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Accounting roundup: FRC sets out 2017 watchlist for shareholders

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The UK’s accounting watchdog has highlighted improvements to dividend disclosures in a letter to investors as shareholder meeting season begins.

The Financial Reporting Council’s (FRC) letter, signed off by chief executive Stephen Haddrill, also addressed corporate governance and pensions issues among other topics.

In relation to dividends, the FRC said: “We have already noted examples of improved disclosure, and expect to see more over the coming reporting period. You may wish to challenge companies that provide insufficient information in this area.”

Dividends have come under intense scrutiny in recent years following the decision by the Local Authority Pension Fund Forum (LAPFF), together with other long-term investors, to challenge the basis for dividend distributions under International Financial Reporting Standards (IFRS).

Separately, Pensions & Investment Research Consultants (PIRC), has urged investors to ignore the FRC’s pronouncements, arguing that it has no legal authority.

As part of its fight-back, the regulator released a report from its so-called Financial Reporting Lab in 2015 addressing dividend disclosures.

The FRC launched the Lab project following calls from a group of institutional investors for routine disclosure of distributable profits. The project scope was subsequently widened to capture the wider issue of disclosures about dividends.

On pensions, the watchdog’s letter signaled that companies “may need to provide sensitivity analysis to highlight the potential impacts” of low interest rates on their assets and liabilities.

The letter also highlighted the need for companies to explain “significant judgements and accounting policy choices, particularly where there is diversity of treatment, in pension reporting, for example.”

Separately, the FRC has launched a consultation on proposed revisions to Practice Note 15, which provides guidance on audit standards for occupational pension schemes. The consultation runs until 30 June.

In its consultation paper, the FRC said the decision to update the note was driven by recent changes to the UK’s generally-accepted accounting practice – FRS 102 – as well as changes to both the pension-related statement of reasonable practice (SORP) and UK auditing standards.

In addition, since the note was last updated in 2011, there have been a number of changes to regulatory codes and guidance issued by the Pensions Regulator, as well as a proliferation of master trust structures.

The note addresses the application of FRC auditing standards for occupational pension schemes. It also applies to audits undertaken under the terms of a scheme’s trust deed – or in other circumstances – where an auditor has to provide a similar report. This can include cases where trustees request a report about a scheme that is exempt from audit or for financial statements prepared other than at the normal scheme year-end.

The FRC noted that “much of the guidance” could also be useful to auditors of public sector pension schemes.

The guidance is intended to be read alongside the relevant International Standards on Auditing (ISAs) and is based on the legislative position as at 12 April 2017.

Meanwhile, the International Accounting Standards Board (IASB) was scheduled to discuss its proposals to amend IAS 19 this week.

The amendments dealt with the need to remeasure defined benefit obligations following a plan amendment, settlement, or curtailment.

The proposals had been delayed by the IASB taking a second look at whether or not the board should exclude minor plan amendments from the scope of the proposals.

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