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INTERNATIONAL

IFAC welcomes European Commission efforts to enhance corporate reporting

The International Federation of Accountants (IFAC), which comprises 180 member and associate organisations and represents over 3 million professional accountants globally, welcomes the opportunity toprovide input into the European Commission’s work to enhance corporate reporting – including a focus on corporate governance, statutory audit and supervisory aspects of the ecosystem that delivers relevant, reliable and comparable information to stakeholders.

As the voice of the global accountancy profession, IFAC understands the crucial role that auditors, as well as professional accountants more broadly, play in high quality corporate reporting. But no matter how skilled or wellresourced, auditors alone cannot overcome significant shortcomings in other key areas of the reporting ecosystem – especially the role of directors, audit committees and those charged with governance.

IFAC believes that global standards promote global methodologies, which lead to enhanced and more consistent quality in both reporting and assurance.It supports high quality, globally applicable standards for financial reporting developed by the IASB, sustainability disclosure developed by the ISSB, and audit and assurance developed by the IAASB, as well as the IESBA International Code of Ethics. It also believes that audit firms are best placed to provide not only audits of financial statements but also assurance on sustainability disclosures.

IFAC CEO Kevin Dancey said: “Corporate governance, audit and supervision have historically focused on financial statement reporting for investors and other providers of capital.But now that sustainabilityrelated disclosure is becoming mainstream, this information must also be high quality and trustworthy.

The accountancy profession, with its responsibility to act in the public interest, has an essential role to play in this evolution of corporate reporting.”

New IFAC digital platform assists public sector transition from cash to accrual accounting: Pathways to Accrual

To contribute to and promote the development, adoption and implementation of high quality international standards, the International Federation of Accountants (IFAC) launched a new digital platform, Pathways to Accrual, providing a central access point to resources helpful for governments and other public sector entities planning and undertaking a transition from cash to accrual accounting, including adopting and implementing International Public Sector Accounting Standards (IPSAS).

Pathways to Accrual builds upon the work of the International Public Sector Accounting Standards Board (IPSASB)’s Study 14, Transition to the Accrual Basis of Accounting: Guidance for Governments and Government Entities, with updated content and a modernised presentation with easier navigation.

To equip public sector entities with the tools necessary for a carefully considered and smooth transition, Pathways to Accrual:

● outlines the benefits and implications of adopting and implementing accrual accounting, including IPSAS;

● lays out the fundamentals to quality public financial management (PFM), essential for effective and efficient delivery of public services, transparent public finances, and trust between government and citizens;

● explores multiple transition pathways for incremental implementation of accrual;

● identifies the main tasks associated with recognition of assets, liabilities, revenues and expenses, including issues and challenges associated with the identification of, as well as measurement of, those elements in financial statements;

● gives practical suggestions, guidance and case studies based on the experience of other entities and jurisdictions; and

● provides links to other useful guidance and resources to help entities make the best decisions for their unique circumstances.

The platform was developed by IFAC with content provided by the Chartered Institute of Public Finance and Accountancy (CIPFA) and feedback from the International Public Sector Standards Board (IPSASB) and international community stakeholders.

“The benefits are clear: accrual accounting improves transparency, decision making and accountability in the public sector, but the path forward is less apparent,” said IFAC CEO Kevin Dancey. “Pathways to Accrual will help accountants and public sector entities seize the opportunity of transitioning to accrual accounting by equipping them with the tools necessary to forge their own unique paths towards sound public financial management.”

“There is significant accrual adoption and implementation activity underway across all regions of the world,” said Ian Carruthers, International Public Sector Accounting Standards Board (IPSASB) Chair. “By 2025, 50% of the jurisdictions in the 2021 International Public Sector Accountability Index are forecast to report on accrual basis, and Pathways to Accrual will be instrumental in supporting both these transitions and the many others planned for subsequent years.”

Explore the platform at: https://pathways.ifac.org.

IFRS Foundation agrees Memoranda of Understanding to establish ISSB presence in Frankfurt, marking first step towards a global footprint

The Trustees of the IFRS Foundation have signed Memoranda of Understandings (MoU) with German public and private sector institutions to formalise the partnerships and funding arrangements required to establish the presence of the International Sustainability Standards Board (ISSB) in Frankfurt.

The MoU mark a key first step towards establishing the ISSB’s global, multi-location presence to support its broad stakeholder base, as announced during the COP26 climate conference in November 2021. The MoU set out the Foundation’s commitment to establish an ISSB office in Frankfurt. The Frankfurt office will provide the seat of the Board and the office of the ISSB Chair. The office will provide key support functions for the ISSB, including the hosting of board meetings, and will act as a hub for the Europe, Middle East and Africa (EMEA) region.

The signing of the two MOU – one with public sector institutions and the other with private sector institutions – took place in conjunction with a meeting of the IFRS Foundation Trustees on 1-3 March 2022. The trustees are responsible for the governance of the International Accounting Standards Board (IASB) and the International Sustainability Standards Board.

The signatories to the MoU with the public sector institutions are the Federal Government of the Federal Republic of Germany and the Government of the State of Hessen, the Cities of Frankfurt am Main and Eschborn. The signatories to the MoU with the private sector organisations are Deutsches Aktieninstitut e.V., Deutsches Rechnungslegungs Standards Committee e.V., Frankfurt Main Finance e.V., Institut der Wirtschaftsprüfer in Deutschland e.V. and Wirtschaftsförderung Frankfurt GmbH.

The trustees previously announced that Montreal will also host key functions of the ISSB and will act as a hub for the Americas region, enabling close cooperation with the San Francisco office. (The Value Reporting Foundation (VRF) has headquarters in San Francisco, and the consolidation of the VRF into the IFRS Foundation is expected to be completed by 30 June 2022.)

Arrangements for the ISSB’s Asia-Oceania presence are also being advanced.

Erkki Liikanen, Chair of the IFRS Foundation Trustees, said: “The formalisation of our collaboration with public and private institutions in Germany will enable us to establish the ISSB’s Frankfurt office, which – together with Montreal – will host key functions and facilitate engagement and cooperation with regional stakeholders.”

Emmanuel Faber, Chair of the ISSB, said: “Creating a permanent presence in Frankfurt, and soon in Montreal, are important steps on the path to building our global multi-location model. These offices will serve key roles as the ISSB begins its ambitious programme of work. We have much to do.”

UK AND IRELAND

FRC encouraged by investors embracing the spirit of the UK Stewardship Code

The FRC has published an updated list of signatories to the UK Stewardship Code. This now includes successful applicants who submitted their report at the end of October 2021. The FRC received 105 applications, which was substantially more than expected, of which 74 were successful. This takes the number of signatories to 199, up from 125 in September, including asset managers with £33 trillion in global assets under management, up from £21 trillion in September. It is a positive sign that so many investors and service providers want to demonstrate their commitment to effective stewardship.

There was an encouraging level of applications from organisations that were previously unsuccessful. Many have addressed the feedback given by the FRC and have provided better quality reporting of their stewardship activities. In November 2021, the FRC published Effective Stewardship Reporting: Examples from 2021 and expectations for 2022, which contained guidance on good practice reporting. The FRC encourages all signatories and applicants to read this for information on how to improve critical areas of reporting, including reporting on market-wide and systemic risks, non-listed equity, outcomes and engagement.

Mark Babington, Executive Director of Regulatory Standards, said: “We are pleased that many previously unsuccessful organisations have provided stronger and better tailored explanations on how they apply the Code to more effectively demonstrate their stewardship activity and outcomes. We commend those that have embraced the spirit of the Code and responded to our feedback by substantially reviewing their approach to provide clear, comprehensive and outcome-based reporting.”

Following wide engagement with stakeholders, the FRC has decided not to differentiate (or tier) signatories to the Code from 2022. Asset owners, investment consultants and investment managers felt that the standard to become a Stewardship Code signatory is already high and that the FRC should focus on encouraging more of the market to reach this standard. The deadline for submitting annual stewardship reports and any new applications will be 30 April 2022.

FRC consults on revised guidance for recognising key audit partners for local audit

The Financial Reporting Council (FRC) has issued a consultation on proposed changes to its statutory guidance to the Recognised Supervisory Bodies (RSBs) on the recognition of key audit partners for local audit.

The changes have been proposed to address a recommendation made by Sir Tony Redmond in his review of local audit, published in November 2020, to address the issue of capacity in this market.

The FRC plans to consult for four weeks and will issue a feedback statement addressing the comments it receives ahead of publishing its revised guidance. The new guidance will apply to all applications received by the RSBs after its publication. Comments on the consultation are invited by 28 March 2022. The FRC expects to finalise its revised guidance by Spring 2022. The consultation is available on the FRC website.

Guidance: Auditor climate related reporting responsibilities under ISA (UK) 720

The FRC has published a new FRC Staff Guidance, Auditor responsibilities under ISA (UK) 720 in respect of climate related reporting by companies required by the Financial Conduct Authority. This staff guidance also includes a brief reminder of auditor’s responsibilities under ISA (UK) 720 in respect of the company’s Streamlined Energy and Carbon Reporting (SECR) disclosures.

Increasingly, auditors have requested guidance from the FRC, in respect of their specific responsibilities under ISA (UK) 720, following the introduction of TCFD aligned climate-related disclosure requirements for listed companies by the Financial Conduct Authority (FCA). In the FRC’s ESG Statement of Intent, published in July 2021, FRC stated that it will monitor the need for guidance on ESG-related matters and issue audit and assurance guidance at the national level as appropriate. The guidance note is designed to address this commitment.

IAASA publishes reports on the quality assurance review of firms that audit public-interest entities

IAASA has published its 2021 quality assurance review report in respect of seven firms that perform statutory audits of public-interest entities in Ireland.

The reports summarise IAASA’s assessment of areas of each firms’ system of quality control and include any findings and recommendations made by IAASA to the firm. The reports also summarise the results arising from IAASA’s inspection of a sample of audits of public-interest entities performed by each firm, including the grades assigned to the audits inspected and any key recommendations made to the firm.

The report is available at: www.iaasa.ie

ASIA PACIFIC

Updated guidance on the conduct of general meetings amid evolving Covid-19 situation

ACRA, the Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) have updated the checklist which guides issuers and non-listed entities on the conduct of general meetings under the Covid-19 (Temporary Measures) (Alternative Arrangements for Meetings for Companies, Variable Capital Companies, Business Trusts, Unit Trusts and Debenture Holders) Order 2020 (Meetings Order).

The Order allows entities to hold general meetings via electronic means amid the Covid-19 situation, and will continue to be in force until revoked or amended by the Ministry of Law.

Issuers conducting their general meetings under the Meetings Order must now follow the practices set out in the Regulator’s Column titled “What SGX RegCo expects on the conduct of general meetings amid the ongoing COVID-19 situation”, published by SGX RegCo on 16 December 2021. Issuers which do not utilise both real-time remote electronic voting and real-time electronic communication at their general meetings must incorporate the practices summarised below, when conducting meetings under the Meetings Order:

1. Organise a virtual information session for certain corporate actions prior to the general meeting.

2. When organising any virtual information session, issuers are encouraged to send their notice of general meeting to shareholders at least 21 calendar days before the general meeting.

3. After the publication of the notice of general meeting, shareholders should be allowed at least seven calendar days to submit their questions.

4. All substantial and relevant questions received from shareholders prior to a general meeting, should be publicly addressed by the Board of Directors and/or management at least:

a. 48 hours prior to the closing date and time for the submitting of the proxy forms, if the notice of general meeting is to be sent to shareholders at least 14 calendar days before the meeting; and

b. 72 hours prior to the closing date and time for the submitting of the proxy forms, if the notice of general meeting is to be sent to shareholders at least 21 calendar days before the meeting.

EUROPE

ESMA prioritises the fight against greenwashing in its new sustainable finance roadmap

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has published its Sustainable Finance Roadmap 20222024 (Roadmap). ESMA identifies three priorities for its sustainable finance work:

● tackling greenwashing and promoting transparency;

● building National Competent Authorities’ (NCAs) and ESMA’s capacities in the sustainable finance field; and

● monitoring, assessing and analysing ESG markets and risks.

ESMA is actively contributing to the development of the sustainable finance rulebook and to its consistent application and supervision by taking the necessary measures to promote investor protection across the EU. ESMA also engages in risk assessment and market monitoring activities focusing on potential financial stability risks stemming from ESG factors.

Building on ESMA’s 2020 Strategy on Sustainable Finance, the Roadmap sets out ESMA’s deliverables on sustainable finance and how they will be implemented over the next three years. The Roadmap will serve as a practical tool to ensure that ESMA delivers on the wide array of sustainable finance tasks across several sectors in a coordinated way.

Verena Ross, Chair, said: “Advancing the sustainability agenda is crucial for ESMA, particularly as investor preferences shift to environmentally friendly financial products and the European Union strives to meet its commitments on tackling climate change The Roadmap is a milestone for our sustainable finance work, identifying the priority work we will do to ensure that ESMA and national supervisors take ambitious action on priority sustainable finance issues.”

Roadmap priorities

The Roadmap sets three priorities for ESMA’s sustainable finance activities in the period from 2022 to 2024:

● Tackling greenwashing and promoting transparency: The combination of growing demand for ESG investments and rapidly evolving markets creates room for greenwashing. Greenwashing is a complex and multifaceted issue which takes various forms, has different causes and has potential to detrimentally impact investors looking to make sustainable investments. Investigating this issue, defining its fundamental features and addressing it with coordinated action across multiple sectors, finding common solutions across the EU, will be key to safeguarding investors.

● Building NCAs’ and ESMA’s capacities: The growing importance of sustainable finance requires NCAs and ESMA to further develop skills beyond their traditional areas of focus to understand and address the supervisory implications of new regulation and of novel market practices in this area. ESMA will help build its, and NCAs’, capacity on sustainable finance through a multi-year training programme and through facilitating the active sharing of supervisory experiences among NCAs. These efforts will also contribute to creating effective and consistent supervision in the area of sustainable finance.

● Monitoring, assessing and analysing ESG markets and risks: The objective is to identify emerging trends, risks and vulnerabilities that can have a high impact on investor protection and on financial markets stability. ESMA will leverage on its data analysis capabilities to support its, and NCAs’, supervisory work and to promote a convergent approach among NCAs. ESMA will undertake specific activities such as climate scenario analysis for investment funds, CCP stress testing and the establishment of common methodologies for climate-related risk analysis together with other public bodies.

ESMA will address its three priorities with a comprehensive list of actions across the following sectors: investment management, investment services, issuers’ disclosure and governance, benchmarks, credit and ESG ratings, trading and post-trading and financial innovation. Several of these actions will also contribute to fulfilling the European Commission’s 2021 Renewed Sustainable Finance Strategy.

ESMA finds shortcomings in supervision of cross-border investment activities and issues specific recommendations to CySEC

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, is publishing its peer review report on the supervision of cross-border activities of investment firms. With this peer review, ESMA is also issuing Article 16 recommendations to the Cyprus Securities and Exchange Commission (CySEC), the first time ESMA has issued such recommendations to a National Competent Authority (NCA).

ESMA identifies in the peer review the need for home NCAs to significantly improve their approach in the authorisation, ongoing supervision and enforcement work, relating to investment firm’s cross border activities. This includes calibrating their supervisory work to the nature, scale and complexity of those firms’ cross-border activities and the risks they pose.

Verena Ross, Chair, said: “Effective supervision of cross-border activities by home NCAs is crucial to ensure that retail clients benefit from the same level of protection regardless of where the firm providing those activities is based. As we strive to develop an effective European capital market, and retail investors increasingly access investment opportunities across the EU, ensuring investor protection and the proper functioning of the single market is a key mission for ESMA and NCAs. The recommendations set out in today’s reports aim to significantly reinforce the cross-border supervisory framework. ESMA, in also making recommendations under Article 16, shows it will use its full toolkit to promote effective and consistent high-quality supervision.”

Summary of findings

ESMA, based on the peer review findings, identified that home NCAs’ supervision is not sufficiently effective when it comes to their firms’ crossborder activities. NCAs covered by the peer review did not specifically, adequately and structurally consider firms’ cross-border activities in their supervision. In particular, NCAs did not sufficiently identify, assess and monitor the risks related to firms’ cross-border activities or take supervisory actions to effectively address those risks.

Out of the six jurisdictions covered in the peer review, Cyprus had the highest level of outgoing cross-border activities, and by far the highest number of complaints relating to firms’ crossborder activities and of requests from other NCAs relating to Cypriot firms’ cross-border activities. A large number of Cypriot firms pose a high risk of investor detriment, due to the frequent provision of services involving speculative products, with aggressive marketing behaviour.

ESMA identified that CySEC’s supervisory activities have overall proven insufficient at addressing the risks posed by Cypriot firms’ cross-border services. ESMA identified that overall, home NCAs appear to have established adequate processes in relation to the passport notifications and in the context of cooperation. The peer review also revealed satisfactory results on the activities carried out by host NCAs.

Next steps

ESMA expects to carry out a followup assessment in two years to review the level of improvements achieved considering the findings and recommendations of the peer review report. Following the Article 16 recommendations, CySEC has two months to inform ESMA whether it complies/intends to comply with the recommendations.