The Financial Reporting Council (FRC) has reported a 44% increase in its enforcement capacity over the past 12 months – with defined benefit (DB) accounting coming under particular scrutiny.

According to the audit watchdog’s 2021 Annual Enforcement Review, the FRC has also progressed more of its case work quicker than before despite the growing caseload.

In one case cited in the review, the FRC imposed sanctions on auditor Deloitte, as well as a former partner at the firm, over breaches arising out of the firm’s audit of an unnamed company’s DB pension scheme, as well as its accounting for intangible assets.

Meanwhile, the FRC has also sanctioned “an actuary” over “misconduct relating to the actuarial advisory services he provided to the Coats Group plc” between 2005 and 2012.

The FRC alleged that the “actuary provided ongoing actuarial advice” to the firm while also advising individual members of management “in their capacity as trustees” of three group DB pension schemes.

According to the FRC, in addition to a conflict of interest, the advice “regarded purely financially, favoured minimising contributions to the schemes in order to maximise the profits of the company.”

IASB extends comment period for disclosure requirements draft

The International Accounting Standards Board (IASB) last month voted to extend the comment period for its Exposure Draft on Disclosure Requirements in IFRS Standards to 12 January 2022.

If approved by the board, they could potentially lead to a complete revamp of the disclosure requirements in International Accounting Standard 19, Employee Benefits that sponsors are required to make about their DB obligations.

The board released the proposals on a seven-month public comment period on 25 March 2021.

Staff told the board that outreach activities had convinced them that “extending the comment period would improve the quality of feedback the board receives.”

Members of the board’s Accounting Standards Advisory Forum have reacted positively to the disclosure proposals, staff told the meeting, and believe they could be a “game-changer for financial statement disclosures”.

FRC’s feedback statement on non-financial reporting

The FRC has released a feedback statement regarding the responses it received to its thought-leadership paper on the Future of Corporate Reporting. The watchdog said the majority of the 75 responses it received to the proposals were broadly supportive.

In particular, constituents said they backed:

  • a reporting model that addresses the needs of investors and other stakeholders;
  • the concept of a ‘reporting network’;
  • putting digital first; and
  • standardisation of non-financial reporting.

The FRC’s thinking on non-financial reporting comes after the IFRS Foundation received broad support for a possible move into sustainability reporting.

This was followed in June this year by the announcement of a merger between the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council to form the Value Reporting Foundation.

One of the goals of this new partnership is to achieve greater alignment between the various sustainability reporting objectives.

The report noted that the twin issues of “comparability and consistency across entities was raised particularly in relation to the reporting of non-financial information.”

According to the report, respondents’ noted “the importance of aligning to well-understood international frameworks and metrics particularly on sustainability” in their responses.

In addition, more respondents ranked ESG information ahead of other categories of non-financial reporting such as gender, carbon accounting or sustainability.

However, they also “strongly advocated for the alignment of any non-financial reporting standards with international frameworks and initiatives” such as the IFRS Foundation’s work on sustainability reporting.

In response, the FRC said it will publish a “statement of intent on ESG matters” that will “build on ongoing work by the FRC to promote and influence best practice reporting on ESG issues.”

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