

In his foreword to the report, IIRC Chair Emeritus Professor Judge Mervyn King writes:

A collaborative management culture, a multicapital mindset and outcome-based corporate governance – these are the building blocks of integrated thinking, the output of which is an integrated report. Above all, integrated thinking is a unifying concept and a strategic tool that helps management to bring order to the manifestly complex environment in which businesses must operate in the 21st century.

The report’s authors invite feedback on the initial ideas set out in the report and promise a further paper at the end of 2020.  Our report A Directors Guide to Integrated Reporting is available here.

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