The proposals are detailed in a report entitled Investor Listing Standards Proposal: Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting, and result from dialogue with institutional investors and stock exchanges around the world.  It follows an earlier consultation paper issued by Ceres' Investor Network on Climate Risk (INCR) in 2013.

In developing the proposals, feedback was received from over 100 investors, across all six continents, with the majority of the comments coming from the United States, United Kingdom, France, Germany, the Netherlands, South Africa and Australia. The development of the proposals also involved liaison with the World Federation of Exchanges, United Nations sponsored Sustainable Stock Exchanges (SSE) Initiative, the Principles for Responsible Investment's Sustainable Stock Exchanges Investor Working Group, the Friends of Paragraph 47, the International Corporate Governance Network and many other groups and networks involved in sustainability reporting.

The proposed listing requirements are as follows:

• Item 1 - ESG materiality assessment. All listed entities would discuss its process for determining the environment, social and governance (ESG) factors that are material to its business, as well as the outcome of the assessment, within its annual financial filings. This disclosure would have three key components: how the factors where determined, who was involved in the process, and which issues are determined as material and why - as well as a discussion of both risks and opportunities presented by the material issues and their connection to financial performance, accounting, growth, market position, or business strategy. Investors felt this area was the most important to be included in the proposed listing rule and is designed to help companies focus ESG reporting efforts and prioritise information gathering and analysis
• Item 2 - ESG issue disclosure. Disclosure, on a qualitative and quantitative basis, would be made in ten ESG categories, on a "comply or explain" approach for each category. The ten categories are (1) governance and ethical oversight (2) environmental impact (3) government relations and political involvement (4) climate change (5) diversity (6) employee relations (7) human rights (8) product and service impact and integrity (9) supply chain and subcontracting and (10) communities and community relations. Investors identified these categories as capturing areas of opportunity, broad systemic risk, and externalisation of costs to an investment portfolio across multiple industries and markets
• Item 3 - ESG disclosure index. Every company would provide a hyperlink in its annual financial filings to an 'ESG Disclosure Index', using either the Global Reporting Initiative (GRI) Content Index or a functional equivalent. The index is designed to address investor concerns that finding existing ESG data for each company is currently a time-consuming and frustrating exercise, by informing investors about the availability and location of a company's ESG data and key performance indicators. It is also designed to establish a more systematic method for evaluation gaps in ESG reporting and to move ESG reporting toward greater consistency and comparability. This requirement is designed to be flexible to accommodate revisions to the GRI, and other guidance such as the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standard Board (SASB), CDP and others.

Additional guidance and rationale for each item is included in the report, outlining investors' reasons for including the requirement in the proposed rules, and recommendations for implementing each item.

In addition to the three key items, the report also contains a summary of additional recommendations for issuers, exchanges and regulators to consider in implementing sustainability disclosure requirements:

• Financial and ESG reporting timeframes should be aligned within three years of implementation of any ESG listing rule
• Investors would prefer that data presented in a company's ESG disclosures be independently assured within five years of any ESG listing requirement's issuance
• Large issues should comply immediately with the listing rules, with a goal of all companies reporting within a timeframe of three years
• Regulators are encouraged to work with exchanges to assess the overall level of ESG disclosure and reporting quality after two years, and then every three years thereafter, with systems developed to seek investor feedback on ESG disclosure quality, and occasional reports on emerging trends in ESG reporting produced
• Additional disclosure categories (Item 2) may be pertinent to specific markets and industry distributions
• A number of recommendations are made in relation to issuer education and capacity building.

The report also contains a summary of existing listing rule requirements on sustainability reporting from various exchanges.

The proposals are open for comment until 23 June 2014. Click for press release (link to Ceres website).

The report reflects the views of 27 (mainly UK-based) investors on the accounting treatment of different classes of intangible assets in the statement of financial position and their amortisation in the income statement. Investors were asked to provide their views in the form of a questionnaire on accounting for:

• intangible assets acquired in a business combination
• internally generated intangible assets
• separately acquired intangible assets
• adequacy of presentation and disclosure.

The main findings are set out below.

Intangible assets acquired in a business combination

A number of respondents expressed a preference for an accounting treatment in the statement of financial position (52%) and income statement (59%) different from that currently required under IAS 38 Intangible Assets and IFRS 3 Business Combinations. IFRS 3 requires all intangible assets acquired in a business combination to be treated in the same way (i.e. all identifiable assets should be capitalised separately from goodwill if they are separately identifiable or they arise from a legal or contractual right in line with the requirements of IAS 38). IAS 38 requires intangible assets with finite lives to be amortised over their useful lives and intangible assets with indefinite lives to be subject to an annual impairment review in accordance with IAS 36 Impairment of Assets.

Of those respondents who preferred a different accounting treatment in the statement of financial position, 37% made a distinction between what they termed “wasting” intangible assets (which they felt were separable from the entity, had finite useful lives and lead to identifiable future revenue streams) and “organically replaced” intangible assets (effectively the opposite of “wasting” intangible assets). They believed that “wasting” intangible assets should be separately identified and capitalised but felt that “organically replaced” intangible assets acquired should be accounted for within goodwill. IAS 38 does not permit a different accounting treatment for this distinction drawn by respondents.

Respondents also expressed a view for a different accounting treatment subsequent to initial recognition than that required under IAS 38. Some (33%) were of the view that “wasting” intangible assets should be amortised over their useful lives but “organically replaced” intangible assets should be subject to an annual impairment view. On the other hand, 26% were of the view that all intangible assets should be subject to annual impairment reviews only.

Internally generated intangible assets

The majority of respondents (63%) agreed with the requirement in IAS 38 that development costs should be capitalised as internally generated intangible assets.

However, there were mixed views from investors with regards to research costs which IAS 38 requires to be expensed – 15% expressed the view that research costs should be capitalised and 19% expressed the view that research and development costs should be expensed.

Investors also expressed concern over disclosure in this area and that companies did not appear to have a consistent approach to capitalisation. They indicated that it was not clear from disclosures given how the accounting policy in respect of research and development was applied in practice especially how research was distinguished from expenditure.

Separately acquired intangible assets

Nearly all (89%) of investors agreed with the capitalisation of separately identifiable intangible assets and 56% agreed that such intangible assets should be amortised annually in the income statement.

Disclosures

Investors expressed “concerns” over the quality of disclosures. The report highlights that as many of the areas that investors requested additional disclosure on are already contained within IFRSs this may suggest that “either preparers are failing to comply with these requirements or that the information provided is not presented with sufficient detail and/or clarity to meet user needs”.

The report is published at a time when the International Accounting Standards Board (IASB) is undertaking a post-implementation review of IFRS 3. The FRC comment that the research “is intended to capture investors’ views for the IASB to consider in identifying areas for further analysis and investigation”. They also highlight that it “is also relevant to preparers as it highlights areas of potential improvement in communication with investors within the current frameworks”.

The full report can be accessed from the UK FRC website.

Background

The IASB formally added an initiative on disclosure to its work programme in December 2012 to complement the work being done in the Conceptual Framework project. The initiative is made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing Standards can be improved. Among them is a narrow scope project on IAS 1 Presentation of Financial Statements to ensure that entities are able to use judgement when presenting their financial reports as the wording of some of the requirements in IAS 1 had in some cases been read to prevent the use of judgement.

Suggested changes

The IASB proposes in ED/2014/1 Disclosure Initiative (Proposed amendments to IAS 1) amendments in four areas that seem to impede the use of judgement:

• Materiality. The IASB proposes clarifications that are aimed at emphasising (1) that information should not be obscured by aggregating or disaggregating information, (2) that materiality considerations apply to the all parts of the financial statements, and (3) that even when a Standard requires a specific disclosure materiality considerations do apply.
• Statement of financial position and statement of profit or loss and other comprehensive income. The IASB proposes to introduce (1) a clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and (2) additional guidance on subtotals in these statements.
• Notes. The IASB proposes to clarify (1) that the understandability and comparability should be considered when determining the order of the notes and (2) that the notes need not be presented in the order listed in paragraph 114 of IAS 1.
• Accounting policies. The IASB proposes to remove guidance and examples with regard to the identification of significant accounting policies that are perceived as being potentially unhelpful.

The IASB has also included one proposal that arose from a submission to the IFRS Interpretations Committee:

• Presentation of items of OCI arising from equity-accounted investments. The IASB proposes to clarify that an entity's share of OCI of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.

Transition requirements and effective date

The ED does not contain a proposed effective date. Also, no specific transition provisions are included in the ED.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Deloitte's IFRS in Focus newsletter explaining the amendments
• Our IAS Plus project page on IAS 1 — Disclosure initiative

The paper, Creating value through governance – towards a new accountability, asserts that sound corporate governance can contribute to creating value for society. It explores the history of corporate governance practices, including academic research around governance and whether it prevents corporate failure, the impact of the global financial crisis, and a lack of consensus about what comprises good corporate governance and what can be expected from good governance. It argues that regulation of governance and risk management has not helped to create a healthy corporate culture or effective boards, and that existing governance systems can be considered to have made it harder to hold people to account for company failures.

The consultation paper suggests that governance should be about supporting and enabling business to create value sustainably, "taking and managing risk and responding flexibly to uncertainty without suffocating entrepreneurial flair". In order to do this, a new accountability framework for governance is proffered that is based on three components, being 'performing', 'informing', and 'holding to account', and how these three components relate to three different 'interfaces', being between executive management and boards, boards and institutional shareholders, and institutional shareholders and 'savers' (providers of capital).

Discussing the 'informing' aspects of governance, the paper considers existing measures of performance to be unreliable and that "nobody knows what 'good' performance is". It notes:

Financial statements do not convey whether a company is in a better position to create future value at one balance sheet date than at an earlier date. ‘Profit’ is an inadequate, easily gamed, measure and investors lack suitable alternative metrics for determining the true value of companies.

The paper then explores the characteristics that disclosed information should have, arguing that "[c]ompany financial reports should convey whether a company has created value over the reporting period and whether its ability to create value in future has improved". In this regard, it sees the International <IR> Framework issued by the International Integrated Reporting Council (IIRC) as containing key points on value creation, performance and reporting and notes that "if it leads to a more informed approach to value and how to measure its creation and its costs, companies should become better at creating value for shareholders and society". However, it goes on to note two additional considerations:

• Reporting on the various capitals should include an indication of the confidence or accuracy of measures and employ something like a ‘confidence accounting’ approach
• Integrated reports should include disclosure on governance, including how the board ensures that it has the right culture and values embedded in the organisation

The paper goes on to consider value creation and national economic growth, positing that many measured profits are created by value transfer rather than value creation and that is difficult to distinguish between profit and economic rent (charging a higher price than would exist with proper competition). Accordingly, the paper puts forward the view that there is a pressing need to find better measures of performance that can distinguish between 'value' from competitive profit and economic rent, and that "governance can be an engine for economic growth if... management, board directors, shareholders and policymakers keep in mind that governance is about creating value".

The consultation paper is open for comment until 31 August 2014.  Click for press release (link to ACCA website).

Click through for direct access to the notes:

Tuesday, 18 March 2014

• Insurance contracts

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

Click through for direct access to the notes:

Friday, 14 March 2014

• Conceptual framework

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

The conference will feature presentations by IASB Vice-Chairman Ian Mackintosh and IASB members (Stephen Cooper, Patrick Finnegan, Darrel Scott, Wei-Guo Zhang).

Some of the topics to be covered at the conference include:

• The future of financial reporting
• IASB update:
  • Major IFRSs
  • Implementation
  • Conceptual framework
  • Research projects
• Panel discussions on IFRS disclosures, the upcoming revenue requirements, and IFRS 9

The conference will also have break-out sessions featuring:

More details, including registration information, are available on the IASB website.