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Summary of the March 2019 CMAC meeting

24 Apr 2019

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting, which was held in London on 21 March 2019.

The topics discussed at the meeting included:

  • Extractive activities:
    • Proposed scope of the research project
    • Additional disclosures: (1) minerals and resources and (2) other disclosures.
  • Financial instruments with characteristics of equity:
    • Presentation of equity instruments
    • Presentation of financial liabilities — presentation of income and expenses arising from particular financial liabilities in other comprehensive income
  • Targeted standards-level review of disclosures:
    • IAS 19 Employee Benefits
    • IFRS 13 Fair Value Measurement
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets:
    • Aligning liability definition and guidance with the Conceptual Framework
    • Clarifying which costs to include in the measure of a provision
    • Specifying whether discount rate includes own credit risk
  • Management commentary practice statement:
    • Challenges in current practice of reporting performance and position in management commentary
    • The interaction between management commentary and other reports
    • Overview of performance and position
    • Forecasts and targets in management commentary
    • Information about tax in management commentary
  • Business combinations under common control

The next CMAC meeting will take place on 13–14 June 2019.

For more information, see the meeting page and the meeting summary on the IASB's website.

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DPOC greenlights shortened comment period for IFRS 17 amendments

23 Apr 2019

In a conference call held today, the Due Process Oversight Committee (DPOC) discussed the comment letter period for proposed targeted amendments to IFRS 17 'Insurance Contracts'. The staff sought the approval of the DPOC for a shortened comment period of 90 days for the forthcoming exposure draft.

During the four minute conference call, DPOC members asked no questions, just gave the go ahead for a shortened comment period.

Please click to listen to the recording of the call on the IASB website.

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FRC appoint new Audit and Assurance Council member

23 Apr 2019

The Financial Reporting Council (FRC) has appointed Richard Lawrence to the Audit & Assurance Council from 1 April 2019.

A press release is available on the FRC website.

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CMA publishes final recommendations on the UK audit market

20 Apr 2019

The Competition and Markets Authority (CMA) has published its final report on its statutory audit services market study.

The report details four recommendations: audit committee scrutiny, mandatory joint audit, an operational split, and a five-year review of progress by the regulator.

Recommendation 1: Audit committee scrutiny

The goal of greater scrutiny by the new regulator would be to increase accountability and increase the focus on audit quality. The recommendation includes:

  • Giving the regulator powers and a requirement to mandate minimum standards for the appointment and oversight of auditors.
  • Giving the regulator powers and a requirement to monitor compliance with those standards, including the ability to require reporting or to place an observer on a Committee.
  • Remedial action by the regulator where necessary, such as issuing public reprimands or direct statements to shareholders.

The CMA notes that this would be complemented by implementing recommendations from the BEIS Select Committee on transparency of fees and a requirement for the auditor to present at the AGM.

Recommendation 2: Mandatory joint audit

The goal of this remedy is to address choice and resilience problems. The recommendation includes:

  • Legislation to give the regulator flexible powers to implement a joint audit regime and adapt it over time. The CMA believes key elements of this remedy would be:
    • Mandatory joint audit, including at least one non-Big Four firm, for most FTSE 350 companies (with certain exemptions for very simple entities or the largest and most complex entities, as well as those that choose a non-Big Four auditor).
    • Gradual introduction enabling adaptation over time, with companies making the transition no later than when their next tender arises.
    • Each firm receiving work that is substantial and relatively equal, representing at least 30% of the audit fee.
    • No changes to the existing liability framework.
  • The regulator should have the power to appoint peer reviewers for companies that are not included in the joint audit remedy (which should not be one of the Big Four, unless reviewing an auditor that is outside the Big Four).
  • The regulator should monitor the health of the Big Four audit firms, in the event of a risk of failure of one of the firms, using additional powers or taking executive control to limit the movement of clients to the other Big Three.

The CMA notes that joint audit will need to be implemented carefully to take into account challenger firms’ ability to grow and should be monitored and refined as appropriate by the regulator.

Recommendation 3: Operational split

The goal of this remedy is to strengthen the focus of auditors on delivering good audits, to remove the distraction of non-audit work, and to give audit practices incentives to bid competitively for more audits. The recommendation includes:

  • Legislation to give the regulator powers to design the specific details of the operational split and to refine it over time. The CMA believes key elements of this remedy would be:
    • No profit sharing between the audit and non-audit practices, with audit partner remuneration linked to the audit practice only.
    • Separate financial statements.
    • Transparent transfer pricing, checked by the regulator, particularly for the use of non-audit specialists on audits.
    • The audit practice to include audit-related services and regulatory reporting requirements.
    • A separate CEO and board for the audit practice, with a majority of independent non-executive directors answerable to investors in audited companies and to the regulator. This board should be responsible for remuneration, career progression and quality standards and should conduct an AGM and produce an annual report.

The CMA notes that whilst an international structural split cannot be undertaken by the UK Government alone, the regulator and / or the government should initiate that debate at an international level.

Recommendation 4: Review of progress

The CMA recommends that the regulator should review the effectiveness of the remedies, initially after a five year implementation period.

The CMA’s recommendations have been made to Government to be taken forward through legislation, rather than the CMA putting in place its own order. This is partly to enable the Government to assess how other reforms proposed under, for example, the Kingman Review into the regulator the Financial Reporting Council, and the Brydon Review into the quality and effectiveness of audit, would work together with the CMA’s remedies.

A press release and the CMA final report are available on the CMA website. 

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Independent Review calls for views into the quality and effectiveness of audit.

18 Apr 2019

The Independent Review by Sir Donald Brydon, which seeks to examine the existing purpose, scope and quality of statutory audit in the UK, is seeking views, supported by evidence where possible, on the extent of assurance that statutory audit in the UK currently provides to the users of financial statements, and how it might develop to meet better those users’ needs to serve the interests of other stakeholders and the wider public interest.

Views are particularly sought on how the statutory audit of Public Interest Entities could be improved to provide greater assurance to shareholders and other stakeholders, in view of the significant economic and social impact that such organisations have.

The Independent Review is primarily interested in questions around the purpose, scope and quality of audit, rather than the specific role of the audit regulator or the market through which audit services are provided. These other two areas are being addressed, respectively, in the Government’s initial response to Sir John Kingman’s Independent Review of the Financial Reporting Council, and in the Competition and Market Authority’s on-going market study into the statutory audit market. However the Independent Review will take the recommendations of those other reviews into account.

Specifically the Independent Review calls for views, information and evidence on:

  • the purpose of audit and for whom it should be carried out;
  • whether its scope and purpose should be widened and strengthened to meet changing expectations of audit;
  • how the quality of the audit process and product could be improved;
  • whether audit findings could be better communicated;
  • the role of audit within wider business assurance and in relation to directors’ legal responsibilities;
  • the role of audit in detecting fraud; and
  • auditor liability.

The comment deadline is 7 June 2019.

The full report is available on the the Department for Business, Energy and Industrial strategy (BEIS) website here.

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Summary of the March 2019 GPF meeting

18 Apr 2019

Representatives of the IASB met with the Global Preparers Forum (GPF) in London on 22 March 2019. Notes from the meeting have now been released.

The topics discussed at the meeting included

  • IASB update
  • SMEs that are subsidiaries — Application advice in individual jurisdictions
  • Onerous contracts — Costs of fulfilling a contract (proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
  • Provisions
  • Management commentary
  • Disclosure initiative — Targeted Standards-level review and user outreach summary

The meeting summary is available on the IASB's website.

The next GPF meeting will be held jointly with the Capital Markets Advisory Committee (CMAC) in London on 13–14 June 2019.

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DPOC to discuss comment period for IFRS 17 amendments

17 Apr 2019

In a conference call on 23 April 2019, the Due Process Oversight Committee (DPOC) will discuss the comment letter period for proposed targeted amendmentsto IFRS 17 'Insurance Contracts'. The staff is seeking the approval of the DPOC for a shortened comment period of 90 days for the forthcoming exposure draft.

At its April 2019 meeting, the Board gave the staff permission to begin the balloting process for an exposure draft of proposed amendments to IFRS 17. The comment letter period is to be discussed at the May 2019 meeting of the Board.

The staff argues that the matter is narrow in scope and urgent, thus the Board might want to consider a period of less than 120 days. As the comment period needs to strike a balance between the need to allow stakeholders time to consider the proposals and provide further input to the Board and timely finalisation of the amendments, the staff intends to propose that the Board sets a comment letter period of 90 days.

The papers for the conference call have been made available on the IASB website.

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IASB issues podcast on latest Board developments

17 Apr 2019

The IASB has released a podcast featuring Chair Hans Hoogervorst, Vice-Chair Sue Lloyd, and technical staff member Matt Tilling to discuss the deliberations at the April 2019 IASB meeting.

The podcast features discussions of the following topics in more detail (length of the podcast: 16 minutes):

  • 2 April speech on sustainability reporting and the IASB's work to update the Management Commentary Practice Statement
  • 4 April meeting of the TRG for IFRS 17 and 9 April Board discussions on IFRS 17
  • Primary financial statements
  • Business combinations under common control
  • Goodwill and impairment
  • Dynamic risk management
  • Disclosure initiative - Amendments to IAS 1 IFRS Practice Statement 2

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers at the April IASB meeting.

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April 2019 IASB meeting notes posted

16 Apr 2019

The IASB met on Tuesday 9, Wednesday 10 and Thursday 11 April 2019. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The Board considered the package of amendments to IFRS 17 Insurance Contracts it has been considering since June 2018 and decided to proceed with them. In June 2018 the Board decided to propose some minor changes that it planned to include in the next Annual Improvements cycle. These will instead be included with the exposure draft for the package of IFRS 17 amendments. The Board also decided that the effective date of IFRS 17 and the proposed amendments should be for annual periods beginning on or after 1 January 2022 (with earlier application permitted). The Staff will be seeking clearance from the Due Process Oversight Committee to have a shorter than normal comment period.

The Board considered the feedback it received on the exposure draft Accounting Policies and Accounting Estimates (Amendments to IAS 8). A majority of members thought that any clarification of such fundamental principles as accounting estimates, which affect many balances reported, provides valuable benefits to preparers, users and regulators and therefore worth the costs of implementing, at least some of, the proposed amendments.

The project looking at goodwill and impairment returned to the Board. The Board decided to include in the Discussion Paper possible new disclosures that the acquirer of a business be required to provide information to help a user of the financial statements assess whether a business combination was a good investment decision and whether that business is performing as expected.

In Dynamic Risk Management the Board reached a preliminary view that negative balances within the target profile should not be permitted within DRM model; the changes to the risk management strategy and the target profile must occur infrequently; and the risk management strategy must be clearly documented within a specified time horizon and cannot be defined in a way that is contingent. They also reached a preliminary view that separate line items in the primary financial statements should not be required for derivatives designated in the DRM model from other derivatives or for accumulated changes in fair value of designated derivatives. That information would be provided in the notes to the financial statements. Also, net interest margin should include the aligned portion but not the misaligned portion.

For the Disclosure Initiative the Board decided to proceed with an exposure draft to propose adding two examples to the Materiality Practice Statement related to accounting polices.

The Board decided that it need not pursue a single measurement approach for all business combinations under common control.  

In the Primary Financial Statements project the Board decided to clarify that MPMs (management performance measures) are subject to the general requirement that information included in the financial statements must provide a faithful representation. They also decided that entities can only identify a measure as an MPM if they use the same measure in their public communications. The Board also decided that they need to clarify presentation issues related an entity’s “main business activities.”

There were updates on Implementation Matters, the Research Programme and (orally) Management Commentary.  

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

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Recent sustainability and integrated reporting developments

16 Apr 2019

A summary of recent developments at CDSB, CRD, Deloitte, Alliance for Corporate Transparency, WBCSD, IIRC, GRI, SSE, XRB, and IAASB.

The Climate Disclosure Standards Board (CDSB) has published Roadmap for Adopting the TCFD Recommendations: To the French G7 Presidency and the G7 Ministers of Finance and Environment noting that disclosure and accounting in line with the TCFD is the bedrock for implementing Paris Agreement Article 2.1c “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. Please click to access the roadmap here.

The CDSB has also published a checklist to help preparers to integrate the TCFD recommendations into standard business processes. It can be accessed through the press release on the CDSB website.

The Corporate Reporting Dialogue (CRD) has launched a six week consultation to gather views from stakeholders on how to drive better alignment of sustainability reporting frameworks, as well as with frameworks that promote integration between non-financial and financial reporting. Please click to access the survey on the CRD website.

Deloitte has commented on the European Commission's targeted consultation on the update of the non-binding guidelines on non-financial reporting. We support the Commission's efforts to improve climate-related disclosures and welcome its approach in encouraging companies to implement the TCFD and incorporating them into the European Commission's guidelines.

The Alliance for Corporate Transparency has assessed over 100 European companies to analyse how effectively they are disclosing the environmental, social and governance (ESG) impact information required by the EU Non-financial Reporting Directive. The analysis concludes that companies are failing to disclose meaningful information about their ESG impact. The press release on the Alliance for Corporate Transparency website offers an overview of the findings and access to the full report.

The World Business Council for Sustainable Development (WBCSD) has released an ESG Disclosure Handbook and Indicator Library providing practical resources for addressing key disclosure questions, dilemmas and decisions to support effective and efficient disclosure practice.  Please click for more information on the WBCSD website.

The International Integrated Reporting Council (IIRC) has published a set of answers to some of the most frequently asked questions, as corporate reporting is being reformed worldwide to embrace the concept of integrated reporting. Please click to access the frequently asked questions on the IIRC website.

The Global Reporting Initiative (GRI) announces that

  • there is increasing sustainability reporting in Sri Lanka and Bangladesh (press release);
  • GRI is inviting nominations to join an expert working group to produce the first GRI Sector Standard, for oil, gas and coal (press release);
  • the GRI 303 and GRI 403 Standards (2018) are now available in Spanish (press release); and
  • the Organizing Committee for the Tokyo Olympic and Paralympic Games 2020 make use of the GRI Standards to produce a progress report for their sustainability plan (press release).

The United Nation's Sustainable Stock Exchanges (SSE) initiative notes that

  • it has partnered with the Capital Market Authority in Rwanda and the Rwanda Stock Exchange to raise ESG standards of listed companies in Rwanda (press release); and
  • the Moscow Exchange (MOEX) has become an SSE Partner Exchange (press release).

The New Zealand External Reporting Board (XRB) has released a Position Statement strongly supporting the reporting of EER information by entities within their annual report to the extent that the information is relevant to the intended users of annual reports. Please see the Position Statement on the XRB website.

The International Auditing and Assurance Standards Board (IAASB) is seeking feedback on progress in developing draft guidance in the first phase of a project to develop guidelines for assurance on extended external reporting (EER). The consultation paper is available on the IAASB website.

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