Deloitte Financial Reporting Brief 

December 2018

This month’s article "Corporate Reporting – Guidance from the Enforcers" comments on guidance documents published by the Enforcers – ESMA, FRC and IAASA – and the priorities identified.

Corporate Reporting – Guidance from the Enforcers

Each year sees a plethora of guidance being issued for the benefit of providing support and assistance to listed issuers in the production of corporate reports, including financial statements as they move ever closer to the peak time of year.

This year is no exception as in recent weeks the following have been published:

September – Irish Accounting and Auditing Supervisory Authority (IAASA) published its annual Observations document

October – European Securities and Markets Authority (ESMA) published its Public Statement – European common enforcement priorities for 2018 annual financial reports

United Kingdom and Ireland
October – Open letter from Financial Reporting Council (FRC) to Audit Committee Chairs and Finance Directors of listed entities

October – FRC Annual Review of Corporate Governance and Reporting 2017/2018, including a separate document on Technical Findings 2017/18

The Deloitte publication Governance in Brief comments on the FRC Annual Review.

November – FRC publishes thematic review findings of IFRS 9 and IFRS 15 interim disclosures

November – FRC announces 2019/20 audit thematic reviews, priority sectors and audit areas of focus

November – FRC highlights where reporting by smaller companies needs to improve

The above are the main documents published to provide guidance to companies in recent weeks. There have also been a number of other publications, particularly those by IAASA and the FRC including – IAASA: business combination disclosures, disclosures of bank covenants, corporate taxes risks and uncertainties; FRC: diversity in boardrooms, performance metrics, business model/risk and viability reporting.

Annual Report Insights

The Deloitte report ‘Annual Report Insights 2018’ based on its survey of annual reports of 100 listed UK companies, of various sizes and in various industries, provides an insight into FTSE reporting practices looking at reports on a holistic basis including the strategic report, governance content and the financial statements.

The Deloitte report comments that 92% of companies surveyed referred to key inputs into the business model in the form of off-balance sheet resources and relationships, ranging from employee workforces to customer relationships and natural resources, highlighting the usefulness and potential of the Integrated Reporting Framework.

The importance of Corporate Culture has been stressed by the FRC and others more and more in recent years and it is encouraging that a growing number of companies are explaining their culture in their annual reports, with 58% of companies explaining their values and behaviours.

Companies legislation is gathering momentum in moving towards more advanced reporting of non-financial matters, such as employee interests and the impact on the community and the environment, whilst promoting the success of the company for its shareholders.

The survey and the report show how companies have managed in their reporting to address the challenges of ever increasing scrutiny, constant change and a shortage of trust in business. They also highlight areas where companies are struggling to comply and areas of innovation and better practice.

Common Enforcement Priorities

ESMA issued its annual Public Statement defining the European common enforcement priorities and highlighting other considerations for 2018 annual financial reports of listed companies. ESMA, together with national enforcers including IAASA and the FRC, will pay particular attention to those areas when monitoring and assessing the application of all respective requirements. Member State enforcers may set additional national enforcement priorities.

The European common enforcement priorities focus on the new Standards to be implemented in the current year and in the following year. Areas highlighted are as follows:

IFRS 9 – Financial Instruments - including the following topics:

  • Presentation of interest revenue
  • Hedge accounting disclosures
  • Significant increases in credit risk
  • Incorporating forward looking information into expected credit risk models
  • Annual reconciliation of credit loss movements
  • Credit-impaired financial assets
  • Solely payments of principal and interest test (SPPI)

IFRS 15 – Revenue from Contracts with Customers – including the following topics:

  • Identification and satisfaction of performance obligation
  • Principal versus agent assessment
  • Allocation of transaction price to multiple performance obligations
  • Presentation of contract assets and contract liabilities upon transition
  • Disaggregation of revenue
  • Disclosure objectives of IFRS 15 and disclosure of significant judgements

With IFRS 9 and IFRS 15 being two of ESMA’s common enforcement priorities, it is worth reflecting on the comments arising from the thematic reviews carried out by the FRC on the disclosures made in companies’ interim financial statements on both Standards. A selection of those comments is as follows:

  • Disclosures to explain revenue recognition policies and the impact of IFRS 15 on reported results were of mixed quality
  • Many examples of where there was an absence of evidence of a thorough impact assessment on how IFRS 9 will impact on loan and other credit loss provisions

More extensive disclosure is required in the annual financial statements and in particular the FRC expects to see

  • Comprehensive explanations of the impact of transition with links to other
    relevant information in the annual report and accounts
  • Clear descriptions and explanations supporting changes to accounting policies, including any associated judgements made in their determination

The FRC encourages companies to invest sufficient time during their year-end preparation to ensure that transition disclosures are comprehensive and company-specific, and will monitor this closely during its 2019 review process.

The third common enforcement priority highlighted by ESMA is in relation to disclosures of the expected impact of implementation of IFRS 16. ESMA expects that entity-specific quantitative and qualitative disclosures will be published and that much of these disclosures should be available to be made in the 2018 financial statements. Issuers should disclose the nature of the impending changes in accounting policy and that there should be a concise entity-specific description of the changes introduced by IFRS 16 and the judgements and choices made.

ESMA also focuses on a number of topics related to other parts of the annual report, with particular reference to non-financial information and alternative performance measures.

FRC Corporate Reporting Review

With the landscape for corporate governance and reporting changing and stakeholder expectations evolving, the extensive scale of the reviews carried out by the FRC of 220 reports and accounts on which they published their report in October provides a deep insight into the quality and limitations of corporate reporting in the past year.

The FRC reports that while there are points of strength in corporate reporting, there is clearly room for improvement in some areas. The FRC expressed particular disappointment at the reporting of significant judgements and estimates, highlighting that such disclosures are the lens through which investors can evaluate a company’s financial position and results and gain an appreciation of the quality of management’s judgements. The FRC reported that they continued to see many instances of poor disclosure of the sensitivity of assets and liabilities to the assumptions and estimates on which they were based.

Another area in which the FRC expressed concern was a general rise in basic errors and non-compliance in a few areas of reporting, for example, misclassification of cash flows in the primary statement. The FRC calls on boards and audit committees to ensure effective procedures are in place to ensure that basic rules and requirements are complied with. Investors are entitled to assume such compliance is firmly in place.

The FRC wrote to audit committee chairs and finance directors with a focus on expectations for reporting on the new accounting standards and other topical areas, which include:

  • reporting on the effect of Britain exiting the EU, which is a major contributor to significant economic uncertainty
  • transparency of complex supplier arrangements and related financing arrangements
  • accounting issues relating specifically to the construction and support services sectors, which were the subject of significant comment by the FRC in early 2018
  • risk and viability reporting with a two-stage process, firstly assessing future prospects and secondly assessing the company’s ability to continue its operations
  • the application of the ESMA Guidelines to alternative performance measures
  • adherence to the new non-financial disclosure requirements

The FRC has also written to the company chairpersons, senior investors and proxy advisors setting out expectations in terms of achieving high standards of governance practice and reporting.

IAASA Observations

The reports of ESMA and the FRC are wide-ranging and detailed in their scope and the preceding paragraphs have briefly summarized some of the matters . One should be mindful of the Observations document published by IAASA and other reports, based on surveys carried out by them.… These are specifically based on the quality and limitations of reporting of Irish listed entities.

IAASA states that it seeks to highlight matters users may wish to be aware of and focus on when reviewing 2018 financial statements, and draw particular attention to:

  • The impact of new financial reporting standards
  • Significant judgements and sources of estimation uncertainty
  • Accounting treatment applied in respect of complex customer and supplier arrangements
  • The presentation of alternative performance measures (APMs)

As one would expect, there is substantial consistency in the reports produced by all three – IAASA, FRC and ESMA.


Those involved in a governance capacity or engaged in production of corporate reports, together with their auditors and advisors, would be wise to gain familiarity with these reports.

Investors and other stakeholders have an entitlement to high quality, transparent information which is in compliance with the requirements and standards that apply.

While the primary focus of the guidance is directed towards listed issuers, the majority of the topics identified could usefully be taken into consideration by a wider range of companies with the aim of improving the quality and transparency of financial reporting.

In our next edition we shall focus in more detail on some of the main messages coming from documents including Reporting by Smaller Listed and AIM Quoted Companies and others.

What's New? Monthly Reporting Pack – November 2018

Irish/UK GAAP & Related Developments

FRC Lab guidance on reporting performance metrics

FRC publishes the results of its thematic review of reporting by smaller listed and AIM quoted companies

FRC publishes the results of IFRS 9 and 15 thematic reviews

FRC calls for participants for its new project on the future of corporate reporting

FRC announces audit thematic reviews for 2019/20

Charity Commission and OSCR issue further ‘Update Bulletin’ amending the Charities SORP (FRS 102) as a result of changes to UK Accounting Standards

FRC announces thematic reviews on impairment of non-financial assets and disclosures relating to the implementation of IFRS 16 within 2019 interim accounts

The FRC responds to the 2018 report from the Hampton Alexander Review

IFRS & Related Developments

FRC publishes the results of IFRS 9 and 15 thematic reviews

Responses to the EC fitness check on public reporting by companies

IASB tentatively decides to defer the IFRS 17 effective date

EFRAG surveys on the impact of new IASB equity/debt proposals

SASB issues industry-specific sustainability accounting standards

EFRAG publishes technical advice on IFRS 9 to the European Commission

UK taskforce publishes report on IFRS 9 expected credit loss disclosures 

EFRAG publishes discussion paper on non-exchange transfers 

Reporting of non-financial information by SMEs

Legal and Regulatory Developments

Desk-top review on companies’ business combinations disclosures

IAASA publishes compendium of financial reporting decisions

Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2018 signed into law.


IFRS in Focus — IASB amends the definition of material

IFRS on Point

Annual Report Insights 2018

Deloitte CFO Survey: 2018 Q3

IFRS model financial statements 2018

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