UK: FRC consultation - Guidance for Directors of Listed Companies on Going Concern and Financial Reporting

Listing Rule 9.8.6 requires listed companies incorporated in the UK to provide in their annual report "a statement made by the directors that the business is a going concern, together with supporting assumptions or qualifications as necessary, that has been prepared in accordance with Going Concern and Financial Reporting: Guidance for Directors of listed companies registered in the United Kingdom, published in November 1994".

The 1994 Guidance is now the subject of review: the Financial Reporting Council has published a consultation paper in which it states:

The Guidance for Directors was written by a Working Group formed under the auspices of the Cadbury Committee that reported on the Financial Aspects of Corporate Governance. The formation of the Working Group arose out of concerns that there had been several high‐profile company failures where there had been no apparent indication of the imminent problems in the previous year’s report and accounts.

The objective of the Guidance for Directors is to support good corporate reporting and, in particular, the requirements of the Listing Rules and Accounting Standards. When a company is not a going concern this does not necessarily mean that it is, or is likely to become, insolvent. The Guidance for Directors is not intended to address aspects of insolvency and, in particular, is not intended to support the requirements of the Insolvency Act 1986.

In the period since 1994 there have been substantial changes to the accounting standards applied by directors of listed companies. This is particularly the case for directors preparing consolidated accounts required to comply with International Financial Reporting Standards (IFRSs) as adopted by the EU.

The FRC observes that current economic conditions are creating particular challenges for companies. Recent developments in global debt markets have led banks to be cautious of lending to one another (the so‐called “credit crunch”). This has severely restricted liquidity which has created unexpected financial difficulties for banks and entities that depend on the availability of loans as a key source of capital. Many market commentators are now forecasting a period of reduced growth and in some cases recession, with the result that going concern questions are likely to need to be considered in more detail by Boards of Directors.

In view of these deteriorating economic conditions the FRC has concluded that this is an appropriate time to consider whether the existing Guidance for Directors is necessary and remains appropriate, or whether it can be improved.

Note: The UK's Combined Code on Corporate Governance (June 2008) provides in Section C ("Accountability and Audit") the following provision (C.1.2): "The directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary".

Postscript (2 Sep 2008): For further comment see this short article in the Financial Times newspaper. 

USA: adoption of IFRS - roadmap to be published

The SEC has announced that it will shortly publish for consultation a proposed roadmap for the adoption of International Financial Reporting Standards (IFRS) by US issuers beginning in 2014. The SEC notes in its press release:

Currently, U.S. issuers use U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission. The increasing integration of the world's capital markets, which has resulted in two-thirds of U.S. investors owning securities issued by foreign companies that report their financial information using IFRS, has made the establishment of a single set of high quality accounting standards a matter of growing importance. A common accounting language around the world could give investors greater comparability and greater confidence in the transparency of financial reporting worldwide".

To watch a statement by SEC Chairman Cox, outlining the above, click here (for QuickTime) or here (for Windows Media Player). The roadmap has not yet been published on the SEC website but further information is available in this report in the Wall Street Journal. 

Note:

[a] A useful map, indicating those countries where IFRSs have been adopted, is available on the IASB website here. 

UK: materiality in financial reporting - ICAEW technical release 03/08

The ICAEW has updated its guidance (published earlier in Tech 32/96) on the concept of materiality in financial reporting. According to the ICAEW the guidance has been updated "to take account of the latest UK literature and IFRS, and to make sure that its principles remain in line with the latest thinking on materiality. This will help to minimise divergent practices in the application of materiality judgements in the preparation of financial statements".  The revised guidance - Tech 03/08 - is available here and in the introduction it is stated:

This guidance refers primarily to the financial statements of commercial entities reporting in compliance with companies legislation and therefore intended to give a true and fair view. However, its principles can be applied more generally to financial statements prepared by other organisations (eg, charities, pension schemes, government departments, local authorities and public sector businesses), although the assessment of users’ needs may vary ... The principles set out in this guidance may also be relevant to other information, such as that provided in an operating and financial review, a business review, a half-yearly report, interim management statements, information about post balance sheet events or in corporate governance disclosures".

USA: IFRS and US GAAP convergence

Following the publication of a joint statement (here, pdf) by the IASB and FASB in connection with their standards convergence work, the chairmain of the Securities and Exchange Commission, Mary Shiparo, has announced (see here):

I foresee no reason that the adjustment to the targeted timeline for certain joint projects should impact the staff's analyses under the Work Plan issued in February 2010, particularly when that adjustment is designed to enhance the quality of the standards. Indeed, focused efforts on those standards the boards consider highest priority for the improvement of U.S. GAAP and IFRS will facilitate the staff's analyses. Accordingly, I am confident that we continue to be on schedule for a Commission determination in 2011 about whether to incorporate IFRS into the financial reporting system for U.S. issuers".

Europe: Commission Communication on financial services regulation

The European Commission has published a Communication titled Regulating Financial Services for Sustainable Growth: see here (pdf). The Communication describes the actions already taken by the Commission as well as forthcoming proposals. The Commission intends that the vast majority of its new proposals will be presented to the Council and European Parliament by the end of 2010.

These proposals will cover derivatives, credit default swaps, short-selling, improvements in the Markets in Financial Instruments Directive, revisions to the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive, revisions to expand the scope of the Market Abuse Directive to include derivatives, amendments to the Capital Requirements Directive (CRD IV), a Communication on sanctions in the financial services sector to promote convergence, and further work on international accounting standard convergence.

UK: ASB publishes FRED 'Improvements to Financial Reporting Standards'

The UK's Accounting Standards Board has published a Financial Reporting Exposure Draft (FRED) titled "Improvements to Financial Reporting Standards". In the accompanying press release, the following explanation is provided:

The amendments proposed in the FRED arise as a consequence of the International Accounting Standards Board’s (IASB) annual improvements process. In May 2008 the IASB issued an International Financial Reporting Standard, ‘Improvements to IFRSs’, which made amendments to a number of International Financial Reporting Standards (IFRS).

The ASB is issuing this FRED which seeks to maintain the existing levels of convergence between UK and International Financial Reporting Standards. The proposals set out in the FRED include the same improvements to UK FRS as those made to IFRS where the UK standard is based on its international equivalent.

In addition to the improvements arising from the IASB’s annual improvements process the ASB has taken this opportunity to propose improvements to UK FRS which have been brought to its attention; to update UK IFRS-based FRS where the equivalent IFRS has been amended or updated; and finally to update UK FRS for editorial changes. The ASB is inviting comments on its proposals by 27 September 2008.

For further information see:
ASB press release | Copy of the FRED | Earlier IASB post

International Financial Reporting Standards: Amendments announced

The International Accounting Standards Board (IASB) has today issued Improvements to IFRSs, a collection of amendments to International Financial Reporting Standards.   For further information, click here. These amendments are the result of the IASB's first annual improvements process.

Japan: international financial reporting standards

Japan's Financial Services Agency has announced that certain companies will have the option to prepare their consolidated financial statements, for fiscal years ending on or after 31 March 2010, using international financial reporting standards. Further information is available here (pdf). 

EU: IFRS and GAAP convergence

The European Commission has published a report considering the convergence between International Financial Reporting Standards and Generally Accepted Accounting Principles in several countries including the US, China and Japan. The report begins:

"In July 2007 the Commission reported on the respective work timetables envisaged by national authorities of certain third countries for converging their national Generally Accepted Accounting Principles (GAAPs) towards International Financial Reporting Standards (IFRS). In this second report the Commission services now examine the actual progress made by third countries, firstly, on their convergence programmes and, secondly, towards eliminating any rules on reconciliation requirements that apply to Community issuers listed in the jurisdictions of these third countries. In preparing this report emphasis has been placed on assessing third country GAAPs which are being used by a large number of issuers listed on EU markets (as identified by CESR) and whose respective national authorities have clearly demonstrated their commitment towards IFRS."

UK: IFRS8 and segment reporting by companies - FRRP expresses concern

The Financial Reporting Review Panel, part of the Financial Reporting Council, yesterday expressed concerns with the way in which some companies are reporting the performance of key parts of their business in accordance with IFRS 8 - Operating Segments: see here for further information.