The Government Financial Reporting Manual (FReM) Exposure Draft (14)01 (link to HM Treasury site) proposes amendments to the FReM to reflect the application of IFRS 13 ‘Fair Value Measurement’ in the public sector. This exposure draft follows two previous exposure drafts on the application of IFRS 13 for the public sector (exposure drafts (13)01 and (12)03). Each of these consultations has informed the development of financial reporting policy and HM Treasury’s final proposals as set out in this exposure draft.

The Exposure Draft includes a new “principles based approach” to determining the use of IFRS 13 in the public sector.  It considers how IFRS 13 may be applied in the public sector context by distinguishing between those assets which are held for their service potential (i.e. operational assets) and those that not held for their service potential or that are surplus assets that can be disposed of. HM Treasury proposes that only assets in this second group are valued at fair value in accordance with IFRS 13, and then only if the entity holding those assets is not restricted from accessing the market. IAS 16 will continue to be adapted to ensure that assets in use that are held for their service potential are held at current value.

The Government Financial Reporting Manual (FReM) Exposure Draft (14)02 (link to HM Treasury site) proposes amendments to the FReM with the aim of simplifying and streamlining the presentation of the statutory annual reports and accounts produced by central government entities so as to better meet the needs of users. HM Treasury launched the simplifying and streamlining accounts project in April 2013 (link to HM Treasury website) and issued a consultation (part of that project) setting out proposals to restructure the format of the Annual Report and Accounts (ARA) produced by central government entities in July 2014.  This exposure draft details the proposed changes to the 2015 to 2016 FReM as a result of the project.

The Exposure Draft proposes to restructure the traditional ‘front-half’ annual report and ‘back-half’ financial statements into three integrated sections: performance, accountability and the financial statements. The purpose of the performance section is to “tell the story” of the reporting entity, providing information on the entity, its main objectives and strategies and the principal risks it faces. The accountability section contains the Governance Statement, remuneration report and information on parliamentary accountability including the Statement of Parliamentary Supply. The final integrated section will comprise the audited financial statements.  HM Treasury proposes that notes to the accounts will only be required in respect of material balances.

The comment deadline for both exposure drafts is 13 October 2014.

Please click for:

• Government Financial Reporting Manual (FReM) Exposure Draft (14)01 (link to HM Treasury website).
• Government Financial Reporting Manual (FReM) Exposure Draft (14)02 (link to HM Treasury website).
• Our previous news story on HM Treasury’s simplifying and streamlining accounts project

Currently, the scope of each IPSAS specifically excludes GBEs and references the Preface to International Public Sector Accounting Standards, which states that GBEs apply International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

IPSAS 1, Presentation of Financial Statements, defines a government business enterprise as an entity with all the following characteristics:

• Is an entity with the power to contract in its own name
• Has been assigned the financial and operational authority to carry on a business
• Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery
• Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm’s length), and
• Is controlled by a public sector entity.

The consultation paper, The Applicability of IPSASs to Government Business Enterprises and Other Public Sector Entities, seeks to address concerns that a wide range of entities are being identified as GBEs, through diversity of practice in the application of the definition, and some entities being described as GBEs even though they may not meet all the requirements of the definition.

The paper identifies two possible approaches as to defining the IPSAS reporting mandate:

1. Describe the characteristics of public sector entities for which IPSASs are intended, without defining GBEs. The high-level characteristics would be based on either:
   1. current and developing IPSASB literature (including the Conceptual Framework), or
   2. terms and explanations from the Government Finance Statistics (GFS)
2. Modifying the current definition of a GBE in IPSAS 1 to either:
   1. clarify the current GBE definition to make it easier to be consistently applied, without modifying the definition significantly, or
   2. narrowing the definition of a GBE to profit-oriented entities, so excluding entities that have a financial objective of full cost recovery.

The IPSASB has expressed a unanimous preliminary view that the first approach is the best way forward, with the majority of board members supporting the development of high-level characteristics of a public sector entity based on existing IPSASB materials. This view is supported on the basis it is high-level and principles based, and acknowledges the role of regulators and other relevant authorities in determining which entities should apply IPSASs. The consultation paper also notes that this approach is consistent with the approach the IASB takes in respect of profit-oriented entities in the Preface to International Financial Reporting Standards and individual IFRSs.

The consultation paper is open for comment until 31 December 2014. Click for IPSASB press release (link to IFAC website).

Earlier this month, the Department for Business, Innovation and Skills (BIS) published its feedback on implementation of the country-by-country reporting provisions of the EU Accounting Directive (Directive 2013/34/EU (link to European Commission website))  for extractives companies - those in the mining, oil and gas sectors, as well as those who log primary forests.

In its response, BIS indicated that the FCA would consult on the equivalent requirements of the revised Transparency Directive (Directive 2004/109/EC) (TD) as amended by the Transparency Directive Amending Directive (Directive 2013/50/EU (link to the European Commission website)).

The FCA has published CP 14/17 which proposes new rules and guidance in Chapter 4 of the Disclosure and Transparency Rules (DTRs). The proposed requirements are contained in a new DTR 4.3A:

• Extractives companies with transferrable securities admitted to trading on an EEA regulated market should prepare a report on payments to governments for financial years commencing on or after 1 January 2015. This is consistent with the timing of the forthcoming company law requirement under the EU Accounting Directive, but a year earlier than required by EU law. In the case of a parent undertaking, the report must be on a consolidated basis.
• Reports under DTR 4.3A must be disseminated via a Regulated Information Service ('sent down the wire'). That announcement must set out which the website on which the report is available. The report must remain available on that website for ten years.
• A UK company reporting under the forthcoming BIS regulations will be treated as having prepared a report as required by DTR 4.3A, although it will be necessary to both disseminate it as required by DTR 6.3 and file it at Companies House.

The new requirements will also apply to companies who are required by the Listing Rules to comply with DTR 4 as if they were an issuer for the purposes of the DTRs.

The sanctions regime that will apply in cases of failure to comply with DTR 4.3A will be that applicable to failures to comply with other parts of DTR 4. The new sanctions regime required by the revised TD will be introduced later with the other changes required by the revised TD.

Please click for:

• The consultation document published by the FCA
• Our previous UK Accounting Plus news item on the response from BIS on the implementation of the country-by-country reporting provisions of the EU Accounting Directive

The Order seeks to implement aspects of the Competition Commission’s package of remedies for audit reform in the UK in light of agreement at European level on audit reform.

We welcome the CMA’s decision to align the timetable and transitional requirements for their requirement for FTSE 350 companies to tender their audits every ten years with the tendering and rotation requirements of the new EU audit reform package. Our main comment concerns the interpretation of those transitional provisions; we urge the CMA to discuss these with the Department for Business, Innovation and Skills (BIS), and the European Commission. This would help avoid confusing interaction between three different sets of rules – those of the CMA, those of EU law, and the requirements of the UK Corporate Governance Code which will remain until at least October 2016.

Our other comments are

• in order to avoid an immediate and unplanned tender if a company unexpectedly enters the FTSE 350 during a year, the status of the company in the preceding financial year should be used to determine whether the Order applies to a company;
• a statutory requirement to disclose compliance with the Order would be uninformative to stakeholders. More useful quantitative and qualitative information is already required by the UK Corporate Governance Code and other parts of the draft Order – if a disclosure obligation is retained, it should be made more informative; and
• the CMA should be clear that they intend to use the information gathering powers in the Order only if sufficient information is not already available. We believe that compliance with the Order should be monitored by the FRC, who will already be monitoring compliance with the rotation and tendering requirements of the EU audit reform package.

The full comment letter can be downloaded from our publications pages.

On 25 March 2014, the IASB published an exposure draft (ED/2014/01 ‘Disclosure Initiative (Amendments to IAS 1)’) containing a number of amendments to IAS 1.

In response to the exposure draft, the EFRAG issued a draft comment letter that noted its support for the project and provided several suggestions to improve the proposed amendments.

The EFRAG’s feedback statement provides an analysis of the EFRAG tentative position expressed in the draft comment letter, describes the comments received from constituents and then highlight how these comments were considered by the EFRAG Technical Group (EFRAG TEG) in reaching their final position on the IASB ED set out in their final comment letter to the International Accounting Standards Board (IASB). 

The general consensus from constituents was "almost all respondents welcomed the IASB’s proposals in the ED and the overall message of the EFRAG draft comment letter. However, the majority of respondents that answered our questions did not agree with EFRAG’s suggestion to prohibit disclosure of immaterial information. Constituents also raised a number of minor concerns on the other topics covered by the amendments."

For more details on the feedback statement, please see (links to EFRAG website):

Also click for:

• Our previous story on the Exposure Draft ED/2014/01 ‘Disclosure Initiative (Amendments to IAS 1)'.
• Our UK Accounting Plus project page: Disclosure initiative — IAS 1 amendments.

The following webcasts are available:

• What investors need to know about financial instruments offsetting in a post-crisis world — Reviews the IASB’s guidance related to offsetting arrangements that was introduced in December 2011.
• Accounting for Post-Employment Benefits — Discusses the reasoning behind the changes issued in June 2011 for the accounting for post-employment benefits and what investors should expect from these changes.
• Accounting for Jointly Controlled Entities — Discusses the reasoning behind the changes issued in May 2011 for the accounting for jointly controlled entities (including joint ventures) and what investors should expect from these changes.

For more information, see the Investor Education webcast series and programme on the IASB website.

The amended version of FRS 101 Reduced Disclosure Framework incorporates amendments set out in:

• Paragraph 1.14 of FRS 103 Insurance Contracts, issued in March 2014; and
• Amendments to FRS 101 Reduced Disclosure Framework (2013/14 Cycle) issued in July 2014.

The amended version of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland incorporates:

• editorial amendments, issued on 19 March 2014, to Section 11 Basic Financial Instruments, Section 12 Other Financial Instruments Issues and Section 35 Transition to this FRS;
• Amendments to FRS 102 – Basic financial instruments and Hedge accounting issued in July 2014; and
• the correction of some minor typographical errors.

The revised versions of the standards can be accessed on the FRC website.

The proposed interim release contains additional taxonomy concepts that reflect new IFRSs and improvements to IFRSs published by the IASB and technical updates and corrections. In particular, this proposed interim release includes taxonomy elements for IFRS 15 Revenue from Contracts with Customers, which was issued on 28 May 2014.

The IFRS Foundation finalised its first interim release to the IFRS Taxonomy 2014 on 15 May 2014. It includes taxonomy elements for IFRS 14 Regulatory Deferral Accounts.

Comments on the proposed interim release are requested by 20 October 2014.

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

The Impairment Transition Resource Group (ITG) group will support stakeholders by providing a discussion forum on implementation issues that may arise as a result of the new impairment requirements under IFRS 9 Financial Instruments that were issued in July this year.

The current membership of the ITG includes:

• Wayne Basford, BDO, Partner, IFRS leader Asia Pacific
• Graham Dyer, Grant Thornton, Senior Manager, National Professional Standards Group
• Paul Fallon, Standard Bank Group, Head of Group Risk Model Development and Model Management
• William Hayward, Barclays, Director, Head of Regulatory Risk
• Helen Killoch, Bank of Montreal, Vice-President and Chief Accountant
• John McDonnell, PwC, Partner in Banking and Capital Markets Group and Global Accounting Consulting Services
• Tetsuo Nanri, Bank of Tokyo-Mitsubishi, Manager, Credit Policy & Planning Division
• Hervé Phaure, Deloitte, Partner, FSI Risk Advisory
• George Prieksaitis, Ernst & Young, Partner, Financial Services Organisation; Leader of the EY Financial Accounting Advisory Services business in Canada
• Jörg Michael Scharpe, Deutsche Bank, Group Reporting Director for External Capital and Risk Reporting
• Chris Spall, KPMG, Partner, Internal Standards Group, Global IFRS Financial Instruments Leader
• Yu Xiaofel, Bank of China, Accounting Manager

The first meeting date for the ITG is planned for the last quarter in 2014.

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