The framework was developed in a multi-phase project after it was initiated in 2006. Phase 1 dealing with Role and Authority of the Conceptual Framework, Objectives and Users of General Purpose Financial Reporting, Qualitative Characteristics, and Reporting Entity was completed in January 2013. These chapters laid the groundwork completing the other three phases of the project, which saw exposure drafts on Elements in Financial Statements, Recognition in Financial Statements, and Measurement of Assets and Liabilities in Financial Statements in November 2012 and on The Presentation of Information in General Purpose Financial Reports in April 2013.

The exposure drafts have now been finalised and combined into the new framework together with the chapters already issued and a preface discussing the characteristics of public sector entities. The most marked change in comparison with the exposure drafts is that the definitions of elements have been brought closer to the definitions in the the IASB Conceptual Framework.

Especially noteworthy is the fact that 'deferred inflows' and 'deferred outflows' have been dropped from the definitions of the elements of financial statements. Nevertheless, the IPSASB continues to believe that there may be circumstances under which the six elements defined in the framework (assets, liabilities, revenue, expense, ownership contributions, and ownership distributions) may not provide all the information in the financial statements that is necessary to meet users' needs. The chapter on elements therefore states:

In some circumstances, to ensure that the financial statements provide information that is useful for a meaningful assessment of the financial performance and financial position of an entity, recognition of economic phenomena that are not captured by the elements as defined in this Chapter may be necessary. Consequently, the identification of the elements in this Chapter does not preclude IPSASs from requiring or allowing the recognition of resources or obligations that do not satisfy the definition of an element identified in this Chapter [...] when necessary to better achieve the objectives of financial reporting.

The finalised framework will enable the IPSASB to further improve the consistency of its standard-setting by strengthening the linkage between IPSASs and enhance the IPSASB's accountability through improved transparency of the concepts underpinning the development of IPSASs and RPGs.

The new framework can be accessed through the press release on the IPSASB website. The press release also states that the IPSASB will be making decisions on new projects in early 2015.

In June 2014, the EFRAG General Assembly approved the new EFRAG Statutes and EFRAG Internal Rules with an effective date of 31 October and established a temporary Nominating Committee to select and recommend candidates for the new EFRAG Board.

According to the revised EFRAG Internal Rules, the EFRAG Board would be responsible for all technical positions of EFRAG, after having considered the technical advice provided by EFRAG TEG and reflecting the results of EFRAG's due process and must ensure that EFRAG follows open and transparent processes. The EFRAG Board is composed of members belonging to two pillars - eight members each from European Stakeholder Organisations and National Standard Setters.

The Nominating Committee submitted a report to the General Assembly with a proposed composition of the Board. The General Assembly accepted the proposed composition and appointed the following Board members:

• European Stakeholder Organisations:
  • Patrice Marteau, Industrial and trading companies
  • Claes Norberg, Industrial and trading companies
  • Jorge Gil Lozano, Banks
  • Gerard Gil, Banks
  • Benoît Jaspar, Insurance companies
  • Laurence Rivat, Accountancy profession
  • Mark Vaessen, Accountancy profession
  • Hans Buysse, User
• National Standards Setters:
  • Chairman ANC (until the appointment: Michel Barbet-Massin) (France)
  • Liesel Knorr, Chairman ASCG (Germany)
  • Angelo Caso, Chairman OIC (Italy)
  • Roger Marshall, Chairman FRC AC (UK)
  • Stig Enevoldsen, Member DASC (Denmark)
  • Peter Sampers, Incoming Chairman DASB (Netherlands)
  • Erlend Kvaal, Chairman NASB (Norway)
  • Anders Ullberg, Chairman SFRB (Sweden)

The Maystadt report had also recommended including the European Supervisory Authorities and the ECB as members, however, these have declined full membership and will be observers on the new Board.

The General Assembly also appointed Roger Marshall as acting President of the Board until a President is a elected.

Deloitte is pleased that Laurence Rivat has been appointed to the Board. Laurence is Head of the Paris IFRS Centre of Excellence of Deloitte and member of Deloitte's Global IFRS Leadership Team (GILT). She is also a member of the IFRS Interpretations Committee. Deloitte also notes with pleasure, that Stig Enevoldsen, former Deloitte partner, will represent the Danish standard-setter on the new EFRAG Board.

Please click for the press release announcing the appointments on the EFRAG website. The IASB has issued a press release welcoming the appointments.

The Climate Disclosure Standards Board (CDSB) is updating the existing CDSB Climate Change Reporting Framework, originally released in September 2010, to take account of recent developments in corporate non-financial reporting. As the first consultation draft already demonstrated, the scope of the updated CDSB Framework now encompasses environmental information, in particular natural capital. The updated Framework provides specific guidance on the characterisation, measurement and reporting for GHG emissions, forest risk commodities and water.

The new consultation draft is open for comment until 14 December 2014. Click for more information (link to CDSB website).

The CDSB has also recording a briefing video providing an introduction to the updated CDSB Framework and outlining how to respond to the consultation

CBCR was introduced into EU law in June 2013 and implemented in the UK in December 2013.  It requires certain financial institutions to report each year on a variety of measures (including turnover, profits, tax paid and subsidies received) for each country where they have an establishment.

The report, which draws on the results of a public consultation, an external study and a roundtable discussion, explains that the expectation of stakeholders is that CBCR will have a positive impact on transparency and accountability. However, it is suggested that the transparency benefit would be enhanced by additional guidance to ensure consistency across the EU.

According to the report, expected positive effects of CBCR include:

• a greater ability for investors to make informed investment decisions and hold banks to account;
• better risk management by reporting institutions;
• a reduction in the cost of equity capital;
• reduced ability for reporting institutions to mask their true performance; and
• increased accounting quality, which could lead to greater levels of competitiveness and financial stability.

The full report and press release can be obtained from European Commission website.

EFRAG commends the IASB’s effort in comprehensively analysing banks’ risk management practices and developing new thinking in how to best reflect the effects of such practices on an entity’s financial position and performance. EFRAG supports the view that a new hedge accounting model for open portfolios, which are managed on a net risk basis, is needed.

EFRAG notes that companies in other industries, such as insurance and utilities, face similar difficulties to banks in using current hedge accounting requirements. As a result they are also interested in the development of a macro hedge accounting solution covering a variety of risks, such as commodity price risk and liquidity risk. EFRAG acknowledges the needs of these companies and encourages the IASB to undertake further analysis in order to conclude whether it is possible to develop a one-size-fits-all solution or whether 'a family' of macro hedging models is required.

EFRAG disagrees with the widening scope of this project, evidenced in the discussion paper, which is in contrast to the original objective when the project was decoupled from the project on general hedge accounting. The focus of the IASB is no longer on finding a hedge accounting solution for open portfolios but on the revaluation of all portfolios that are dynamically managed. EFRAG does not believe that revaluing all portfolios that are dynamically managed, regardless of whether or not they have been risk-mitigated through hedging, will lead to decision-useful information.

EFRAG recommends that the IASB develops a model for hedge accounting in accordance with the original objective of the project. Such a hedge accounting solution would mitigate the accounting mismatch inherent in a mixed measurement model where hedged items are measured at amortised cost and hedging instruments are measured at fair value. At the same time, such a solution would not override the measurement requirement in IFRS 9 Financial Instruments that amortised cost measurement is appropriate for some financial instruments (which the proposed scope in the discussion paper would).

EFRAG also notes that many banks manage their interest rate risk on a cash flow basis rather than a fair value basis and that many of the concepts in the discussion paper would fit more comfortably with a cash flow hedge model rather than a fair value model. They encourage the IASB to consider such a cash flow hedge model as part of the further work on the project.

For more information, see:

• EFRAG final comment letter (link to EFRAG website).
• Press release (link to EFRAG website).
• Our 17 April 2014 article on DP/2014/1.
• Our macro hedging project page.

We support the proposed amendments to FRS 102 for the reasons set out in the FRED.

Click for:

• Our response to the consultation
• Our previous news story on the consultation

The first two new permanent members (the Comissão de Valores Mobiliários (CVM) of Brazil and the Financial Services Commission (FSC) of Korea) were announced in January 2014 and the Monitoring Board may in the future include representatives of other capital markets authorities as long as they fulfil the membership criteria.

Please click for additional information on the IASB website:

• Press release
• Updated Memorandum of Understanding
• Updated Charter of the Monitoring Board

Professor Kay’s review ‘Kay Review of UK Equity markets and long-term decision making’ (link to BIS website), published in July 2012, sought to address the issue of short-termism in the equity market.  The aim of the report was to “set out principles that are designed to provide a foundation for a long-term perspective in UK equity markets and describe the directions in which regulatory policy and market practice should move”.  

The review concluded: 

Short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain.

The Kay Review established 17 recommendations which were intended for the government, regulatory authorities and “key players in the investment chain” to provide “the first steps towards the re-establishment of equity markets that work well for their users”. 

The government actions to address the recommendations of the Kay Review were initially detailed in their response to a Business, Innovation and Skills Select Committee (BISC) report in November 2013 which called on the government to set “clear, measureable and achievable targets” for implementing each of the recommendations set out in the Kay Review.  That response included an appendix which summarised initial progress to date and set forward looking objectives upon which progress was to be assessed in 2014.

The progress report is split thematically into three parts.  Each part highlights the specific recommendations made in the Kay Review and notes progress made.  The three parts are:

Part A

• This part outlines the progress made in encouraging effective shareholder engagement and stewardship investing.   
• Key areas of progress include: the Financial Reporting Council’s (FRC’s) updated 2012 Stewardship Code (link to FRC website), the Investment Management Association’s (IMA’s) May 2014 survey of adherence to that code, the National Association of Pension Fund’s (NAPF’s) proposed Stewardship Disclosure Framework, the creation of the Investor Forum and the FRC’s work on board nominations including succession planning.  

Part B

• This part outlines the progress made on improving the quality of reporting and dialogue in the investment chain to ensure that information meets long-term investor needs. 
• Key areas of progress include: the imminent amendment to the Disclosure and Transparency Rules to remove the requirement for mandatory quarterly reporting, the government’s reforms to corporate narrative reporting with the new Strategic Report regulations for periods ending on or after 30 September 2013 (and related June 2014 FRC Guidance on narrative reporting) and the publication of new government commissioned research (link to BIS website) on metrics and models to assess company and investment performance by long-term investors. This research covers a wide range of topics, including a recommendation that companies provide guidance on future earnings using fan charts rather than point estimates and have an annual meeting with investments focussed on forward looking strategy separate from the reporting cycle and Annual General Meeting. 

Part C

• This part outlines the progress made in building trust-based relationships and aligning incentives through the investment chain.
• Key areas of progress include:  the government’s reforms to the governance of company directors’ remuneration with the revised law on directors’ remuneration policy including strengthening the accountability of shareholders through a binding vote and disclosure applicable from September 2013 and the FRC’s latest revisions to the UK Corporate Governance Code which seek to encourage longer-term remuneration structures.

The progress report highlights that there has been a “significant contribution to the necessary shift in the culture of equity markets advocated by Professor Kay”.  However, it highlights that further progress is still needed and sets out a number of areas that the government, market participants and regulatory authorities will continue to focus on.  Key areas of focus include:

• The FRC commitment to focus on encouraging and monitoring signatories to the Stewardship Code to “ensure they are delivering on the commitment they have given”.
• The Government continued support of the development of the Investor Forum which it considers “has the potential to deliver a step change in effective collective investor engagement on the part of investors in UK companies”.  At the same time as the progress report was published, the Investor Forum announced the appointment of a new board (link to IMA website) and published a discussion paper  (link to IMA website) on its key principles and approach to engagement.
• A Government roundtable in January 2015 to consult senior stakeholders from business and the investment industry on their views of progress to date on shareholder engagement and stewardship, and on what further steps the Government, FRC and industry can take to encourage better engagement and long-term stewardship engagement.
• A continued focus by the government on ensuring the executive remuneration is aligned with long-term sustainable company performance.  It is due to publish shortly a summary of key findings and policy conclusions from a study of how the new directors’ remuneration regime operated during the 2014 reporting and AGM season. 

The full progress report, which expands upon progress in these key areas and others, can be downloaded from the BIS website below.

Click for:

• Press release (link to BIS website).
• The full progress report: ‘Implementation of the Kay Review: Progress Report’ (link to BIS website).
• Our previous UK Accounting Plus story on the government’s response BISC.
• IMA press release on the announcement of the board of the Investor Forum (link to IMA website).
• IMA discussion paper (link to IMA website).

The amendments would confirm that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole, but that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments.

EFRAG is concerned that these proposals will not always result in relevant information because where the unit of account is the investment in a subsidiary, joint venture or associate, the price paid may include control premiums or discounts and consequently differ from the mathematical product price × quantity. EFRAG believes that the resulting financial information would lack relevance, impair the assessment of management stewardship and would not faithfully represent the substance of the transaction. EFRAG states that it would only  - reluctantly - accept the IASB's proposals should further research by the IASB demonstrate that there is no better way than price × quantity to measure the fair value of an investment in a subsidiary, joint venture or associate quoted in an active market.

Comments on the draft comment letter are due by 31 December 2014. It is available on the EFRAG website.