FRC highlights hot topics for the forthcoming 2018 interim reporting season

16 July 2018

The Financial Reporting Council (the FRC) has issued a Corporate Reporting Review Briefing which sets out its current ‘hot topics’ - these will be particularly relevant to companies preparing interim accounts during summer 2018.

The Briefing covers three main subjects:

  • New accounting standards
  • Topical issues, and
  • Issues identified by the Corporate Reporting Review (CRR) team’s monitoring activities.


New accounting standards

Inevitably the Briefing highlights that this year’s interim reports will be the first formal financial reporting prepared under IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers and it notes that companies preparing their interims will need to quantify and explain the effects of these new standards. It indicates that companies should consider the materiality of the effect of IFRSs 9 and 15 when deciding on the extent of their disclosures, which should be clear, concise, company specific and focussed on the areas of change.



For IFRS 9, the Briefing asserts that financial services companies will likely need to focus on impairment, providing sufficient information to allow users of the interim report to understand the change from the model used for key asset portfolios under IAS 39. For non-financial services companies, the Briefing highlights the potential effect of IFRS 9 on long-term trading balances such as lease assets, IFRS 15 contract assets and intercompany assets. Where the simplified approach for impairment is adopted, companies will need to make clear how the lifetime expected credit losses have been determined.



For IFRS 15, the Briefing indicates that changes in revenue accounting policies will need to be fully explained with reference to performance obligations in order to improve the value of content to users. It also highlights that interim reports prepared under IAS 34 are required to include specific disclosures on revenue.

For both new standards, the Briefing notes that the FRC would expect to see disclosures on significant judgements and clear and quantified information on sources of estimation uncertainty. Preparers are also reminded that the FRC has announced a Thematic Review of the disclosure of the effect of adopting IFRSs 9 and 15 in the interim reports.


Topical issues

The Briefing goes on to note that the transparency of supplier finance/reverse factoring arrangements will be an area of specific FRC focus during 2018. These arrangements generally involve a company’s suppliers being paid by a finance provider, with the liability to that finance provider being settled subsequent to that payment by the company. The Briefing notes that such arrangements can sometimes form a key component of a company’s working capital management and that concerns have been raised about the transparency of these arrangements within the disclosures and the classification of the associated transactions and balances in the cash flow statement and balance sheet.

The FRC will also pay particular attention to the impairment disclosures of companies in its priority sectors (Financial Services; Oil and Gas; General Retailers; and Business Support Services), as well as market sectors where there have been a number of profit warnings and asset write-downs.


Issues identified by CRR’s monitoring activities

Finally, the Briefing highlights four areas identified by the CRR team’s recent monitoring activity:

  • When considering whether a matter is material, preparers must take into account the amounts determined in accordance with IFRSs, not just management’s alternative performance measures (APMs).
  • Incorrect classification of cash flows between operating, investing or financing activities.
  • Failure to restate prior year Earnings Per Share (EPS) disclosures following a share split or consolidation.
  • Potential breaches of the Companies Act requirements for the payment of dividends resulting from a failure to file ‘interim accounts’ with the Registrar before paying a dividend in excess of the distributable profits shown in the relevant accounts (usually the company’s most recent audited accounts).

Read the FRC’s Corporate Reporting Review Briefing

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