Among the proposals are:

• Restructuring the code to more clearly distinguish requirements from guidance;
• reorganising the content of the code, including rebranding the code, or parts thereof, as international standards;
• identifying responsibility for compliance with the code in particular circumstances; and
• simplifying the wording of the Code so that it can be more readily understood.

The proposals are open for comment until 4 February 2015. The consultation paper can be accessed through the press release on the IFAC website.

In comparison with earlier surveys of research into the effects of IFRS adoption, the new report expressly addresses the objectives of the IAS Regulation, its scope is restricted, as far as possible, to evidence from the EU, and it excludes, as far as possible, the literature on the effects of voluntary IFRS adoption in the EU. It reviews the research for evidence in respect of transparency, comparability, the cost of capital, market liquidity, corporate investment efficiency, cross-border investment, other benefits, costs, and the financial crisis.

The report finds that there is evidence of benefits following IFRS adoption in relation to financial reporting transparency and comparability, the cost of capital, market liquidity, corporate investment efficiency and cross-border capital flows. However, the report also states that the evidence on some of these matters is disputed and it is unclear how far the benefits identified are attributable to the adoption of IFRS or to other concurrent institutional changes, particularly in enforcement. The report also notes that the benefits found are uneven, varying with the institutions and incentives that apply for different companies in different countries.

The report also identifies a number of challenges to IFRS. Among the challenges that apply to any set of financial reporting standards are the importance of surrounding institutions and preparers' incentives, the role of options in standards, the effects of principles-based standards, and the one-size-fits-all problem. Challenges that apply specifically to IFRS are identified as the role of fair value accounting and the priority given to the valuation role of accounting.

As the report was drawn up in response to the European Commission's consultation on the impact IFRSs in the EU, it also contains a conclusion for policy makers and the way forward:

For policy makers, the research findings summarised in this report will not end controversy on the effects of IFRS adoption in the EU, but they should help to form views on what has been achieved to date and what needs to be done in the future. Perhaps the most significant point to emerge from the research is the importance of institutions and incentives. The balance of evidence suggests that the objectives of Regulation 1606/2002 have been achieved to some extent. But differing institutions and incentives mean that its effects vary from firm to firm and from country to country. [...] If the EU wishes to achieve further progress in financial reporting and to reap the benefit of these improvements, it may make most sense to look at the incentives for those involved in the financial reporting process and at the institutions that surround it [...].

The report detailing the research results is available on the ICAEW website. It can be accessed in a seven page executive summary or in the 164 page full report.

The key points made in the ICAEW's response to the EC consultation, which is also available from their website, are:

• The ICAEW believe that the current goals of the IAS regulation continue to be appropriate.  However, they believe there is a strong case that the scope of the IAS regulation should be amended to mandate application of IFRSs by listed companies that are not required to prepare consolidated accounts, in order to aid further achievement of these goals.
• They believe that the adoption of IFRSs has had a positive impact on EU capital markets.
• They believe that the current endorsement process is broadly appropriate, although it should be possible to expedite the process through earlier and more engagement between key European stakeholders and the IASB.  They strongly oppose the introduction of proposed new endorsement criteria that accounting standards should not hinder economic development or endanger financial stability, as they believe that (to the extent relevant) this falls within the current requirement to consider the 'European public interest'.  They also believe that the risks of giving the European Commission more leeway to modify standards as part of the endorsement process far outweigh any potential benefits.
• They believe that the current EU enforcement model is appropriate and that it would not be desirable to enhance the role or powers of the European Securities and Markets Authority (ESMA) at the expense of member states.  They also believe that the EU should leave the provision of guidance on the application of IFRS to the IFRS Foundation.

In their response the ICAEW also welcome the UK Financial Reporting Council's recently announced initiative to address the causes of variable quality in IFRS reporting by smaller UK listed companies.

In an opening statement before commenting directly on the IOSCO proposals, FEE expresses support for improvements in corporate reporting and stresses that non-GAAP measures play an important role as they can improve the communication between the entity and its stakeholders as long as they are reported in a transparent and unbiased manner. Nevertheless, FEE "identifies that there is a lack of coordination between market oversight bodies and regulators on one hand and the IASB on the other hand, which leads to a high degree of divergence in practice. FEE expressly references the ESMA consultation on alternative performance measures, but recently also the IFAC has issued guidance on supplementary financial measures. FEE states:

We believe that the International Accounting Standards Board (“IASB”) should also be involved in the reporting of Non-GAAP Measures in the context of financial reporting. Some IFRSs currently include guidance on how an entity can present Non-GAAP Measures within its financial statements. Therefore, [...] FEE suggests all the market oversight bodies and regulators (international, regional and national) to work with the IASB in order to develop a common comprehensive framework on Alternative Performance Measures/Non-GAAP measures.

The IASB has a disclosure initiative on its agenda that is split into several smaller projects. The project on principles of disclosure considers information that should be included in a complete set of financial statements and the presentation of non-IFRS information and comparative information. A discussion paper is currently expected in the second quarter of 2015. 

Please click for the FEE comment letter, which also contains detailed comments on the IOSCO proposals, on the FEE website.

The summary brings together key findings from reports on: 

• Accounting policies and integration of related financial information;
• Towards Clear and Concise Reporting;
• Audit committee reporting;
• Presentation of market risk disclosures;
• Debt terms and maturity tables;
• Net debt reconciliations; and
• Operating cash flows. 

The summary highlights "areas where relatively simple changes could improve corporate reporting, enhancing the usefulness of reports for investors".

As well as taking on board the key messages from the Financial Reporting Lab reports, the summary also highlights that companies may wish to consider the Corporate Reporting Review Annual Report 2014, issued by the FRC in October, which summarises the FRC’s findings for the year and emphasises areas of reporting focus for Boards in the next reporting season.

The press release and full summary can be obtained from the FRC website.

Highlights from the meeting include:

• IFRSF risk/opportunities. Breakout sessions were held where members looked at what they considered to be biggest risk to the IFRSF and how these risks could present opportunities. The Council agreed to add an agenda item to its February meeting to further discuss this matter.  
• IASB project updates. 
  • Insurance — Discussions were held to provide the Council with the progress, difficulties and complexities that are occurring with this project.
  • Disclosure initiative — Feedback from the Council was positive concerning this project. They noted that there are initiatives currently occurring to improve disclosure effectiveness and encouraged the IASB staff to research those initiatives in order to get a better understanding of why they are taking place. In addition, the Council advised careful consideration should be taken on the use of non-IFRS information and the scope of the project.
  • Materiality — The main outcome from the discussions held included (1) support for the IASB to consider how materiality can improve disclosures, (2) keeping the definition of materiality as a part of IFRS, (3) prevent obscuring relevant information by not disclosing unnecessary immaterial information, (4) the IASB plays a role in changing the way materiality is applied, and (5) IASB should provide educational support.
  • Conceptual framework — The Council noted that any guidance issued needs to be neutral and focus on transparency.
• Investor liaison strategy. The Council provided feedback on steps the Council, IASB, and IFRSF could take to support the investor community.

The next meeting of the IFRS Advisory Council is scheduled for 23-24 February 2014 in London.

The full report on the IFRS Advisory Council meeting is available on the IASB website.

The most notable matter on which this chapter consults is whether to update references in the Listing Rules and Disclosure and Transparency Rules to refer to the 2012 UK Corporate Governance Code (“the Code”) rather than the 2010 Code. In summary we suggest that:

• the FCA should refer to the Code as issued by the FRC rather than any specific version. This would allow the Code to apply from the effective date specified by the FRC (in the case of the 2012 Code, periods commencing on or after 1 October 2012), rather than the 2012 Code, and remove the need for an FCA consultation each time the FRC updates the Code;
• the FCA and Prudential Regulation Authority should work to update references elsewhere in a similar way, and if this is not possible, to refer to the 2012 Code. In the other parts of their rules changing the references from the 2010 to 2012 Code would have little or no practical effect, and having references to different versions of the Code in different rules is unhelpful for listed entities that are also regulated financial institutions; and
• the FCA should consult sooner rather than later on the changes necessary for the 2014 Code. This would provide clarity to issuers and regulated financial institutions alike, and would also give the opportunity to remove the auditors’ review responsibilities for ten provisions of the corporate governance statement. These are now redundant as these areas are now subject to more explicit duties in auditing standards introduced with the 2012 and 2014 Codes; if this is not possible, then the FRC should be asked to update their materials supporting this review.

Further comments and full responses to all questions raised consultation are contained within the full comment letter which can be downloaded from our publications pages. The original consultation document is available from the FCA website.

The Code replaces the existing Monitor Audit Code for NHS Foundation Trust (applicable to foundation trusts) and the Audit Commission’s two Codes of Audit Practice (applicable to local authorities, police bodies, and NHS entities other than foundation trusts). Following this consultation, the Code will be finalised by the NAO and must then be approved by Parliament before it comes into force. When it does, it will apply to the audit of local public bodies for years commencing on or after 1 April 2015.

We broadly welcomed the new Code, observing that:

• the principles based nature of the Code is welcome, given the need for Parliamentary approval. In some areas we suggest that non-statutory supporting guidance will be helpful to promote consistency of application;
• the general principles, which refer to auditing standards and ethical standards, might usefully also refer to quality control standards, as well as requiring co-operation with other local auditors;
• the change in legal requirements for the auditors’ work on value-for-money at foundation trusts necessitates a change in the Code requirements. More work may be needed to clarify these duties and avoid an unintended change in work effort (and hence audit cost);
• it is not clear whether or not an ‘enhanced audit report’ (where the auditor comments on risks and their response, materiality and audit scope) is required for all larger local public bodies; and
• the limited audit regime for smaller public bodies should use International Standard on Review Engagements 2400 as its starting point.

Further comments and full responses to all questions raised consultation are contained within the full comment letter which can be downloaded from our publications pages.

The Committee will:

• continue discussion of issues arising on IFRS 11, IAS 19, IFRS 5, IAS 12 and IAS 2
• consider finalising tentative agenda decisions on IFRS 12, IAS 16/IAS 2, IAS 16, IAS 21 and IAS 39
• consider new issues on IFRS 10, IAS 32, IAS 21, IAS 12, IAS 28 and IAS 19.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

TECH 16/14BL addresses the situation in which a trading subsidiary of a charity donates all of its taxable profits to the parent charity and claims charitable donations relief on this amount. Charities Commission Guidance Note CC 35 (withdrawn in October 2014) gave guidance that such payments were not distributions as defined in the Companies Act 2006. The implication of this was that the amount donated could exceed the amount of profits available for distribution under the Act.

ICAEW became aware that the position set out in CC 35 was being questioned and accordingly sought Counsels' opinion on the matter. The advice received from Counsel is that, contrary to the guidance in CC 35, these payments are distributions under the Act and should have had regard to the amount of distributable profits available to the company. Accordingly, any payments made in excess of distributable profits will have been unlawful.

TECH 16/14BL gives the following guidance on the consequences of this advice:

• Where an unlawful distribution has been made, the parent charity has a liability to repay such amounts received over the previous six years and the subsidiary company has a corresponding asset. These are not financial assets / liabilities as they arise from the operation of the law and not from a contract. They should be recognised at the full amount due (subject in the case of the asset to write-downs for any irrecoverability).
• It is reasonable to say that, in order for the recognition of these assets and liabilities to give rise to a prior year error, the parent charity / the company would need to have known at the time that the payment was an unlawful distribution. Accordingly, the liability and asset would usually be recorded by current year entries and not a prior year adjustment.
• In certain circumstances the subsidiary company may have a legal right to recover unlawful distributions from its directors. However, this right is unlikely to have accounting consequences unless the charity is financially unable to repay the unlawful distributions but the directors are.

As well as setting out these consequences, the TECH also gives some practical remediation steps available to charities and their subsidiaries, as well as steps to take in relation to future payments.

The TECH also notes that HMRC are considering the tax impact of this development for charities and their trading subsidiaries and that guidance on this is expected in due course.

*Update 26 February 2016 - HMRC has now issued specific guidance on the tax treatment.  The revised guidance is available on the HMRC website.  The Charity Commission has also issued revised guidance which is available on the Charity Commission website*

The full text of TECH 16/14BL (revised) is available from the ICAEW website.