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Monday, November 05, 2018 01. 35PM / By FRC
The
Financial Reporting Council (FRC) has today published two thematic reviews to
help companies improve the quality of their corporate reporting in relation to
the new accounting standards IFRS 9 ‘Financial Instruments’ and IFRS 15 'Revenue from Contracts with Customers’.
The reports analyse the disclosures in a sample of companies’ June 2018 interim
reports in relation to the adoption of the new standards and provide examples
of better practice in explaining their effect. The FRC expects other
companies to use these examples to benchmark the quality of their own
disclosures in their upcoming annual reports and accounts.
Paul George, FRC’s Executive Director for Corporate Governance and Reporting,
said:
“Revenue
is a key metric for all companies. IFRS 15 will have a significant impact
on the timing of revenue recognition for many companies. It is very
important that companies clearly explain the changes to their revenue
recognition policies and the impact of the new standard on their results.
Disclosures in the interim accounts that were reviewed as part of our thematic
work were of mixed quality.”
“The expected credit loss model introduced by IFRS 9 will have a major effect
on how banks calculate their loan loss provisions. High quality
disclosures, including quantification of estimation uncertainty, is essential
in order to communicate the impact of the new model to users. Although IFRS 9 will
not have a material effect on many non-banking companies, we still expect them
to undertake a thorough impact assessment to support that conclusion.”
The
disclosure requirements for annual accounts are much more extensive than those
required in interim accounts. In particular, the FRC expects to see:
Clear
identification and explanation of performance obligations, a new concept
introduced by IFRS 15, with a focus on judgements made both in their
determination and when they are considered to be satisfied; the impact of
the standard on the balance sheet to also be addressed, including accounting
policies for contract assets and liabilities.
We
encourage companies to invest sufficient time during their year-end preparation
to ensure that transition disclosures are comprehensive and company-specific.
The FRC will challenge companies who do not provide an adequate level of
disclosure about the impact of the new standards through their regular accounts
review process next year.
The
FRC will continue to supplement its routine monitoring programme with thematic
reviews of aspects of corporate reporting where there is both stakeholder
interest and scope for improvement and learning from better practices.
To continue our analysis of the adoption of IFRS 15 and IFRS 9, we will perform
follow-up reviews on companies’ disclosures around revenue and financial
instruments, and their impact, in a sample of annual reports. We will
assess companies’ compliance with the more extensive set of year-end disclosure
requirements. We will again select our samples from those sectors which
are more heavily impacted by the new reporting requirements.
About FRC and
Thematic Reviews
The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries.
As the Competent Authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
Thematic
reviews offer the FRC a means of prompting a step change in
the quality of reporting in areas where evidence from our full reviews
indicates that there is still room for improvement. The FRC aims to
select themes which resonate with investors and in which there is general
public interest which helps to stimulate the appetite for change.
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