The Exposure Draft (ED) proposes an interim standard that will allow entities currently recognising regulatory assets and regulatory liabilities in accordance with their jurisdiction-specific GAAPs to continue to do so upon the initial adoption of International Financial Reporting Standards (IFRSs).  The ED also provides a number of specific disclosure requirements such as separate line item disclosure in the statement of financial position and movements in regulatory assets and regulatory liabilities as a separate line item in the statement of profit or loss and other comprehensive income. 

The draft comment letter, which expresses a similar conclusion to that reached by the European Financial Reporting Advisory Group (EFRAG) states that the proposed interim standard:

 …does not provide a level playing field for all users of IFRSs and therefore may prove to be disadvantageous to those jurisdictions that already use IFRSs 

The FRC provide four main reasons as to why they do not support the proposed interim standard: 

• It is not principles based;
• It will not allow the objective of a single set of International Financial Reporting Standards (IFRSs) to be obtainable as “different jurisdictions will be permitted to carry forward previous practices”.  The FRC comment that this will result in there being “two or more versions of IASB sanctioned IFRSs”.  However the FRC do comment that although the interim standard may result in diversity in accounting policies within a particular jurisdiction it should mean that more entities are encouraged to adopt IFRS;
• By permitting entities to maintain their existing accounting policies for recognition, measurement and impairment and hence introducing the potential for diversity, it will impact upon the confidence users of financial statements have in the IASB for producing high quality accounting standards; and
• It is likely that the interim standard may be in place for a long time and hence will have a far greater impact than just in facilitating first time adoption of IFRS.  The FRC comment that they feel the interim standard could be applied until the Conceptual framework project is completed as only then will the IASB be able to perform a comprehensive review of rate regulated regulation and whether regulatory assets and regulatory liabilities should be recognised as assets and liabilities. 

Constituents are invited to send comments direct to the FRC by 14 August 2013. 

Click for:

FRC draft comment letter (link to FRC website)

Our previous story on the IASB ED/2013/5 'Regulatory Deferral Accounts'

The IASB issued a revised exposure draft on insurance contracts on 20 June 2013 to establish the principles that insurers should apply to report the nature, amount, timing and uncertainty of cash flows from insurance contracts.

The webcast is free of charge, but you need to register to participate. For the convenience of participants in different time zones the IASB has scheduled two slots for the webcast:

• Friday 19 July 2013 10:00 (London time)
• Friday 19 July 2013 16:30 (London time)

Registration for the different slots is available on the IASB’s website.

The main objective of the IFRS Advisory Council is to provide a forum in which the IASB and the Trustees can consult with individuals and representatives of organisations that work with and are interested in the development of IFRS.

As a result of expiring terms at year end, the IFRSF Trustees’ are inviting applications for membership to the Advisory Council and for the role of Chair of the Advisory Council. The role of Chair of the Advisory Council is to set the agenda of Advisory Council meetings and report to the Trustees and IASB after each meeting. Also, the IFRS Advisory Council Chair participates in the appointment of new Council members and periodically attends meetings held by the Trustees and the Due Process Oversight Committee.

Next, candidates for membership to the Advisory Council are expected to have knowledge of and practical experience in the application of IFRS. Advisory Council members are expected to attend up to three two-day meeting annually. Initial terms are either two or three years and is renewable once for an additional three year term.

Those interested in applying for the positions are asked to respond by 30 August 2013.

Click for the following information on the IASB website:

• Press release on Chair of the Advisory Council vacancy
• Press release on Advisory Council members vacancies

In its first report, EFRAG supports the amendments to IAS 36, which correct an unintended consequence that would have resulted into a requirement to disclose financial information not relevant to users. The EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 36 outweigh the costs and is endorsing the amendments to the European Commission (EC).

In its second report, EFRAG supports the amendments to IAS 39, which remove the need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. Again, the EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 39 outweigh the costs and is endorsing the amendments to the European Commission (EC).

As consequence of a request from the European Commission (EC) aimed at accelerating the endorsement process, EFRAG published draft endorsement advice on the amendments on 5 July 2013 and finalised the advice during the meeting of the Technical Experts Group (TEG) currently held in Brussels. The endorsement of the amendments regarding the novation of derivatives was seen as especially urgent.

Concurrently, EFRAG has updated its report showing the status of endorsement to reflects the final EFRAG endorsement advice of the amendments to IAS 36 and the amendments to IAS 39.

Click for the following information on the EFRAG website:

• Amendments to IAS 36 regarding recoverable amount disclosures
  • Press release
  • Effects Study Report
  • Endorsement Advice Letter to the EC
• Amendments to IAS 39 regarding novations of derivatives
• Press release
• Effects Study Report
• Endorsement Advice Letter to the EC

 The IIRC released the Consultation Draft on 16 April 2013.  The Framework seeks to create the foundations for a new reporting model to enable organisations to provide concise communications of how they create value over time.  The Framework introduces the concept of the Integrated Report which it says is primarily focused on financial capital providers.  It describes the Integrated Report as:

… a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term.

The Framework develops the requirement for an integrated report through guiding principles (these underpin the preparation of an integrated report and are: strategic focus and future orientation, the connectivity of information, stakeholder responsiveness, materiality and conciseness, reliability and completeness, and consistency and comparability) and content elements (the categories of information required to be included in an integrated report).  The Framework notes that the Integrated Report is not intended to replace financial reporting (rather it will seek to build on it by broadening the key concepts disclosed and embedding integrated thinking into the organisation).

The FRC comment that the Consultation Draft provides little clarity as to the Framework’s principal objective which “detracts from the usefulness and clarity of the Framework as a whole”.  Crucially the FRC highlight that the Framework does not explain who the Integrated Report is for highlighting that “the IIRC needs to be very clear on who the users of the Integrated Report are”.  Although the Framework notes that it is intended primarily for ‘providers of financial capital’, the FRC also see that such a report could also meet the needs of a wider group of stakeholders and would like to see this intended user more clearly brought out in the Framework.     

The FRC also comment that the Consultation Draft fails to clarify what the purpose of the Integrated Report is.  They highlight that the Framework provides a confusion as to whether the Integrated Report is “a new additional form of corporate reporting or whether it builds on/is aligned with existing reporting practices”.  They comment that if the Integrated Report is an additional form of corporate reporting then there should be more clarity in the Framework as to the interaction of the Integrated Report with other traditional forms of corporate Reporting.  Insight is provided by the FRC that an Integrated report may not be required in the UK as an investor-focussed corporate communication, not least as a similar level (although not identical) of information has to be provided by UK Company law in the narrative report.     

A number of other concerns are expressed by the FRC in their detailed responses to the Consultation Draft such as the description and application of the concept of value in the Framework and some of the language used in the Framework being overly complex, reducing understandability.  The FRC are also concerned that “the IIRC has adopted a different approach to materiality to that used in IFRSs” and recommend that the Framework use a consistent definition to that defined by the IASB for use in International Financial Reporting Standards (IFRSs), especially if the Integrated Report is to be used as an investor-focussed corporate communication.  

The FRC comments are echoed by other bodies such as the Association of Chartered Certified Accountants (ACCA).  The ACCA agree with many of the comments expressed by the FRC most notably regarding the need for further clarity on the "relationship of the integrated report and other forms of reporting" and the further work that the IIRC needs to do to address perceived "gaps in the framework".  The ACCA would also like the IIRC to provide "case studies of best practice" to help with application.

The FRC would like the IIRC to consider the responses to the pilot studies being carried out as well as the responses to the Consultation Draft before finalising their Framework.

Click for:

FRC comment letter (link to FRC website)

Our previous story on the Consultation Draft

EPRA has received feedback that investors and analysts would like to see more transparency over operating costs incurred by property companies.  As a result of this they have developed two new EPRA Performance Measures - "EPRA Cost Ratio (including direct vacancy costs)” and “EPRA Cost Ratio (excluding direct vacancy costs)”.

EPRA recommends that these additional measures should be included by companies in the table of EPRA Performance Measures recommended by the EPRA BPR.

As with the other measures, the guidance on presenting the new measures includes supporting calculations to be presented in the annual report.

The document also includes a recommendation that companies disclose the amount of any directly attributable overhead and operating costs capitalised during the year, even if nil, to aid transparency in this area.

The new recommendations can be downloaded here (link to EPRA website).  They are expected to be included in the revised BPR, due to be published later this year, but for the moment reside in a standalone document.

In April, the European Commission published proposed amendments to European accounting legislation in order to require certain large companies to provide additional information on social and environmental matters.  It was determined that large companies would need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors.

An Executive Summary of the Impact Assessment prepared by Commission staff noted that "the majority of large EU companies fail to adequately meet growing demand from stakeholders (including investors, shareholders, employees and civil society organisations) for non-financial transparency", both in terms of quantity and quality. 

The ACCA survey (link to ACCA website) results support this view and follow two reports published in June which highlighted that investors are open to the concept of the integrated report which would encompass reporting of non-financial information alongside financial information. 

The survey highlights the growing importance of non-financial information with the most important sources being Sustainability/Corporate Social Responsibility (CSR) reports and annual reports.  The majority of those surveyed (67%) noted that they always make use of such information where available. 

Additional findings of the survey highlighted:

• The majority (78%) of respondents felt that current levels of non-financial disclosure were inadequate.
• 73% highlighted that non-financial information was not linked to the company strategy and risk and 93% were of the view that current levels of non-financial disclosure were insufficient to assess materiality.
•  92% felt that comparability of non-financial information across companies was poor and it was suggested that additional information such as corporate governance and supply chain impacts could also be reported.
• Company Boards should be made more accountable for non-financial information and disclosures should be approved at Annual General Meetings.

Click for ACCA survey: ‘What do investors expect from non-financial reporting?’ (link to ACCA website)

The IASB issued a revised exposure draft on insurance contracts on 20 June 2013 to establish the principles that insurers should apply to report the nature, amount, timing and uncertainty of cash flows from insurance contracts.

The webcast is free of charge, but you need to register to participate. For the convenience of participants in different time zones the IASB has scheduled two slots for the webcast:

• 10:00 (London time)
• 14:00 (London time)

Registration for the different slots is available on the IASB’s website.

EFRAG's concerns around the application of the right-of-use model are expressed as follows:

The IASB has emphasised in its communications that the project was intended to recognise financial liabilities that are currently left off balance sheet. Focussing on this objective seems to have been the primary driver behind the development of the right-of-use model. This model is based on a notion that an asset is a bundle of rights, one of them being the right-of-use; this is a new approach, which has never been debated on a conceptual level and we are not convinced that the focus on liability recognition has led to capturing the right population to which the right-of-use model should be applied. This is in our view illustrated by the inconsistencies in the proposed application, in particular the use of two measurement bases and different accounting for lessors and lessees which will add to the perception of complexity.

EFRAG believes there is a need to need to fully explain the project from a conceptual perspective, and so recommends that the IASB finalise its project in a series of steps. EFRAG recommends the introduction, "without delay", of enhanced disclosures for lease arrangements, and then refining the concept of 'right-of-use' (and how this right is distinguished from other rights bundled in an asset) as part of its conceptual framework project, before then finalising the revised accounting for leases.

EFRAG is requesting comments on the draft comment letter by 6 September 2013 (comments on ED/2013/6 close on 13 September 2013). Click for access to the full draft comment letter (link to EFRAG website).