January 2014

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Breaking News UK − UK and international financial reporting developments

Welcome to Breaking News UK, a monthly bulletin from KPMG in the UK that brings you information on UK and international standards in the accounting and regulatory space. This bulletin is based on articles from KPMG IFRG Limited's Breaking News , which are available on the Global IFRS Institute site.

There are quick links above, giving you easy access to KPMG's Global IFRS Institute and past editions of Breaking News UK.

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Survey of new audit reports

For periods beginning on or after 1 October 2012, the Corporate Governance Code requires companies to explain how their audit committees addressed the key accounting issues.

At the same time a revised auditing standard requires the auditor to give a long-form audit report. (e.g. setting out what they thought were the most significant risks and how they addressed them through their audit).

In doing so the Financial Reporting Council (FRC) is asking for a step change in transparency around accounting and auditing issues.

KPMG in the UK has surveyed emerging practice in both audit committee reporting and audit reports. Introducing the survey Tony Cates said, “It’s still early days for these reforms but it’s vital that we do them well. They are about helping to restore trust to the stewardship relationship between investors and companies and with audit playing its vital part in that. At KPMG we certainly believe in the value of our opinion for shareholders and we are committed to putting that into practice in our reports.”

Download KPMG's survey of the new audit reports.

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New directors’ remuneration reporting requirements – KPMG issues guidance

In August 2013, the Government made a number of changes affecting executive remuneration. The principal change was the replacement of the current Schedule 8 Quoted companies: Directors’ Remuneration Report with a new Schedule 8.

On first look at the requirements in the new Schedule 8, it would seem little has changed from the previous requirements. However, preparers and users should be aware of some fundamental changes to the requirements.

These new requirements are effective for financial years ending on or after 30 September 2013.

KPMG in the UK has issued guidance that includes illustrative examples and disclosures to help companies apply the new requirements, for example, the ‘single figure table’ and new requirement for mandatory shareholder remuneration policy vote. 

Download KPMG's guide to directors' remuneration reporting.

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Updated ICAEW guidance on disclosure of auditor remuneration

The ICAEW has issued TECH 14/13 Disclosure of auditor remuneration , which provides guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services in accordance with the requirements of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 (Statutory Instrument 2008/489) as amended).

This guidance supersedes the draft guidance published in December 2011 as TECH 04/11 and is substantively unchanged from that draft guidance.

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FRC challenges the reporting of companies classifying pension liabilities as equity

The Financial Reporting Council (FRC) has warned companies against entering into arrangements that turn pension obligations into equity instruments in their accounts.
 
The FRC notes that some of these arrangements, usually involving the establishment of Scottish Limited Partnerships, include additional features that appear to have been introduced to achieve an accounting outcome whereby the company's obligation to make future payments to its pension scheme is transformed into an equity instrument in the company’s consolidated accounts.  

The FRRP acknowledges the genuine commercial reasons for establishing such arrangements and has focused on companies that have reclassified pension liabilities as equity instruments. It has advised that it will ordinarily open an enquiry into the financial reporting of any company in which material pension liabilities are reclassified from debt to equity.

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FRC encourages better comply or explain disclosure and improved investor transparency

The FRC has issued its annual review of the Corporate Governance and Stewardship Codes for 2013. This review suggests that companies are responding in a positive manner to the changes to the UK Corporate Governance and Stewardship Codes introduced by the FRC in October 2012.

Further, it found that while many companies are only required to report formally in 2014 on how they have applied the 2012 version of the Corporate Governance Code, many are already disclosing their boardroom diversity policies and there has been an increase in the level of audit tendering activity.

However, the report also shows that early adoption of new reporting recommendations on the activities of the audit committee and confirmation that reports and accounts are fair, balanced and understandable has been less widespread and the FRC believes that companies still have more to do.

In particular, the FRC commented that although companies are getting better at describing their actual governance arrangements, many still struggle to articulate clearly why they have chosen to deviate from the Code. The FRC advises companies to refer to its guidance released on this.

Download  the FRC's annual review
Download the FRC's guidance related to corporate governance.

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FRC education notes on FRS 102 issued

The FRC has issued 15 staff education notes relating to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

These have been prepared for the convenience of users of FRS 102 and aim to illustrate certain requirements of the standard to aid entities with the transition to new UK GAAP.

Download the staff education notes.

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Employee ownership and share buy-backs

SI 2013/999 The Companies Act 2006 (Amendment of Part 18) Regulations came into effect on 30 April 2013.

They were issued to simplify the company law provisions for private limited companies to finance share buy backs for employees’ share schemes out of capital using a solvency statement and were aimed at enabling shareholders to authorise directors of private limited companies to pay for small share purchases out of share capital without being subject to the detailed procedures in Part 18 Chapter 5 of the Companies Act.

BIS has published a short guide, to explain how these Regulations should be interpreted.

Download the guide to employee ownership and share buy-backs.

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EU endorsement activity

On 19 December 2013, Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets and Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting were endorsed for use in the EU.

Both sets of amendments are effective for annual periods beginning on or after 1 January 2014 but are available for early adoption.

As a brief reminder:

  • the amendments to IAS 36 reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated.
  • the amendments to IAS 39 add a limited exception to provide relief from discontinuing an existing hedging relationship when a novation that was not contemplated in the original hedging documentation meets specific criteria.

Download EFRAG's latest endorsement report.

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Illustrative disclosures for investment funds

KPMG IFRG Limited has issued its updated 2013 Guide to annual financial statements – Illustrative disclosures for investment funds, which provides examples of how to present clearer and more engaging IFRS disclosures, organised in a more cohesive way.

Download The Guide to annual financial statements – Illustrative disclosures for investment funds.

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