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News

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FRC publishes consolidated covid-19 guidance for companies and auditors.

14 Dec 2020

The Financial Reporting Council (FRC) has published consolidated COVID-19 guidance for companies and auditors. The consolidated guidance supersedes all previous FRC guidance for companies and auditors.

The FRC previously issued guidance in March with subsequent updates in May. The consolidated guidance is delivered as two separates papers – one for companies and one for auditors. Both recognise that there is still considerable uncertainty about the future at a time where a number of companies are preparing annual reports.

Guidance for companies

The paper addressed to companies is intended to highlight some key areas of focus for boards in maintaining strong corporate governance and provide high-level guidance on some of the most pervasive issues that should be considered when preparing annual reports and other corporate reporting.

With respect to corporate governance the key messages to board are to:

  • develop and implement mitigating actions and processes to ensure that they continue to operate an effective control environment, addressing key reporting and other controls on which they have placed reliance historically but which may not prove effective in the current circumstances;
  • consider how they will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities; and
  • pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is made, not just proposed; and sufficient resources remain to continue to meet the company’s needs.

The guidance is intended to focus the minds of boards on those areas of reporting that are of most interest to investors and to encourage them to provide clarity on the use of key forward-looking judgements. The guidance covers:

  • the need for narrative reporting to provide forward-looking information that is specific to the entity and which provides insights into the board’s assessment of business viability and the methods and assumptions underlying that assessment;
  • going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis;
  • the increased importance of providing information on significant judgements applied in the preparation of the financial statements, sources of estimation uncertainty and other assumptions made; and
  • judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which qualitative or quantitative disclosures may be appropriate.

More detailed guidance is provided on the following specific areas:

  • Corporate governance
  • Management information
  • Risk management and internal controls systems
  • Dividends and capital maintenance
  • Corporate reporting
  • Strategic Report and Viability Statement
  • Financial statements – going concern and material uncertainties, significant judgements and estimation uncertainty, events after the reporting date, exceptional or similar items, alternative performance measurements, leases, and interim reports.
  • Other sources of guidance and publications issued by the FRC.

The FRC encourages companies to make use of the extensions to the deadlines for the publication of the annual report and accounts. It notes that the FCA recently confirmed that listed companies with a year end up to and including 31 April 2021 will still have six (rather than four) months to publish their annual report and accounts.

Guidance for auditors

The Bulletin provides guidance to auditors carrying out audit engagements that may be affected by COVID-19. The Bulletin indicates that some companies and auditors are continuing to face practical difficulties in preparing accounts and carrying out audits. It highlights that given possible restrictions on travel, meetings and access to company sites in some jurisdictions, audit firms may need to apply alternative audit procedures to gather sufficient, appropriate audit evidence.

The FRC remains concerned that the pandemic should not undermine the delivery of high quality audits. It highlights that audits should continue to comply fully with required standards and flags that additional time should be taken to complete audits, where necessary, even if this risks a delay in company reporting.

The Bulletin indicates that auditors need to consider the impact of COVID-19 on:

  • the auditor’s risk assessment, and whether it needs to be revised;
  • how the auditor gathers sufficient, appropriate audit evidence, recognising that the planned audit approach may need to change, and alternative procedures developed, particularly in group audit engagements. The auditor must be able to gather the necessary evidence to be able to report or consider modifying their audit opinion;
  • how the group auditor proposes to review the work of component auditors to meet the requirements in standards, including considering whether alternative procedures can be used: for example, where travel is restricted;
  • the auditor’s assessment of going concern and the prospects of an audited company, given that uncertainty about the global economy and the immediate outlook for many companies has increased;
  • the adequacy of disclosures made by management about the impact on the company of COVID-19, so that users of the financial statements are properly informed, and the company’s prospects and how they might be affected are described, recognising the high degree of uncertainty; and
  • the need for the auditor to reassess key aspects of their audit as a result of the fast-changing situation, recognising that this assessment will take place right up to the point of signing the auditor’s report, and may need the provision of further evidence and information by management. Where the current circumstances have had a significant impact on the delivery of the audit, the auditor will need to consider how to explain this in their report, for example, by reporting this as a key audit matter.

The Bulletin also indicates that auditors need to engage with entities they audit to ensure that:

  • the auditor sets clear expectations as to the level of disclosure they expect to see in annual reports to communicate the impact and risk of COVID-19 on the company; and
  • companies, and in particular their audit committees, understand it is vital that auditors have sufficient time and support to carry out their work to an appropriate standard, including reassessing work done to reflect changed circumstances – in some cases, this may need companies to reconsider their reporting deadlines. Where auditors are unable to obtain sufficient, appropriate audit evidence to support their audit, they will need to consider necessary modifications to their audit opinion.

The Bulletin provides a non-exhaustive list of factors which auditors should be considering when carrying out audit engagements in the current environment, along with guidance on how they might be addressed.

A press release, the guidance for companies and guidance for auditors is available on the FRC website.

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FRC announces thematic reviews and priority sectors for 2021/2022

11 Dec 2020

The Financial Reporting Council (FRC) has announced its corporate reporting and audit quality review programme for 2021/22 alongside its priority sectors for review.

The Corporate Reporting Review team will undertake thematic reviews in the following areas:

  • Going concern and viability. The thematic review will focus on management’s assessments and disclosures in relation to going concern and viability.
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets.  The review will pick up issues identified regarding compliance with the Standard identified in the FRC's Annual Review of Corporate Reporting.
  • Streamlined Energy and Carbon Reporting (SECR) compliance.
  • Alternative Performance Measures.  This will be a follow up to the FRC’s 2017 thematic review to assess the extent to which its expectations on use of Alternative Performance Measures have been embedded into reporting practices.
  • Interim Reporting. The FRC will review compliance with the requirements of the Disclosure Guidance and Transparency Rules and IAS 34 to identify areas of better practices.

As part of the FRC’s programme of audit quality inspections, the Audit Quality Review (AQR) team will pay particular attention to the auditor's work on:

  • COVID-19 impact including in relation to going concern, impairment of assets, inventory and group audits.
  • Estimates.
  • Fraud.
  • Climate risk.

In selecting corporate reports and audits for review, tthe FRC will give priority to the travel, hospitality, leisure, retail, property and financial services sectors.

A press release is available on the FRC website.

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IFAC comments on the Trustees' sustainability consultation

11 Dec 2020

The International Federation of Accountants (IFAC) has commented on the IFRS Foundation Trustees’ consultation paper on sustainability reporting published in September 2020.

In September 2020, even before the Trustees launched their sustainability consultation, IFAC had already called for an IASB sister board for setting global sustainability standards.

In response to the Trustees' consultation, IFAC now reiterates its call for an international sustainability standard-setting Board under the IFRS Foundation. The comment letter states (emphasis in original):

The Consultation identifies important and challenging questions that should be considered by the IFRS Trustees — including the scope and sequencing of standards, the approach to materiality, and how to build off existing initiatives. However, in answer to the fundamental issues at stake—is there a need for a global set of internationally recognized sustainability reporting requirements, and should the IFRS Foundation play a leading role through the establishment of a new sustainability standards board (SSB) — IFAC believes, based on extensive stakeholder outreach, that the answer is a resounding “Yes.”

Please click to access the full comment letter on the IFAC website.

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IPSASB publishes amendments regarding public sector financial instruments

11 Dec 2020

The International Public Sector Accounting Standards Board (IPSASB) has published 'Non-Authoritative Amendments to IPSAS 41 'Financial Instruments'' with amendments that supplement the IPSASB’s existing guidance in IPSAS 41 for topics that are unique to the public sector and have a significant impact on government finances.

The amendments clarify existing guidance for four public sector instruments:

  • Monetary gold;
  • Currency in circulation;
  • IMF quota subscriptions; and
  • IMF special drawing rights.

Please click to access Non-Authoritative Amendments to IPSAS 41 'Financial Instruments', a short introductory webinar and an At a Glance introduction on the IPSASB website.

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FRC highlights importance of a challenge culture in audit firms

11 Dec 2020

The Financial Reporting Council (FRC) has undertaken a new analysis of its audit quality inspection results over the last two years to identify recurring themes requiring audit firms’ attention.

The FRC has identified that the most common finding in its quality reviews is that audit firms did not challenge the management of audited entities effectively on the significant judgements they had made in areas such as long-term contracts, goodwill impairment or the valuation of financial instruments.  For more than 80% of those audits which required more than limited improvement, the effectiveness of challenge was a key audit quality consideration. 

The review stresses that robust, focused and independent challenge is vital to a high-quality audit, particularly during current uncertain times, including the continued impact of COVID-19 and Brexit uncertainties and should be at the forefront of the minds of audit teams during December 2020 year-end audits.

The FRC analysis highlights those factors which have given rise to both favourable and unfavourable audit review findings, each firms root cause analysis and the matters reported in each firms public report on quality in July this year.  The FRC identifies processes and attributes which it considers are key features of effective challenge of management and states that developing the right mind set and professional behaviour is critical underpinned by a strong culture of audit scepticism and challenge.

A number of teams have already been able to demonstrate to the FRC enhanced challenge of management with respect to the audit of going concern as indicated in the FRC's recent review.  The FRC hopes that the lessons learned and experience gained from that review will allow firms to replicate effective challenge of management consistently on future audits.

In order to promote change in the area of effective management challenge, the FRC is planning initiatives in 2021.  In June 2021, the FRC will host a conference on the culture of challenge, entitled “Audit firm culture: Challenge. Trust. Transformation” involving academics, other regulators and experts on culture from a wide range of sectors to share experience, ideas and good practice. Building on the output from this conference, the FRC will undertake a thematic review on building a challenge culture in audit firms.

A press release and the FRC analysis is available on the FRC website.

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Financial Reporting Lab publishes its final newsletter for 2020

11 Dec 2020

The Financial Reporting Lab ("the Lab") has published its Q4 newsletter providing highlights of its activities in the fourth quarter of 2020.

The newsletter provides an update of the Lab's current projects and a brief overview of its other activities. Some highlights include:

The full newsletter is available on the FRC website here.

Accounting Roundup - Closing Out 2019 Image

Closing Out 2020

10 Dec 2020

Welcome to our one-stop guide covering the issues relevant to the preparation of December 2020 annual reports.

This year, preparers face the additional demands of producing high-quality reports against the backdrop of the effects of the COVID-19 pandemic and its economic consequences. In a continually changing and uncertain economic environment, both the FRC and ESMA highlight the importance of entity-specific and transparent disclosures regarding the impact that COVID-19 has had on the performance, position and cash flows of the entity. The FRC’s Annual Review of Corporate Reporting and ESMA’s Common Enforcement Priorities provide guidance on appropriate reporting and meeting investor expectations during the pandemic and highlight other areas of regulatory scrutiny that reporters of all sizes should focus on in the coming reporting season

Although Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosure is not yet fully mandatory, the FRC has highlighted that climate-change reporting needs to improve significantly to meet the expectations of investors and other users. Boards need to demonstrate how they have considered climate change in setting strategy. Narrative reporting should consider the broader needs of users rather than just complying with the minimum legal requirements. Disclosures in the ‘front-half’ should be consistent with those in the ‘back half’ financial statements. A recent FRC thematic review provides guidance that will help facilitate improved company disclosure in this area.

2020 sees the mandatory application of two new legal reporting requirements. The first, effective for financial periods beginning on or after 1 April 2019, broadens greenhouse gas reporting and energy efficiency disclosure requirements in the directors’ report for quoted companies and extends this reporting requirement to large unquoted companies and LLPs. The second, impacting financial years beginning on or after 10 June 2019, introduces changes to remuneration reporting and extends the scope to unquoted traded companies.

Whilst reporting under the revenue and leasing standards, IFRS 15 and 16,is no longer new, the FRC expects significantly improved reporting under these standards. Additionally, the FRC has challenged companies to improve their s172 reporting, publishing a set of tips to assist companies in making the statement more useful.

Further FRC challenge can continue to be expected over presentation and reconciliation of Alternative Performance Measures (APMs) and business reviews, which should be a balanced and comprehensive analysis of both performance and position. Additionally the FRC will be looking for company-specific disclosures about the impact of Brexit including the company’s ability to continue as a going concern and its longer-term viability and prospects. Increasing focus is also being given to capital allocation and dividend policy disclosures.

Turning to the financial statements, amendments to both UK GAAP and IFRS Standards have been relatively minor. However, for those entities that apply hedge accounting, amendments as a result of IBOR reform to both UK GAAP and IFRS Standards are likely to be significant. Additionally, lessees and lessors reporting under UK GAAP who have received temporary rent concessions for operating leases as a direct consequence of COVID-19 will need to apply the amendments to Section 20 of FRS 102. Whilst amendments for lessees have also been made to IFRS 16, entities can choose, as an accounting policy choice, whether to apply them or not.

Our Closing Out 2020 publication covers all these topics and more, providing an invaluable guide to the issues affecting today’s corporate reporting landscape.

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UK GAAP application for reporting periods ending 31 December 2020

10 Dec 2020

The table below reflects new and revised UK GAAP financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2020.

As the revised UK GAAP regime has now been in place for a number of years, preparation of either parent company or subsidiary accounts under either FRS 101 or FRS 102 should now have become a more routine exercise. The FRC has made several changes to FRS 102 as part of its first triennial review of the Standard to deal with issues highlighted in its implementation. The amendments were published in December 2017. More recently amendments to FRS 102 related to multi-employer defined benefit plans, interest rate benchmark reform and COVD-19-related rent concessions have been issued. Minor amendments were also made as a result of the 2019/20 annual review of FRS 101. Amendments have also been recently made to FRS 101, FRS 104 and FRS 105.

The table below reflects new and revised UK GAAP financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2020. For those reporters who want to understand new UK GAAP application for earlier periods please select one of the following:

Pronouncement Effective date Application for quarters ending 31 December 2020?
1st qtrs.* 2nd qtrs.** 3rd qtrs.*** Full yrs****
FRS 100
Amendments to FRS 101 - 2018/19 cycle issued The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the July 2019 amendments to FRS 101 early, these amendments to FRS 100 shall be applied at the same time. # # # #
Consequential amendments as a result of Amendment to FRS 101 – Effective date of IFRS 17 The amendments take effect for accounting periods beginning on or after 1 January 2023. If an entity applies the July 2019 amendments to FRS 101 early, these amendments to FRS 100 shall be applied at the same time ~ ~ ~ ~
Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period

The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.

See left See left See left See left
FRS 101
Amendments to the Basis for Conclusions FRS 101 Reduced Disclosure Framework

No effective date. No amendments to FRS 101 have been made

N/A (see effective date column) N/A (see effective date column) N/A (see effective date column) N/A (see effective date column)
Amendments to FRS 101 - 2018/19 cycle issued

The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time.

# # # #
Amendments to FRS 101 - 2019/20 cycle issued

Paragraph 8 of FRS 101 notes that the exemptions are available from when the relevant standard is applied. Therefore there is no need to amend the effective date for these amendments, which will be available for financial statements approved after the amendments have been finalised.

Optional Optional Optional Optional
Changes the effective date of an amendment to the definition of a qualifying entity made in July 2019, effectively allowing relevant insurers to continue to apply FRS 101 for a further two years. The revised effective date for the new definition of a qualifying entity is accounting periods beginning on or after 1 January 2023 ~ ~ ~ ~

The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.

See left See left See left See left
FRS 102
Amendments to FRS 102: Multi-employer defined benefit plans

The amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted.

Mandatory

Mandatory

Mandatory

Mandatory

Amendments to FRS 101 - 2018/19 cycle issued

The amendments take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the July 2019 amendments to FRS 101 early, these amendments to FRS 102 shall be applied at the same time

#

#

#

#

'Amendments to FRS 102 – Interest rate benchmark reform'.

The amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted.

Mandatory

Mandatory

Mandatory

MAndatory

Amendments to FRS 101 - 2019/20 cycle issued

Paragraph 8 of FRS 101 notes that the exemptions are available from when the relevant standard is applied. Therefore there is no need to amend the effective date for these amendments, which will be available for financial statements approved after the amendments have been finalised.

Optional

Optional

Optional

Optional

Consequential amendments as a result of Amendment to FRS 101 – Effective date of IFRS 17 The amendments take effect for accounting periods beginning on or after 1 January 2023. If an entity applies the July 2019 amendments to FRS 101 early, these amendments to FRS 102 shall be applied at the same time ~ ~ ~ ~
Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions The effective date for these amendments is accounting periods beginning on or after 1 January 2020, with early application permitted. Mandatory Mandatory Mandatory Mandatory
Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period

The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.

See left See left See left See left
‘Amendments to FRS 102 – Interest rate benchmark reform (Phase 2)’.

The amendments are effective for accounting periods beginning on or after 1 January 2021, with early application permitted.

Optional Optional Optional Optional
FRS 104
Amendments to FRS 104 Interim Financial Reporting - Going concern The amendments are effective for interim periods beginning on or after 1 January 2021, with earlier application permitted Optional Optional Optional Optional
Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period

The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.

See left See left See left See left
FRS 105
Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions The effective date for these amendments is accounting periods beginning on or after 1 January 2020, with early application permitted.

Mandatory

Mandatory

Mandatory

Mandatory

Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period

The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.

See left

See left

See left

See left

* 1st quarter ending on 31 December 2020 (accounting period began on 1 October 2020).

** 2nd quarter ending 31 December 2020 (accounting period began 1 July 2020).

*** 3rd quarter ending 31 December 2020 (accounting period began 1 April 2020).

**** 4th quarter ending 31 December 2020 (accounting period began 1 January 2020).

# - The amendments to FRS 101 and the consequential amendments to FRS 100 and FRS 102 take effect for accounting periods beginning on or after 1 January 2021. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time. IFRS 17 has not yet been endorsed for use in the EU. If an entity applies the July 2019 amendments to FRS 101 early, the amendments to FRS 100 and FRS 102 are applied at the same time.

~ The amendments to FRS 101 and the consequential amendments to FRS 100 and FRS 102 take effect for accounting periods beginning on or after 1 January 2023. If an entity applies the recognition, measurement and disclosure requirements of IFRS 17 early, the amendments to FRS 101 are applied at the same time. IFRS 17 has not yet been endorsed for use in the EU. If an entity applies the July 2019 amendments to FRS 101 early, the amendments to FRS 100 and FRS 102 are applied at the same time.

 

 

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New and revised pronouncements as at 31 December 2020

10 Dec 2020

Our popular summary of new and revised financial reporting requirements, updated for financial reporting periods ending on 31 December 2020. This listing can be used to perform a quick check that new financial reporting requirements such as new and revised accounting standards and interpretations, and amendments to standards and interpretations, have been fully considered in the reporting close process.

The information below reflects developments to 8 January 2021 and will be updated through to 31 March 2021 to reflect new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2020. For accounts approved after March 2021, please also refer to subsequent versions of this document for any new and revised IFRSs that have additionally been issued that might require disclosure in the accounts under IAS 8:30.

The information below is organised as follows:

Summary

COVID-19 accounting considerations
Below is our usual analysis of new and amended standards, however, we are also aware that most, if not all, entities will have been impacted by the COVID-19 events. Please see our Need to know — Accounting considerations related to the Coronavirus 2019 Disease highlighting some of the key issues to be considered by the entities in preparing their financial statements and our UK Accounting Plus resource page on accounting considerations related to COVID-19.  We additionally have a UK Accounting Plus collections page which includes all of our news and publications related to COVID-19.

The table below provides a summary of the pronouncements which will be mandatorily applied by UK entities for the first time at 31 December 2020, for various quarterly reporting periods. Where a UK entity chooses to prepare financial statements in accordance with IFRS Standards as issued by the IASB, as well as in compliance with IFRS Standards as adopted in conformity with the requirements of the Companies Act 2006, that entity should comply with the earlier IASB effective date for those items.

  • For accounting periods beginning on or after 1 January 2021, UK companies required or choosing to apply IFRS Standards will need to comply with UK-adopted IFRS Standards rather than EU-adopted IFRS Standards.
  • For accounting periods beginning prior to 1 January 2021, UK companies required or choosing to apply IFRS Standards must still prepare their financial statements in accordance with EU-adopted IFRS Standards. However, companies whose financial year spans 31 December 2020, and those whose filing deadline falls after 31 December 2020 but whose accounts have not been filed before 31 December 2020, may opt to apply any new IFRS Standards adopted by the UK in addition to EU-adopted IFRS Standards as at 31 December 2020.
  • For accounting periods beginning prior to 1 January 2021, if the entity has transferable securities admitted to trading on a UK regulated market, is required to produce consolidated accounts and is preparing accounts to satisfy DTR requirements, those accounts must additionally be prepared in accordance with IFRS Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. This means that EU adoption of IFRS Standards subsequent to 31 December 2020 remains relevant for such entities.

Further information on IFRS Standards in the UK is available here.

The table below provides a summary of these pronouncements, and which reporting periods they apply to: 

Pronouncement IASB Effective date* EU/UK effective date* UK Mandatory at 31 December 2020?
1st qtrs.** 2nd qtrs.*** 3rd qtrs.**** Full yrs*****
Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)
1 January 2018 1 January 2018 Optional ~ Optional ~ Optional ~ Optional ~
Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020 1 January 2020 Yes Yes Yes Yes
Definition of Material (Amendments to IAS 1 and IAS 8) 1 January 2020 1 January 2020 Yes Yes Yes Yes
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) 1 January 2020 1 January 2020 Yes Yes Yes Yes
Definition of a Business (Amendments to IFRS 3) 1 January 2020 1 January 2020 Yes Yes Yes Yes
Covid-19-Related Rent Concessions (Amendment to IFRS 16) 1 June 2020 1 June 2020 Yes Yes No No

* Generally annual reporting periods beginning on or after the date indicated, may only apply to first-time adopters in some limited cases (see below for full details).

** 1st quarter ending on 31 December 2020 (accounting period began on 1 October 2020).

*** 2nd quarter ending 31 December 2020 (accounting period began 1 July 2020).

**** 3rd quarter ending 31 December 2020 (accounting period began 1 April 2020).

***** 4th quarter ending 31 December 2020 (accounting period began 1 January 2020).

~ The application of both approaches (overlay approach/ deferral approach) is optional and an entity is permitted to stop applying them before the new insurance contracts standard is applied.

More information about these pronouncements, and all new and revised pronouncements, is set out below.

Financial statement considerations in adopting new and revised pronouncements

Where new and revised pronouncements are applied for the first time, there can be consequential impacts on annual financial statements, including:

  • Updates to accounting policies. The terminology and substance of disclosed accounting policies may need to be updated to reflect new recognition, measurement and other requirements, e.g IAS 19 Employee Benefits may impact the measurement of certain employee benefits.
  • Impact of transitional provisions. IAS 8 Accounting Policies, Changes in Estimates and Errors contains a general requirement that changes in accounting policies are retrospectively applied, but this does not apply to the extent an individual pronouncement has specific transitional provisions.
  • Disclosures about changes in accounting policies. Where an entity changes its accounting policy as a result of the initial application of an IFRS and it has an effect on the current period or any prior period, IAS 8 requires the disclosure of a number of matters, e.g. the title of the IFRS, the nature of the change in accounting policy, a description of the transitional provisions, and the amount of the adjustment for each financial statement line item affected
  • Third statement of financial position. IAS 1 Presentation of Financial Statements requires the presentation of a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements in a number of situations, including if an entity applies an accounting policy retrospectively and the retrospective application has a material effect on the information in the statement of financial position at the beginning of the preceding period
  • Earnings per share (EPS). Where applicable to the entity, IAS 33 Earnings Per Share requires basic and diluted EPS to be adjusted for the impacts of adjustments result from changes in accounting policies accounted for retrospectively and IAS 8 requires the disclosure of the amount of any such adjustments.

Whilst disclosures associated with changes in accounting policies resulting from the initial application of new and revised pronouncements are less in interim financial reports under IAS 34 Interim Financial Reporting, some disclosures are required, e.g. description of the nature and effect of any change in accounting policies and methods of computation.

 

New or revised standards

The information below can be used to assist with the disclosure requirements under paragraph 30 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which requires entities to disclose any new IFRS Standards that are in issue but not yet effective and which are likely to impact the entity

New or revised pronouncement Effective date

UK Application at 31 December 2020 to:

1st qtrs 2nd qtrs 3rd qtrs Full yrs

IFRS 17 Insurance Contracts

IFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 Insurance Contracts as of 1 January 2021.

Issued: 18 May 2017 (Summary of IFRS 17, Article, Newsletter).

Applicable to annual reporting periods beginning on or after 1 January 2023. The original effective date of IFRS 17 of 1 January 2021 was amended by Amendments to IFRS 17 issued by the IASB in June 2020.

Not yet endorsed for use in the EU or the UK.

Amendments

New or revised pronouncement When effective UK Application at 31 December 2020 to:
1st qtrs 2nd qtrs 3rd qtrs Full yrs

Editorial Corrections (various)

The IASB periodically issues Editorial Corrections and changes to IFRSs and other pronouncements. Since the beginning of calendar 2012, such corrections have been made in February 2012, July 2012, March 2013, September 2013, November 2013 and March 2014, September 2014, December 2014, March 2015, April 2015, September 2015, December 2015, March 2016, May 2016, September 2016, December 2016, September 2017, November 2017, December 2018, March 2019, May 2019, December 2019, July 2020, September 2020, October 2020 and November 2020..

Note: For details of these editorial corrections, see our IASB editorial corrections page.

As minor editorial corrections, these changes are effectively immediately applicable under IFRS See comment in previous column
Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)
Amends IFRS 4 Insurance Contracts provide two options for entities that issue insurance contracts within the scope of IFRS 4:
  • an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.
The application of both approaches is optional and an entity is permitted to stop applying them before the new insurance contracts standard is applied.
Issued: 12 September 2016 (article, newsletter)

Overlay approach to be applied when IFRS 9 is first applied. Deferral approach effective for annual periods beginning on or after 1 January 2018.

In June 2020 the IASB issued Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) which changes the fixed expiry date for the temporary exemption (the deferral approach) in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023.

 

Optional

Optional

Optional

Optional

Amendments to References to the Conceptual Framework in IFRS Standards


Together with the revised Conceptual Framework published in March 2018, the IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the framework they are referencing to (the IASC framework adopted by the IASB in 2001, the IASB framework of 2010, or the new revised framework of 2018) or to indicate that definitions in the standard have not been updated with the new definitions developed in the revised Conceptual Framework.

Issued: 29 March 2018 (article)

Annual periods beginning on or after 1 January 2020

Mandatory

Mandatory

Mandatory

Mandatory

Definition of a Business (Amendments to IFRS 3)

The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only. They:

  • clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
  • narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs;
  • add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
  • remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; and
  • add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

Issued: 22 October 2018 (article/newsletter)


Business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020

Mandatory

Mandatory

Mandatory

Mandatory

Definition of Material (Amendments to IAS 1 and IAS 8)

The amendments in Definition of Material (Amendments to IAS 1 and IAS 8) clarify the definition of ‘material’ and align the definition used in the Conceptual Framework and the standards.

Issued: 31 October 2018 (article)

 

Annual reporting periods beginning on or after 1 January 2020

Mandatory

Mandatory

Mandatory

Mandatory

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

The amendments in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) clarify that entities would continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform.

Issued: 26 September 2019 (article)

Annual reporting periods beginning on or after 1 January 2020

Mandatory

Mandatory

Mandatory

Mandatory

Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)

The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current

Issued: 23 January 2020 (article)

Annual reporting periods beginning on or after 1 January 2023 (see 'Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Amendment to IAS 1)' below). Original effective date 1 January 2022.

Not yet endorsed for use in the EU or the UK.

 

 

 

 

Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)

The amendments amend IAS 16 to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Issued: 14 May 2020 (article, newsletter)

Annual reporting periods beginning on or after 1 January 2022
Not yet endorsed for use in the EU or the UK.

Annual Improvements 2018-2020 Cycle

Makes amendments to the following standards:

  • IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a first-time adopter. The amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to IFRSs.
  • IFRS 9 Financial Instruments - Fees in the ‘10 per cent’ test for derecognition of financial liabilities. The amendment clarifies which fees an entity includes when it applies the ‘10 per cent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.
  • IFRS 16 Leases - Lease incentives. The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
  • IAS 41 Agriculture - Taxation in fair value measurements. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13.

Issued: 14 May 2020 (article, newsletter)

The amendments to IFRS 1, IFRS 9, and IAS 41 are all effective for annual periods beginning on or after 1 January 2022. Early application is permitted. The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.


Not yet endorsed for use in the EU or the UK.

Reference to the Conceptual Framework (Amendments to IFRS 3)

The changes:

  • update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework;
  • add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and
  • add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

Issued: 14 May 2020 (article, newsletter)

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier

Not yet endorsed for use in the EU or the UK.

Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)

The changes specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Issued: 14 MAy 2020 (article, newsletter)

Annual reporting periods beginning on or after 1 January 2022
Not yet endorsed for use in the EU or the UK.

Covid-19-Related Rent Concessions (Amendment to IFRS 16)

Amends IFRS 16 to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

The changes:

  • provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification;
  • require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;
  • require lessees that apply the exemption to disclose that fact; and
  • require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures.

The practical expedient applies to COVID-19-related rent concessions that result in reduction in lease payments due on or before 30 June 2021.

Issued: 28 MAy 2020 (article,newsletter)

 

The amendment is effective for annual reporting periods beginning on or after 1 June 2020.

 

Mandatory

Mandatory

Optional

Optional

Amendments to IFRS 17

Amends IFRS 17 to address concerns and implementation challenges that were identified after IFRS 17 Insurance Contracts was published in 2017.

The main changes are:

  • Deferral of the date of initial application of IFRS 17 by two years to annual periods beginning on or after 1 January 2023
  • Additional scope exclusion for credit card contracts and similar contracts that provide insurance coverage as well as optional scope exclusion for loan contracts that transfer significant insurance risk.
  • Recognition of insurance acquisition cash flows relating to expected contract renewals, including transition provisions and guidance for insurance acquisition cash flows recognised in a business acquired in a business combination.
  • Clarification of the application of IFRS 17 in interim financial statements allowing an accounting policy choice at a reporting entity level.
  • Clarification of the application of contractual service margin (CSM) attributable to investment-return service and investment-related service and changes to the corresponding disclosure requirements.
  • Extension of the risk mitigation option to include reinsurance contracts held and non-financial derivatives.
  • Amendments to require an entity that at initial recognition recognises losses on onerous insurance contracts issued to also recognise a gain on reinsurance contracts held.
  • Simplified presentation of insurance contracts in the statement of financial position so that entities would present insurance contract assets and liabilities in the statement of financial position determined using portfolios of insurance contracts rather than groups of insurance contracts.
  • Additional transition relief for business combinations and additional transition relief for the date of application of the risk mitigation option and the use of the fair value transition approach.
  • Several small amendments regarding minor application issues.

Issued: 25 June 2020 (article)

 

The amendment is effective for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted.

Not yet endorsed for use in the EU or the UK.

Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)

The amendment changes the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023.

Issued: 25 June 2020 (article)

In June 2020 the IASB issued Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) which changes the fixed expiry date for the temporary exemption (the deferral approach) in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023.

Optional

Optional

Optional

Optional

'Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Amendment to IAS 1)'

The amendment defers the effective date of the January 2020 amendments (see above) by one year.

Issued: 15 July 2020 (article)

 

The changes in Classification of Liabilities as Current or Non-current — Deferral of Effective Date defer the effective date of Classification of Liabilities as Current or Non-current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023. Earlier application of the January 2020 amendments continue to be permitted.

Not yet endorsed for use in the EU or the UK.

Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

The amendments in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.

Issued: 27 August 2020 (article)

 

Annual reporting periods beginning on or after 1 January 2021.

Optional - endorsed by both the UK and EU.

Optional - Endorsed by both the UK and EU.

Optional - Endorsed by both the UK and EU.

Optional - Endorsed by both the UK and EU.

 

ICAS (Institute of Chartered Accountants of Scotland) (lt green) Image

ICAS report on IAS 37 and decommissioning liabilities

10 Dec 2020

The Institute of Chartered Accountants of Scotland (ICAS) has released a report examining the application of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' in accounting for the costs of decommissioning and clean-up operations in polluting industries, including oil and gas, mining and utilities.

IAS 37 mandates that the future cost of clean-up be estimated and accounted for using an appropriate discount rate to calculate the present value of these costs. However, the standard does not mandate for businesses to disclose the rate they have used, nor makes clear whether the basis for calculating the discount rate should be an accounting choice.

The ICAS research used a large international sample across the mining, utilities, and oil and gas sectors, and found substantial variations exist in companies’ choice to disclose the discount rate when accounting for decommissioning and environmental liabilities. Furthermore, the research notes that when a company with a decommissioning liability becomes insolvent the clean-up liability remains attached to the asset, which may therefore become less attractive to a potential buyer, and so, if eventually the asset remains unsold, the taxpayer ends up picking up the decommissioning tab. ICAS points out that this scenario is likely to be more frequent in a post-COVID world.

The report arrives at two recommendations:

  • Standard setters should require disclosing the discount rates applied to facilitate comparability and thus allow for users of financial statements and other key stakeholders to see inside the ‘black box’ of accounting for decommissioning liabilities; and
  • Preparers should include, and auditors demand, enhanced disclosures, to include not only the discount rate but also undiscounted future estimated cash flows and timing of decommissioning activities, augmented by a comprehensive narrative on the major uncertainties surrounding these items.

Please click to access Black Box Accounting: Discounting and disclosure practices of decommissioning liabilities on the ICAS website.

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