Financial Reporting News

Financial Reporting News

FRC Lab publishes report on ESG data use and distribution
Recently the Financial Reporting Council (FRC) published a new report titled “ESG Data Distribution and Consumption” examining how investors obtain and use environmental, social and governance (ESG) data on companies, and highlights what actions companies can take to facilitate this.

The report highlights an ecosystem heavily dependent on third parties for comparable ESG data, and while investors use companies’ annual reports for qualitative context, most ESG metrics and data come from third-party providers who compile, standardize and derive data from company reporting investors occasionally use direct company data to check third-party accuracy.

Investors want companies to focus annual reports on ESG risks, opportunities and progress relevant to their business. Therefore, to not obscure relevant information, data sheets can be helpful in containing all ESG metrics in one place to facilitate third-party and investor data collection.

As investor demands on ESG data continue to grow, strong interconnectivity between narrative and data reporting is critical to avoid greenwashing and maintain credibility.

FRC thematic review examines quality of climate-related metrics and targets disclosures
The Financial Reporting Council (FRC) recently published a thematic review, assessing the quality of climate-related metrics and targets disclosures.

The review analysed TCFD disclosures from 20 companies’ 2022 annual reports across four sectors: materials and buildings, energy, banks, and asset managers. It identified areas of better reporting practice as well as opportunities for improvement.

Key findings show an incremental improvement in the quality of companies’ disclosures of net zero commitments and interim emissions targets. However, disclosures of concrete actions and milestones to meet targets were sometimes unclear, and comparability of metrics between companies remains challenging. Given the large volume of information presented, many companies are finding it challenging to explain their plans for transitioning to a low-carbon economy clearly and concisely.

The review also found that explanations of how climate targets affect financial statements still need improvement. Boilerplate language on climate being “considered” provides little insight on impacts.

FRC issues amendments to FRS 102 and FRS 101
The FRC has issued Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 101 Reduced Disclosure Framework – International tax reform – Pillar Two model rules.

The OECD’s Pillar Two model rules introduce a global system of interlocking top-up taxes that aim to ensure that large multinational groups pay a minimum amount of income tax.

The amendments to FRS 102 introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the OECD’s Pillar Two model rules, alongside targeted disclosure requirements.

The temporary exception is effective immediately and the disclosure requirements are effective for accounting periods beginning on or after 1 January 2023, with early application permitted.

The amendments to FRS 101 provide an exemption from some of the disclosure requirements in IAS 12 Income Taxes, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated.

IASB completes technical work on two new IFRS Accounting Standards
The International Accounting Standards Board (IASB) recently concluded its decision making on two projects – its final steps before drafting and balloting two new IFRS Accounting Standards.

The first of these forthcoming Accounting Standards is designed to clarify and enhance the information companies provide about their financial performance. The other will simplify the financial statements prepared by subsidiaries of listed groups.

The IASB expects to issue the new Accounting Standards in the first half of 2024.