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FRC disappointed with the response to the 2018 UK Corporate Governance Code

27 Nov 2020

The Financial Reporting Council (FRC) has published its ‘Review of Corporate Governance Reporting’ which is based on a review of 100 companies across the whole premium listed market.

The report presents the findings from the review and sets out the FRC’s expectations for the future application of the Code and reporting. It indicates that the overall level of reporting is disappointing and not what the FRC expects.

In the foreword Sir Jon Thompson, CEO of the FRC, makes the following point:

Much of what we have analysed is formulaic. Too often the objective of reporting appears to be to claim strict compliance with the Code concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting. This approach is a disservice to the interests of shareholders and wider stakeholders, and ultimately is not in the public interest; it undermines trust.  Worryingly, while some companies have sought to claim full compliance, we found on closer inspection that this was not the case.

Sir Jon makes clear that as the FRC transitions to becoming a new regulator, it expects to receive further powers to engage with companies about the quality of their governance reporting. The intention is to do this constructively; by working together with companies to develop the quality of reporting so that it achieves the highest standard for which the UK is known. However, the FRC will call out poor behaviour, where appropriate.  This is in addition to the Financial Conduct Authority (FCA) which recently announced that, going forward, it will be considering governance disclosures to inform decisions about the deployment of future surveillance and monitoring efforts.

As a result of the review, the FRC expects improved reporting in the following ways:

Governance standards:

  • Companies should maintain the high standards of the Code by taking the good practice demonstrated within it, applying it to the company and reporting on the approach by use of clear and meaningful explanations.


  • Companies to have a well-defined purpose and to clearly show the progress towards achieving it.
  • Better assessment and monitoring of culture, including consideration of methods and metrics used.
  • Demonstrating commitment to diversity and inclusion through actions, such as improved succession planning, recruitment from diverse talent pools and responsiveness to board evaluation outcomes.

Stakeholder engagement

  • Companies should report on how the company has engaged with its key stakeholders, the steps it has taken to understand the views of stakeholders. In particular, there should be discussion of the issues raised, topics considered, and feedback received during engagement with shareholders and employees.
  • It should be clear how the board oversees stakeholder decisions, including how, and on what basis, stakeholder information is passed to the board, as well as on how the board has reached key decisions and the likely impact of those decisions.
  • Reporting should make clear the impact of engagement with stakeholders, including shareholders, on decision-making, strategy and long-term success. The FRC would like companies to provide more detail on their approach to measuring the performance of their engagement strategies.


  • Clearly show the impact of engagement with shareholders on remuneration policy and outcomes.
  • Clearly show the impact of the engagement within the workforce in relation to executive remuneration policy.

In conclusion the report provides the following message for boards to consider:

The strongest and most insightful reporting came from companies that described not only the initiatives that were introduced and processes that were followed, but also discussed their outcomes and what impact they had on the business. From risk review, through board evaluation to stakeholder engagement, measuring and reporting on impact means moving away from the boilerplate statements towards meaningful reporting. Giving more emphasis to the impact, while not disregarding thorough process, will also help companies better assess the effectiveness of their governance and generate better company performance and outcomes for shareholders and stakeholders.

A press release and the full report are available on the FRC website.

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FRC and BEIS letters on accounting and reporting from 1 January 2021

27 Nov 2020

The Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) have jointly published updated letters to audit firms and companies setting out changes to the UK’s corporate reporting framework after the end of the transition period on 31 December 2020. The changes are particularly relevant for UK incorporated companies, multinational groups with a UK and EEA presence and UK and EEA companies with cross-border listings.

There are many changes which can be complex to identify and apply. The letter addressed to the accounting sector splits out the changes applying to:

  • UK incorporated companies or groups; and
  • EEA incorporated companies and groups

UK incorporated companies or groups

Key changes to the corporate reporting regime are as follows:

  • For periods beginning on or after 1 January 2021, all UK incorporated companies that are currently required to use EU-adopted IFRS will need to apply UK-adopted international accounting standards (UK-adopted IFRS). On 1 January 2021, UK-adopted IFRS and EU-adopted IFRS will be identical. Companies with 31 December 2020 year-ends should use EU-adopted IFRS for that year and apply UK-adopted IFRS for the following year. There are some transitional provisions for companies with financial years straddling 31 December 2020 and for those companies whose year-end is before 31 December 2020 but which are not required to (and do not) file accounts until after the end of the transition period. The law permits such companies to apply any new IFRS adopted by the UK in addition to EU-adopted IFRS as they exist at the end of the transition period. Where this option is chosen, the company will need to disclose what standards they have used in the notes to their financial statements.
  • From 1 January 2021, UK incorporated companies or groups with securities admitted to trading on an EEA regulated market and UK incorporated groups that issue debt from a subsidiary incorporated in the EEA will need to comply with local regulatory provisions. Companies should check what reporting requirements apply with the relevant EEA competent authority. If UK-adopted IFRS is granted equivalence to EU-adopted IFRS by the EU, accounts prepared using UK-adopted IFRS will be acceptable for use by companies admitted to trading on an EEA regulated market.
  • For periods beginning on or after 1 January 2021, the exemption from audit for subsidiaries granted by parent guarantee (under s479A-C of the Companies Act 2006) will only be available where the guarantee is given by a UK parent undertaking; it may no longer be given by an EEA parent. This change also affects dormant subsidiaries which make use of the exemption by guarantee from preparing and filing accounts. The ICAEW has published TECH 06/20BL which addresses changes to the audit exemption.

The letter also cover changes relating to:

  • Use of the Companies Act exemptions from preparing group accounts: for periods commencing on or after 1 January 2021, companies wishing to claim exemption from preparing group accounts on the basis that they are included in a non-UK consolidation further up will need to use section 401 of the Companies Act 2006. To do so, the group accounts in which they are included must be equivalent to those required by UK law.
  • Preparation of non-financial information statements: in-scope UK subsidiaries with EEA parents will need to prepare a separate non-financial information statement rather than relying on the parent’s non-financial information statement for periods beginning on or after 1 January 2021.
  • New rules regarding extension of accounting reference dates for UK subsidiaries of EEA parents.

 EEA incorporated companies or groups

Key changes include:

  • EEA companies with transferable securities admitted to trading on a regulated market in the UK who use Member State GAAP (i.e. the national GAAP of a Member State) will need to prepare accounts in accordance with UK law for periods beginning on or after 1 January 2021.
  • An intermediate EEA parent company owned by a UK parent may need to produce consolidated group accounts for their EEA sub-group as well as individual accounts. Companies should check with the relevant EEA state to understand whether they can continue on relying on being exempt from the preparation of group accounts by virtue of being included within the consolidated financial statements of the UK parent.

The FRC is expected to issue updates to FRS 100-105 later this year or early in 2021 to reflect changes in the law as a result of the UK’s withdrawal from the EU.

BEIS has also issued a separate audit letter with information for auditors and audit firms regarding arrangements from 1 January 2021.

A press release and the letters are available on the BEIS website. Our related Need to know publication is available here.

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Agenda for the upcoming Emerging Economies Group meeting

26 Nov 2020

The IASB Emerging Economies Group (EEG) will meet via video conference on 30 November and 1 December 2020. An agenda for the meeting is now available.

The agenda for the meeting is summarised below:

Monday 30 November 2020 (11:00-15:45)

  • Welcome
  • Disclosure initiative — Accounting policies
    • Overview of the forthcoming amendments
  • Disclosure initiative — Subsidiaries that are SMEs
    • Update on the project
  • Disclosure initiative – Targeted standards-level review of disclosures
    • Overview of forthcoming proposals
  • Applying IFRSs in 2020
    • Discussion on the impact of Covid-19
  • Lack of exchangeability
    • Overview of forthcoming proposals

Tuesday 1 December 2020 (11:00-15:30)

  • Goodwill and impairment
    • Feedback from the EEG members on the discussion paper
  • Update on IASB projects
  • Post-implementation review of IFRS 10-12
    • Overview of the forthcoming request for information

    Agenda papers from this meeting are available on the IASB's website.

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    SASB (Sustainability Accounting Standards Board) (green) Image

    IIRC and SASB intend to merge

    25 Nov 2020

    The International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) have announced their intention to merge into the Value Reporting Foundation, a unified organisation intended to provide investors and corporates with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards.

    The merger is aimed at advancing the work of CDP, CDSB, GRI, IIRC and SASB who in September 2020 released a statement of intent to work together towards comprehensive corporate reporting in a comprehensive corporate reporting system.

    The press release notes that Value Reporting Foundation will maintain the IIRC integrated reporting framework that describes all relevant value creation topics and the approach to integrating them in corporate reporting while the SASB standards provide the precise definitions of the data that should be reported for these topics in each industry. The framework and the standards will remain complementary tools with the Value Reporting Foundation facilitating the use of both together.

    The merger responds to the ever increasing calls from global investors and corporates to simplify the corporate reporting landscape by having a globally aligned reporting system. The press release stresses that the Value Reporting Foundation, which will be formed by mid-2021, stands ready to work with the IFRS Foundation, IOSCO, EFRAG, CDP, CDSB, and GRI, and others to work towards a set of global and globally accepted standards.

    Please click to access the full press release on the SASB website (an identical press release is available on the IIRC website).

    GRI and CDSB have posted congratulatory notes to their websites.

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    IASB issues podcast on latest Board developments (November 2020)

    24 Nov 2020

    The IASB has released a podcast featuring IASB Chair Hans Hoogervorst and IASB Vice-Chair Sue Lloyd discussing deliberations at the November 2020 IASB meeting.

    The podcast discusses:

    • the joint education session with the FASB;
    • Post-implementation review of IFRS 10-12;
    • Management commentary;
    • Subsidiaries that are SMEs; and
    • Maintenance and consistent application.

    The podcast (12 minutes) can be accessed through the press release on the IASB website.

    The detailed notes taken by Deloitte observers at the meeting are available here.

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    IFRS Foundation publishes proposed IFRS Taxonomy update

    24 Nov 2020

    The IASB has published PTU/2020/5 'IFRS Taxonomy 2020 — 'General Improvements and Common Practice — IAS 19 'Employee Benefits'''.

    The proposed update includes elements to reflect common reporting practice and new and amended labels to clarify the accounting meaning and intended use of some existing elements.

    For more information, see the press release and proposed update on the IASB’s website. Comments are requested by 26 January 2021.

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    We comment on the tentative agenda decision on sale and leaseback in a corporate wrapper

    24 Nov 2020

    We have commented on the IFRS Interpretations Committee's publication in the September 2020 'IFRIC Update' of the tentative decision not to take onto the Committee’s agenda the request for clarification on the applicability of the sale and leaseback requirements in IFRS 16 to a transaction in which an entity sells its equity interest in a subsidiary that holds one asset and leases that asset back.

    We agree that the Committee’s conclusions as laid out in the agenda decision reflect the requirements of IFRS 10 and IFRS 16 in relation to the specific fact pattern presented therein. However, we strongly suggest that in addition to this decision the Board takes on a broader project to address the treatment of the sale of corporate wrappers, in particular when, if ever, these should be accounted for as sales of assets rather than subsidiaries.

    Please click to download the full comment letter here.

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    Summary of the October 2020 joint CMAC-GPF meeting

    24 Nov 2020

    Representatives from the International Accounting Standards Board (IASB) met with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) by video conference on 8 October 2020. Notes and recordings from the joint meeting have now been released.

    The topics discussed at the meeting included:

    • Business combinations — Disclosures, goodwill and impairment
    • Primary financial statements

    There was also an update session on COVID-19 related matters.

    The meeting summary on the IASB website only covers the first two topics, however, the meeting page offers recordings of all three topics.

    The next CMAC meeting will be held on 11 March 2021 .The next GPF meeting is proposed to be held on 12 March 2021.

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    December 2020 IFRS Interpretations Committee meeting agenda posted

    20 Nov 2020

    The IFRS Interpretations Committee has posted the agenda for its next meeting, which will be held by video conference on 1-2 December 2020.

    The Committee will discuss the following:

    • Administrative matters
    • IAS 1 — Classification of debt with covenants as current or non-current
    • IAS 19 — Attributing benefit to periods of service
    • Supply chain financing arrangements — reverse factoring
    • IAS 38 — Configuration or customisation costs in a cloud computing arrangement
    • IFRS 9 — Hedging variability in cash flows due to real interest rates
    • Work in progress

    The full agenda for the meeting can be found here. We will post any updates to the agenda, our comprehensive pre-meeting summaries as well as observer notes from the meeting on this page as they become available.

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    EFRAG issues draft endorsement advice on 'Classification of Liabilities as Current or Non-current ' and 'Deferral of Effective Date (Amendments to IAS 1)'

    20 Nov 2020

    The European Financial Reporting Advisory Group (EFRAG) has issued a draft endorsement advice letter and separate invitations to comment relating to the endorsement for use in the European Union (EU) of 'Classification of Liabilities as Current or Non-current' and 'Deferral of Effective Date (Amendments to IAS 1)' ('the Amendments').

    The objective of the amendments is to clarify one of the criteria in IAS 1 for classifying a liability as non-current - that is the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period. 

    EFRAG recommends the endorsement of the Amendments. EFRAG’s initial assessment is that the Amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.

    Comments are required by 07 December 2020.

    For more information, see the press release, draft endorsement advice letter,  and invitations to comment here and here on the EFRAG website. EFRAG has also updated its endorsement status report to the issuance of the positive draft endorsement advice.

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