Overall we support the proposals.  Our key comments, which are expanded upon, where necessary, in the appendix to the comment letter, are as follows:

·        Although the existing guidance in TECH 02/10 has stood the test of time, we welcome the amendments that are proposed to remove obsolete material and update references as a result of changes to IFRSs and UK Accounting Standards (notably the introduction of FRS 102).  In this context we also fully support the complete re-write of the guidance on retirement benefit schemes in the context of IAS 19 Employee Benefits.

·        We welcome the additional guidance concerning the definition of a distribution for the purposes of Part 23 of the 2006 Act, clarifying that no matter what ‘label’ is put on a transaction it is the purpose and substance of a transaction that is required to be considered in determining whether a distribution has been made.  This clarification is especially important when considering off-market intragroup loans under both IFRSs and FRS 102 as the guidance now confirms that as well as being accounted for as a distribution under the relevant standards, such transactions at an undervalue are also distributions as a matter of law.  This is something that may have been overlooked in the past because a distribution was not recognised for accounting purposes.  

·        The draft guidance addresses a number of new issues that have arisen in practice.  However, there are two additional issues which we believe should also be addressed in the updated technical release as more fully explained in the appendix:

-        Whether a profit arising on a debt for equity swap can be regarded as a realised profit even if it is legally represented by share capital or share premium. This does not affect the amount of profits available for distribution because these amounts are legally capital.  However, the question of whether they are realised profits affects whether they can be included in the profit and loss account for Companies Act accounts (including those prepared under FRS 101 and FRS 102) as more fully explained in the Appendix.

-        The implications of the transfer of tax losses for nil consideration within a group and whether such a transfer is to be regarded as a distribution for the purposes of Part 23 of the 2006 Act. 

·        We support the conclusions reached on the distributable profits implications of loans made between group companies at below market rate.  The conclusions reached in the exposure draft are dependent on the transactions not being regarded as linked.  Although justification for this is provided in paragraph 9.51 we would welcome further explanatory material supporting the conclusions reached. We also note that the conclusion concerning interest receivable being a realised profit is dependent on an assumption that the loan will be repaid at its face amount in cash at maturity.  The guidance should make this an explicit assumption and highlight the consequences which may follow if this is not the case.

·        We have some concerns regarding the guidance contained within the new paragraph 3.17D on the treatment of credits in profit and loss for deferred tax which have not arisen as a result of a realised loss.  The guidance suggests that where such profits result in the recognition of a deferred tax asset they will be regarded as unrealised.  Such circumstances are likely to be rare and may be difficult to identify.  We believe that generally accepted accounting practice is to treat such deferred tax credits recognised in profit or loss as realised profits.  If this were not so, they would have to be excluded from the profit and loss account for Companies Act accounts.  In practice, such adjustments are not made.

·        Although supportive of the drafting in TECH 05/16BL, we highlight in the appendix some suggested drafting improvements.

Please click to access the full comment letter.

On Monday 20 June the IASB will be joined by video by the FASB for a joint education session, their first joint meeting since September 2015. The focus of the sessions is their work on business combinations, following on from their respective post-implementation reviews of their converged standards. Both boards have projects focusing on the goodwill and intangible assets recognised in a business combination.

On Wednesday 22 June the IASB will discuss three topics. They will continue their consideration of comments on the Conceptual Framework exposure draft, focusing on profit or loss and other comprehensive income (OCI). They will also consider some matters that have emerged during the drafting of the new insurance contracts standard. Because they are being brought back after the staff were given permission to prepare the draft for review by the Board they are called sweep issues. And finally, they will consider a recommendation from the IFRS Interpretations Committee to make a minor amendment to IAS 12 Income Taxes.

Our pre-meeting summaries are available on our meeting note page and will sup­ple­ment them with our popular meeting notes after the meeting.

In May 2016, the FRC issued "Final drafts" of all of these documents, which are necessary to fulfil its obligations regarding the implementation of the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order.the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order. At that stage they were unable to publish completely final versions as these changes also rely on the introduction of The Statutory Auditors and Third Country Auditors Regulations 2016, which are expected to be published imminently.

As expected, there are only minor differences between the "final draft" and "final" versions of these documents, the most significant being that the ISAs and Ethical Standards published by the FRC will now apply only in the UK and not also in Ireland, as previous versions have done.

Stephen Haddrill, Chief Executive of the FRC, commented that:

New UK auditing and ethical standards published today provide auditors with a comprehensive basis to comply with their updated obligations. The changes to the ethical standard set out the principles that underpin high quality, independent audit and, particularly for the audits of Public Interest Entities, strengthen auditor independence by prohibiting or restricting a range of engagements that could result in a conflict of interest. Reflecting the FRC’s commitment to proportionate regulation, the revised standards contain some flexibility to allow an auditor to provide some additional assistance to smaller and medium-sized entities

Our previous UK Accounting Plus news article on the publication of the "final drafts" has more detail on the changes from previously effective versions of these documents. A list of the amendments made to the "final drafts" can be obtained from the FRC website, as can their press release announcing these changes. Final versions of all of the documents can be obtained from the FRC's publications pages.

For more detail on audit reform, visit our UK Accounting Plus project page.

Click for:

• Press release (link to FRC website)
 
• Feedback Statement and Impact Assessment: Consultation - enhancing confidence in audit (link to FRC website)
 
• Revised Auditing Standards 2016 (link to FRC website)
 
• Revised Ethical Standard 2016 (link to FRC website)
 
• Final Draft: UK Corporate Governance Code 2016 (link to FRC website)
 
• Final Draft: Guidance on Audit Committees 2016 (link to FRC website)
 
• Investor Briefing Note: Implementation of the Audit Regulation Directive (link to FRC website)
 
• Our previous UK Accounting Plus news item on the FRC consultation in September 2015
 
• Our previous UK Accounting Plus news item on the BIS consultation in October 2015
 
• Our UK Accounting Plus project page on audit reform
 
• Our related Governance in brief publication

the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Orderthe EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order.

The Global Public Policy Committee (GPPC)¹ have issued a report titled The implementation of IFRS 9 impairment requirements by banks.

The paper is addressed primarily to the audit committees of systemically-important banks, although much of its content will be relevant to other banks and financial institutions, and aims to promote the implementation of accounting for expected credit losses to a high standard.

The paper is structured in a way to assist the two key groups within a bank that will be instrumental in ensuring a high-quality implementation of IFRS 9:

• Those charged with governance, who will oversee implementation. Section 1 of the paper addresses the key areas of focus for this group, such as governance and controls, sophistication and proportionality and transition issues.
• Those finance, risk management, IT and other executives who are charged with implementing the new requirements. Section 2 of the paper discusses key components of implementing expected credit loss accounting, including expected credit loss methodology, default, probability of default, exposure, loss given default, discounting, staging assessment, macro-economic forecasts and forward-looking information.

Please click to access The implementation of IFRS 9 impairment requirements by banks and a corresponding press release.

Programme highlights include:

• Welcome speech by Andrew Watchman, EFRAG TEG Chairman
• Keynote speech by Commissioner Jonathan Hill
• Round-Table: Developing effect analyses for IFRS
  • Facilitated by Claes Norberg, EFRAG Board with participation of
  • Hans Hoogervorst, IASB;
  • Erik Nooteboom, EC;
  • Kris Peach, AASB;
  • Patrick de Cambourg, ANC;
  • Joachim Gassen, Professor at Humboldt University Berlin;
  • Vickie Wood, UK representative at ARC
• Round-Table: Financial reporting by small listed companies
  • Facilitated by Olivier Boutellis-Taft, FEE with the participation of
  • Michel Prada, IFRS Foundation;
  • Roger Marshall, EFRAG Board;
  • Peter Malmqvist, Swedish Society of Financial Analysts;
  • Andrew Watchman, EFRAG
• Closing speech by Jean-Paul Gauzès, incoming EFRAG Board President

IAS Plus representatives have been invited to attend the event and we will provide you with notes from the discussions afterwards.

It is a question of hearing the essentials through the surrounding noise. It is being able to see the wood for the trees. This is the essential task of corporate reporting. People want to home in on exactly what is most important to them in their understanding of how a business is doing and how it has done it. It is about providing those who need it with the information they need. 

And put like that it is simple. Yet regulators, auditors, accountants, CFOs, standard-setters, investors and that elusive group, the informed public, have struggled with it and puzzled over it for generations. Yet here we are still wrestling with the nature and needs of corporate reporting. The latest thinking from FEE, the Federation of European Accountants, represents yet another brave effort to solve the conundrum. It proposes the idea that companies should produce information in two sections, the essential ‘CORE’, as FEE puts it, and ‘MORE’, which would be the detailed information.

FEE comes from the familiar position of not being sure how technology will change the game in the near future and knowing that many more people are coming to see themselves as part of a much wider audience than the traditional band of shareholders, potential investors, lenders and capital providers. This is where the users of non-financial information, and those who see societal pressures other than the strictly financial ones having as much of an effect on how a company’s strategy and business model pans out, reside. Hence the focus on change, momentum and a wide panorama of corporate connections which would sit, in FEE’s model, in the CORE & MORE.

It is, to revert to the traditional arguments, an attempt to reconcile the analyst dilemma. Analysts will argue that they want to be provided with the essential kernel of a corporate story. And they will also argue that they would like a huge mass of undifferentiated information which they can slice into to find the kernel themselves. Trying to put both sides of these desires into one document has always proved problematic.

And change over the last generation or so has altered the focus. In the days when tangible assets made up the overwhelming majority of the corporate story the financial information stood proud. Now, when intangible assets are in the majority, it is no surprise that concepts like integrated reporting seek to make sense of the wider range of corporate drivers and information. 

But at the heart of all this change remains the fundamental of an annual report providing what investors need. This is where the noise is filtered out, the wood itself identified, the data filleted. And the way that annual report is configured and how the assurance which gives it credibility is attained is where the focus still needs, narrowly, forensically and clearly, to be applied. 

The main objectives for ESMA were

• Investor protection - to have the needs to financial consumers better served and to reinforce their rights as investors while acknowledging their responsibilities;
• Orderly markets - to promote the integrity, transparency, efficiency, and well functioning of the financial markets and robust market infrastructure; and
• Financial stability - to strengthen the financial system in order to be capable of withstanding shocks and the unravelling of financial imbalances while fostering economic growth.

The four activities that help ESMA achieve these objectives are convergence, risk monitoring and analysis, single rule book and supervision

For more information, see the 2015 Annual report in the ESMA's website.

John will take up the position with effect from 1 June 2016.  The press release can be found on the FRC website, here.

The agenda for the meeting is sum­marised below:

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

New appointments include:

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