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©2015 Deloitte LLP. All rights reserved.

Deloitte Finance Club

The community for Financial Controllers and senior financial executives

Thursday, 14th May 2015



A few facts

• Established in May 1997 as the Financial Controllers’ Club, and renamed

Deloitte Finance Club in 2013

• Provides an annual programme of technical updates and hot topic briefings

• Connects our members to relevant experts as well as over 2,200 members

across the country

Deloitte Finance Club – Summer finance checklist (14 May 2015)2

©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Summer finance checklist (14 May 2015)3


Upcoming programme

Our post-Summer programme is currently in development – send any

requests or suggestions to us at [email protected]



Agenda

• Accounting update Phil Barden

Amanda Swaffield

Peter Westaway

• Corporate accounting Sarah Waddington

• Tax update Stephanie Hurst

• Risk management and the Tracy Gordon

longer term viability statement Hans-Kristian Bryn

• Executive remuneration and reporting David Cullington

• Planning, Budgeting & Forecasting – Simon Barnes

our next global survey


mailto:[email protected]











Accounting update

Phil Barden

Amanda Swaffield

Peter Westaway


Accounting update

Agenda

• Revenue – what’s the latest? Phil Barden

• New UK GAAP – what is coming up in practice Amanda Swaffield

• Integrated reporting – a reminder Amanda Swaffield

• Interim reporting and other news Peter Westaway



Revenue

What’s the latest?

Phil Barden


Revenue


• IFRS 15 as issued effective for periods beginning on or after 1 January 2017

• FASB tentative decisions re US standard:

‒ Defer effective date by one year (periods beginning on or after 15 December 2017)

‒ Allow early adoption from original effective date (15 December 2016)

• IASB tentatively decided to defer to 1 January 2018 with early adoption permitted

• Positive endorsement advice issued by EFRAG – EU endorsement expected Q3

2015



Revenue


• Transition Resource Group (TRG) – four meetings so far

• FASB and IASB reactions to issues discussed

• Will the US and IFRS standards diverge?

• Plans for IASB exposure draft

• Future of TRG



Revenue


• Background to FASB and IASB reactions

• Impact assessment by US GAAP and IFRS reporters – devil is in the detail

• Challenges around IFRS 15:

‒ Is it clear how to interpret specific requirements?

‒ How might they apply to my circumstances?

‒ Do I need to apply judgement – and what will others do?

‒ What are the practical challenges?

• Timescale for addressing uncertainties / problems



Revenue


• How much impact analysis have you done to date?

• Given uncertainties over timing and possible changes to the standard, should you

wait?



New UK GAAP

In practice

Amanda Swaffield


New UK GAAP

In practice

• The new regime – now effective

• Accounting considerations

• Common pitfalls on transition

• Looking forward



New UK GAAP – in practice

The new regime – now effective• FRSs 100-102 mandatory for periods beginning on/after 1 January 2015

• Same choice for all entities?


• Application of financial reporting requirements• Which standard to apply; application of SORPs; Statement of compliance; effective date; meaning of ‘equivalence’ FRS 100

• Reduced disclosure framework• List of disclosure exemptions from full IFRSs for ‘qualifying entities’

• IFRS with reduced disclosures for most parents and subs in company-only accountsFRS 101

• The Financial Reporting Standard applicable in the UK and Republic of Ireland• Operational FRS derived from the IFRS for SMEs; list of disclosure exemptions from this FRS for ‘qualifying entities’

• New set of UK GAAP standards but with reduced disclosures for most parents and subs in company-only accounts

FRS 102

• Insurance Contracts• Accounting requirements for insurance contracts

• Applies to entities reporting under FRS 102

• Relevant to any entity with insurance contracts, not just insurance businesses

FRS 103

• Interim financial reporting• Accounting requirements for interim financial statements

• Applies to entities reporting under FRS 102

• Broadly consistent with IAS 34

FRS 104



Some accounting considerations

Operating lease incentives

• Spread over full lease term

• Transitional provision

Pension schemes

• No multi-employer exemption

• Allocate group DB pension scheme

Use of deemed cost as carrying value on

transition

• Transitional provision

• Investment property, PP&E, intangible assets

• Uplift to FV and then revert to accounting at cost

Derivatives

• Non basic – FVTPL

• Used for hedging?

• Generous transitional provisions for hedge accounting

Intercompany loans

• Contractual terms?

• Non-market rate of interest?

Fixed asset investments

• FV reliably measurable?

• Investment in subs, associates and JCEs –accounting policy choice (by class)



Some accounting considerations

Business combinations

• Cost of acquisition approach

• More intangibles – no longer have to be separable

• Deferred tax on FV uplifts

• Merger accounting still available

• Transitional exemption

Goodwill

• No indefinite life

• Only in rare cases would assumed maximum life of 5 years be used


Transition pitfalls –lessons learned so far


Common transition pitfalls

Lessons learned so far

Earlier planning =

easier transition

Impact

assessments

Early auditor

conversations

Need to use

experts?

Opening b/s work

Identify items that

may not have been

previously

accounted for

Continuation of

accounting

policies

More than

accounting

Careful analysis

necessary

Think about

transactions in the

year after

transition date

Business

combinations?

Debt

restructuring?

Accounting under

new GAAP will be

required in

comparatives


• GAAP 2015 – comprehensive

financial reporting manuals on FRS

102 (and IFRS)

• Model accounts for IFRS, UK GAAP,

FRS 101 and FRS 102, including

tracked changes versions from

current IFRS and UK GAAP to FRS

101/FRS 102

• UK GAAP in your pocket – A guide

to FRS 102

• Changing your GAAP – Planning

your conversion to the new financial

reporting regime

• Old UK GAAP to IFRS conversion

guide

• News, publications and newsletters at

www.ukaccountingplus.co.uk


UK GAAP Resources

Tools and resources

http://www.ukaccountingplus.co.uk/


• A closer look – Transition to FRS

102 for financial instruments

• GAAP 15:Section 11 - Chapter B12

• www.ukaccountingplus.co.uk


UK GAAP Resources

Recently published



Future developments


Future developments

Impact of new IFRSs?

Future developments

1 Jan 2016: Relaxation in use of

Companies Act formats

Triennial review of FRS 102 (2018)

Annual updates to FRS 101 (FRED 57)

1 Jan 2016:UK implementation of EU

Accounting Directive

1 Jan 2016: Removal of FRSSE


• Three FREDs

‒ FRED 58: Draft FRS 105 – The

Financial Reporting Standard applicable

to the Micro-entities Regime

‒ FRED 59: Draft Amendments to FRS

102 – Small entities and other minor

amendments

‒ FRED 60: Draft Amendments to FRS

100 and FRS 101

• FRS 104 Interim Reporting

‒ Applies to entities adopting FRS 102

e.g. many investment trusts


Future developments

News from the FRC


Integrated reporting

A reminder

Amanda Swaffield


Covers:

• Drivers of integrated reporting

• What integrated reporting is

• The real benefits businesses have

seen

www.ukaccountingplus.co.uk


Integrated reporting

New Deloitte guide



Interim reporting

Peter Westaway


Interim reporting reminders

Existing requirements

Important events in first six months

Principal risks and uncertainties for

remaining six months

Related party transactions

Responsibility statement

Condensed set of financial statements

Two months to disseminate in

unedited full text

Set to increase to 3 months

before the end of the year



What has changed?

Quarterly IMSs abolished but not half-yearly reports

Debt issuers ten year transitional provision

finished (TP 19 remains)

No substantive corporate governance

disclosure changes

No IAS 34 amendments

mandatorily effectiveDiverted profit tax

Few changes to underlying accounting



New accounting standards in 2015Title IASB effective date

(periods commencing)

EU effective date

(periods commencing)

Annual Improvements 2010-12 Generally 1 July 2014 1 February 2015

Annual Improvements 2011-13 1 July 2014 1 January 2015

IAS 19 Amendments – DB plans:

Employee contributions

1 July 2014 1 February 2015

IFRIC 21 – Levies 1 January 2014 17 June 2014

FRS 104 Interim Financial Reporting available for UK GAAP reporters –

based on IAS 34 but with modifications


Round-up of other news



Size limits for small companies change

Limits for accounting, directors’ report contents and exemption from strategic report

– change effective 6 April 2015

• Applies financial years commencing on or after 1 January 2016

• Early adoption for financial years commencing on or after 1 January 2015

• Companies in a group with an unlisted PLC no longer ineligible

BUT: Still some debate about if and when audit exemption limits will go up


Old criteria New criteria

Total assets <£3.26m <£5.1m

Turnover <£6.5m <£10.2m

Number of employees <50 <50


FRC survey of first year

• Entity-specific risk reporting

• Findings and magnitude of

unadjusted errors unsurprisingly

popular with

investors

• Engaging layouts, visuals, charts

• Linkage



Extended auditor’s reports

https://frc.org.uk/Our-Work/Publications/Audit-and-Assurance-Team/Extended-auditor-s-reports-A-review-of-experience.pdf




IFRS developments and reminders

What’s new? Amendments and proposals

Amendments

• Amendments to IAS 1: Disclosure Initiative

• Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the

Consolidation Exception

Exposure drafts

• Proposed amendments to IAS 7: Disclosure Initiative

• Proposed amendments to IAS 1: Classification of Liabilities




Investment entity amendments

• Exemption from preparing consolidated

financial statements for an intermediate

parent entity is available to a parent

entity (B) that is a subsidiary of an IE (A),

even if that parent entity (A) measures

all of its subsidiaries (B, D and E) at FV

• NB: UK COMPANY LAW OVERRIDE

• Amends to IAS 28 regarding equity accounting for an IE associate or JV to permit

retaining FV measurements used for its subsidiaries

• Requirement for an IE to consolidate a subsidiary providing services to its IEs

applies only to subsidiaries that are not themselves investment entities

• Applies retrospectively for p/c 1 Jan 2016, with earlier application admitted


B

A(an IE)

C

D E



Colour coding for endorsement slides

Name

Already endorsed – can be adopted now

Not yet endorsed – but can be adopted prior to endorsement because no

conflict with existing requirements

Not yet endorsed – might be possible to adopt associated accounting early but

care needed over some requirements (e.g. typically any transitional reliefs will

not be available, consider whether any predecessor requirements must still be

applied)

Not yet endorsed – cannot be adopted early because conflict with existing

requirements


New and revised Standards

Effective for March 2015 year ends

Name Effective Application Endorsement

IFRS 10 – 12, IAS 27 (2011), IAS 28

(2011)

01/01/13

01/01/14

Largely retrospective, subject to

transition requirementsYes

IFRS 10 – 12 Transition Guidance01/01/13

01/01/14On transition Yes

IFRS 10 – investment entities 01/01/14Retrospective, subject to

transition requirementsYes


Amendments to Standards



IAS 32: Offsetting 01/01/14 Retrospective Yes

IAS 36: Recoverable amount

disclosures01/01/14 Retrospective (disclosure) Yes

IAS 39: Novation of derivatives 01/01/14 Retrospective Yes


IFRIC Interpretations



IFRIC 21 Levies01/01/14

17/06/14Retrospective Yes


New and revised Standards

Effective for later year ends


IFRS 9 Financial Instruments 01/01/18Specific transitional

requirementsH2 2015?

IFRS 14 Regulatory Deferral

Accounts01/01/16

Only applies to first-time

adoptersTo be decided

IFRS 15 Revenue from Contracts

with Customers01/01/17 Options available on transition Q3 2015?





IAS 19: Employee contributions01/07/14

01/02/15Retrospective Yes

Annual Improvements 2010–1201/07/14

01/02/15Mixture Yes

Annual Improvements 2011–1301/07/14

01/01/15Mixture Yes

IFRS 11: Acquisitions of interests

in joint operations01/01/16 Prospective Q4 2015?

IAS 16 / IAS 38: Acceptable

methods of depreciation01/01/16 Prospective Q4 2015?

IAS 16 / IAS 41: Bearer plants 01/01/16 Retrospective Q4 2015?





IAS 27 Equity method in separate

financial statements01/01/16 Retrospective Q4 2015?

IFRS 10 / IAS 28 Sale or

contribution of assets to associate

/ JV

01/01/16

To be

postponed

Prospective Postponed

Annual Improvements 2012–14 01/01/16 Mixture Q4 2015?

IAS 1 Disclosure Initiative 01/01/16 Retrospective Q4 2015?

IFRS 10, IFRS 12, IAS 28

Investment entities: Applying the

consolidation exception

01/01/16 Retrospective Q1 2016?


• Can be accessed on any machine or

device

• Is available online and offline

• Annotation features synchronise

when online

• highlights;

• bookmarks;

• notes; and

• clippings folders

• Supports agile working and reduces

carbon footprint


Smarteca

GAAP manuals on the go


• Information site for everyone

• www.deloite.co.uk/gaap-manuals

‒ Short introductory video

‒ FAQs

‒ User Guide

• Deloitte contacts can provide

coupons


Smarteca

More information

http://www.deloite.co.uk/gaap-manuals



Corporate accounting

Sarah Waddington


New UK GAAP Conversion (2015)


UK overview

Why think about this now?

Goodwill &

intangibles

Borrowing &

development

costs

Financial

instrumentsOperating leases

Financial

guarantees

Defined benefit

pensions

Presentation &

disclosure

Business

combinations &

consolidation

Foreign currency Deferred taxInvestment

property

Intercompany

balances


Mandatory transition date

Quiz

What is the mandatory transition date for a 31 May year end?

a) 1 June 2014 4

b) 1 June 2015 8

c) 31 May 2016 8

d) 31 December 2015 8

47 Deloitte Finance Club – Summer finance checklist (14 May 2015)


31 May 2015 31 May 2016

IFRS / ‘New’ UK

GAAP

First accounts

prepared under

‘New’ UK GAAP

/ IFRSIFRS / ‘New’ UK

GAAP

comparatives

1 June 2014

Implementation project

Transition

date

Example

Transition timeline

Year ended 31 May 2015



Practically speaking

Early adoption

Are entities early adopting?

• Yes, but this is not common

Why chose to adopt early?

• Incorporation of new companies

• Significant new transactions which would have large GAAP differences

• Taxation benefits

Difficulties encountered?

• Valuations

• Financial instruments

• Defined benefit pension schemes

• Elections/documentation/administration



IFRS 15: Revenue from Contracts with Customers


Deferral of effective date of IFRS 15

International Accounting Standards Board (IASB)

Why?

Considering proposing some limited

clarifying amendments to IFRS 15, so

a degree of uncertainty regarding what

IFRS 15 will finally look like exists until

the IASB decides to either finalise, or

not proceed with, these amendments

What happened?

The IASB tentatively decided to defer

the effective date of IFRS 15,

following a proposed deferral by the

FASB of its new revenue standard

Until When?

1 January 2018

And early adoption?

Still permitted


Technically speaking

Quiz

What is the missing step?

a) Involve a financial accountant 8

b) Identify the separate performance obligations 4

c) Identify the separate stages of completion 8

d) Identify the date risks and rewards transfer 8


1. Identify the

contract(s)

with the

customer

2.

3. Determine

the

transaction

price

4. Allocate

the

transaction

price to the

performance

obligations

5. Recognise

revenue when

(or as)

performance

obligations

are satisfied

?


Practically speaking

Impact of IFRS 15

Consider the impact of IFRS15 on:

• Existing revenue contracts, e.g. standard long-term contract clauses

• EBITDA and KPIs

• Disclosures

• Business processes

Next steps?

• Consider the impact of IFRS 15 now

• Are contracts currently being negotiated which will be accounted for under

IFRS 15?




Tax update

Stephanie Hurst


Tax Transparency

There are many – often connected – perspectives

on tax transparency

Fair Tax

Mark



More, more, more…

What informs those perspectives and what is their

influence?

Information• Financial

statements

• Other external publications

• Research and analysis

• ‘Whistle-blowers’

• Personal experience

Influencers• Analysts

• Industry bodies

• Media

• Non governmental organisations, including charities

• MPs / committees

Stakeholders• Investors

• Lenders

• Government

• Customers

• Suppliers

• Employees

Your

business


Tax Transparency

Other mandatory reporting requirementsRule Public? Scope Timing Data reported –

overview

EU CRD IV

country by

country

reporting

Yes Mandatory for

regulated EU credit

institutions /

investment firms

In effect

from 1

January

2014

Activities, turnover,

number of employees,

profit before tax (PBT),

tax and public subsidies

EU

Accounting

Directive and

Transparency

Directive

Yes Mandatory for listed

EU and large

extractive

companies / those

involved with logging

Enforced by

20 July 2015

at latest

Payments to

governments over £100k

(country by country but

may also be project by

project)

OECD –

Action 13 –

country by

country

reporting

No – to

tax

authoritie

s only

Mandatory for all

corporates

A.P.s

beginning 1

Jan 2016

onwards

Activities, turnover (third

party and intragroup),

PBT, tax charge, assets,

capital and earnings,

number of employees

Other developments include: Extractive Industries Transparency Initiative and Dodd Frank

Act s.1504



What are the FTSE100 disclosing? (overview)

Latest published accounts as at 30 July 2014

• 78 (2013: 62) provide narrative disclosure explaining why the effective tax rate differs from the expected statutory rate and/or explains variances year-on-year

Effective Tax Rate (ETR)

drivers

• 64 (2013: 60) make some disclosure of tax-related governance. Of these:

• 7 (2013: 8) make partial reference (e.g. mentioning that the Audit Committee has reviewed tax accounting judgment areas)

• 57 (2013: 52) provide fuller details, setting out processes for setting and monitoring adherence to tax policies and strategies

Governance

• 46 (2013: 32) disclose total taxes paid / tax ‘contribution’. Of these:

• 6 (2013: 12) make partial disclosure, setting out total taxes paid with no further analysis

• 40 (2013: 20) disclose the split between various categories of tax

Taxes paid / ‘contribution’


What are the FTSE100 disclosing? (examples)

Narrative explanations of Effective Tax Rate

“The effective tax rate on profit before tax in FY13 was 27%.

This rate reflects depreciation on non-qualifying assets and

overseas earnings being taxed at a higher rate.”

“The Group’s effective tax rate was 31 per cent, up from 27 per

cent in 2012, primarily due to the impact of non-deductible

goodwill impairment and change in profit mix.”

“The Group’s underlying effective tax rate of 17% is below that of the

prior year, and reflects a favourable underlying profit mix, the

continued benefits arising from the utilisation of certain tax incentives

available to us, most notably in Poland, and further tax incentives

received during the year related to our investment project in

Slovakia.”



Governance and strategy

“Xplc seeks to effectively manage its taxation obligations worldwide in compliance with

all applicable tax laws and regulations. Therefore, the Group monitors the tax

contribution by the individual businesses to ensure it meets local tax requirements, that

available global tax incentives and allowances are recognised and any material tax risks

are properly and promptly addressed, as well as appropriately provided and disclosed in

the Group’s accounts and tax returns.

Xplc aims to build positive working relationships with tax authorities around the world by

full co-operating in an open, constructive and timely manner. As tax laws are often

complex and sometimes ambiguous, tax outcomes are inherently uncertain. Accordingly,

it is recognised that there will be areas of differing legal interpretation with tax

authorities and when this occurs Xplc will engage in proactive discussion to obtain early

resolution and seek to remove uncertainty and controversy.

Xplc tax policy requires compliance, fairness, value and transparency in the management

of the Company’s tax affairs. This approach has been approved by the Board, fully

communicated to the subsidiary businesses and is regularly reviewed to ensure

responsible business practices across the Group are maintained.”



Tax ‘contribution’





• 44 (2013: 32) comment on uncertain tax positions, either those for which a provision has been recorded, or those deemed to be a contingent liability

Uncertain tax positions

• 16 (2013: 8) split tax payment disclosures on a geographical basis. Of these:

• 8 disclose payments on a regional basis

• 8 disclose payments on a jurisdictional basis

Geographical split

• 7 (2013: 4) make reference to the use of tax havens. Of these:

• 2 make oblique reference to overseas operations being trading in nature

• 2 specifically state that they do not undertake tax planning which involves the use of havens

• 3 groups mentioned they had operations in countries that would commonly be described as tax havens.

Tax havens




Geographic split





• 3 groups disclose their UK Tax authorities risk rating in their financial statements.

• All have achieved a ‘Low’ risk rating

UK Tax authorities risk

rating


Observations and conclusions

Based on review of FTSE100 latest published

accounts as at 30 July 2014

• The year-on-year trend is to disclose more around taxes than

required by the accounting standards

• Consumer / household brands generally disclose more detail

concerning their tax affairs as compared to B2B (business to business)

groups

• Large increase in the number of groups disclosing their tax

‘contribution’ in 2014 as compared to 2013



Tax Transparency

Practical considerations

• Some evidence of explicit disclosure of legislative measures that exempt profits from tax (e.g. substantial shareholdings exemption for capital gains on sale of shares in the UK)

• Examples: research and development credits or intellectual property regimes, participation exemptions, etc.

More information in required disclosures

• Balance is important – information which is not required by GAAP and company law should not overshadow the position given by the GAAP and company law requirements

GAAP disclosures versus non-GAAP disclosures


Tax Transparency


• Are the disclosures consistent with the prior year?• Additional disclosure now will set expectations that similar

disclosures will be made in future.• Would omission of such disclosures in future cause stakeholders

to make unwelcome inferences?• Implications for long-term costs and resources?

Consistency

• Are the disclosures being made clear and unambiguous?

Clarity of disclosure


Tax Transparency


• Substantial effort to provide right level of assurance for financial statement disclosure

Validity of disclosures


New UK GAAP and Tax – a reminder

Lessons learnt so far

Cash Tax

• Assess cash tax impact of transitional adjustment

• First instalment payments due for December 2015 year ends on 14 July 2015

• Stakeholder management

Tax accounting

• Watch out for onerous tax requirements of IFRS / FRS 101 e.g. deferred tax on:

• Share based payments

• Non qualifying fixed assets acquired on a business combination

Tax compliance

• Tax elections and deadlines e.g. Disregard regulations – elect in 6 months after accounting period starts – 30 June 2015 for December year ends

• Budget for conversion e.g. iXBRL

Tax operations

• Resource capacity and capability

• Training

• Information systems sufficient for needs

• Transition timeline –plan ahead



BEPS – a useful source of information

www.BEPS.tax• The BEPS timeline of key milestones and news releases, past, present and

future

• Country scorecards, providing a high-level summary of different countries'

perspectives of the BEPS Actions (28 countries at present)

• An archive of relevant articles and papers from the OECD, other regulatory

authorities, plus thought pieces and presentations from Deloitte

• More information on each of the 15 Actions being considered and worked on

by the OECD, including

‒ an overview of what each Action is intended to address,

‒ the expected timing of releases by the OECD for each Action, and

‒ links to all of the documents already released by the OECD

• A list of Deloitte contacts for each country




Risk management and the longer term viability statement

Tracy Gordon

Hans-Kristian Bryn


Risk management, internal control & future viability

Code amendments & new guidance now effective

A new, integrated approach

Going concern

Future viability

Principal risks

Internal control

reporting

Auditor reporting

“The ability of the board

to understand and

address the risks facing

the company is itself a

major risk factor.”

FRC consultation paper


Risk management, internal control & future viability

Status of Code versus FRC Guidance

UK Corporate Governance

Code Provisions

“Comply or explain”

Guidance on Risk

Management, Internal

Control and Related

Financial and Business

Reporting

Best practice guidance only


Changes to the UK Corporate Governance Code

‘Comply or explain’ regime

The board is responsible for determining the nature and extent of the principal

risks it is willing to take in achieving its strategic objectives. The board should

maintain sound risk management and internal control systems.Code Principle C.2

The directors should confirm in the annual report that they have carried out a

robust assessment of the principal risks facing the company – including those that

would threaten its business model, future performance, solvency or liquidity –

describe those risks and explain how they are being managed or mitigated.

Taking account of the company’s current position and principal risks, the directors

should explain in the annual report how they have assessed the prospects of the

company, over what period they have done so and why they consider that period

to be appropriate. The directors should state whether they have a reasonable

expectation that the company will be able to continue in operation and meet its

liabilities as they fall due over the period of their assessment, drawing attention to

any qualifications or assumptions as necessary.*NEW* Code Provisions C.2.1 and C.2.2

The board should monitor the company’s risk management and internal control

and, at least annually, carry out a review of their effectiveness, and report to

shareholders that they have done so. The monitoring and review should cover all

material controls, including financial, operational and compliance controls.Code Provision C.2.3

Just a slight change to the Main

Principle from “significant” to

“principal” to bring the

terminology in line with Strategic

Report disclosure requirements

A new provision in addition to the

existing Code Provision requiring

a statement from the board that

the business is a going concern

which has been amended to

make a clearer link to the going

concern basis of accounting.

This provision has been changed

to reflect that the board’s review

should not just be a one-off,

annual exercise but an on-going

monitoring responsibility


Board responsibilities

The FRC’s best practice guidance suggests the

following responsibilities…

Determining the risk appetite

Design & implementation of risk

management and internal control systems

Agreeing how principal risks should be

managed

Monitor and review of the risk management and internal control

systems

Ensuring appropriate culture & reward

systems

Ensuring sound internal and external

information and communication

But remember it is the Audit Committee’s responsibility to review the company’s

internal control and risk management systems unless expressly addressed by a separate

board risk committee comprised of independent directors, or by the board itself.

– Code provision C.3.2


Reporting on risk

Enhanced disclosures for investorsThe board should provide succinct, meaningful, information that is tailored to the

specific circumstances of the company, and should avoid using standardised

language which may be long on detail but short on insight.


Sufficient specific detail that a shareholder can understand why they are important to the

company

A description of the likelihood of the risk

An indication of the circumstances in which the

risk might be most relevant to the entity and its possible

effect

Details of any significant changes in principal risks, such as a change in the

likelihood or possible effect or new risks added

A high-level explanation of how the principal risks and

uncertainties are being managed or mitigated

For a more generic risk or uncertainty, a description of how that risk or uncertainty

might affect the entity specifically

Including these disclosures in the Strategic Report will ensure that you are covered

by the safe harbour provision in the Companies Act 2006

Should include…

Might include…


Reporting on risk

There is a significant new recommendation

‘hidden’ in the guidance

The board should summarise the

process it has applied in reviewing the

effectiveness of the system of risk

management and internal control. The

board should explain what actions have

been or are being taken to remedy any

significant failings or weaknesses.

Section 6: Related Financial and Business

Reporting

Guidance on Risk Management, Internal Control

and Related Financial and Business Reporting

• The existing guidance just requires a

board to confirm that necessary

actions have been or are being taken

• The proposal represents more

onerous disclosure and is required

even when a significant failing or

weakness has been fully resolved by

the end of the year

• Any disclosure which would be

prejudicial to business interests does

not have to be made

There is no definition

of “significant” – that

is left to board

judgement


Connecting longer term viability & risk management


The longer term viability statement

Key considerations when making this statement

Reasonable

expectation and

period covered

Assessing the

prospects of the

company

Ability to continue in

operation and meet

liabilities as they fall

due

Qualifications or

assumptions



Connecting risk management & longer term

viability

Reach consensus on the

risk appetite framework at

the board

Assess the impact of

principal risks

Integrate business planning

and forecasting with

quantification of principal

risks & scenario testing

Confirm effectiveness of

internal control assessment

processes



Practical steps for assessing the prospects of the

company

2. Agree level of quantitative

rigour:

• Qualitative assessment;

• Scenario approach; or

• Risk modelling.

3. Select the principal risks to

include in the assessment:

• Number of risks

• Impact/likelihood

• Correlation/inter-dependency

4. Determine a methodology for

combining/aggregating the impact

of risks

1. Agree the time horizon (in line

with business planning periods)


Step-by-step through the disclosure




StartThe three P’s

How have these prospects been assessed and what are the

key risks to them – how has the board assessed the nature

and extent of the principal risks (cross-refer to the principal

risk and going concern disclosures)?

2

Remember:

Presenting the viability

statement within the

Strategic Report gives

the board the safe

harbour protection

under the Companies

Act

Position Performance Prospects

Link clearly to what you have said on these

earlier in the annual report.

There should be reference back to

discussions on strategy, objectives, the

business model and KPIs.

1




The period

Risk

management

• Explain how the business is managed on a forward looking

basis - what forward period(s) is the board planning over?

Explain short, medium and long term planning cycles.

• Which of those periods is the viability statement provided over

and why is that the appropriate period?

Remember: For the purposes of this disclosure, ‘viability’ is defined as the board having a

reasonable expectation that the business can continue in operation and meet liabilities as

they fall due.

3

• Explain how the board has prioritised risks over the period and

describe the activities in place to manage those risks (cross

reference as appropriate and refer to forecasting and stress

testing techniques used)

• What are the key judgements, assumptions and estimates the

board has made over that period (specific detail)?

• How does the board ensure the effectiveness of management

and mitigation activity?

4



Focus on processes and procedures

The disclosures do not need to include…

Quantification of impact

of principal risks

A quantified and specific

risk appetite statement

Boards need to focus their disclosures on the processes and procedures

around risk management and the assessment of the longer term prospects

of the business

Quantification is for internal use only



Remember this about helping investors to…

Understand how boards

are managing and

mitigating risks

Judge whether a company

will deliver value in the

future

Assess the stewardship of

the company

Have transparency on the

risks to their capital


Observations from December year-end reporters



Little appetite to go early

70 FTSE 350 December year-

ends reviewed – just one

example of early adoption

Some make reference to the

2014 Code and the intention to

report on new requirements

next year

Barclays has confirmed that

their lookout period will be three

years

Ocado’s going concern

disclosure has been amended

to reflect more of the

considerations suggested in the

guidance



Derwent London plc Report & Accounting 2014

• Included immediately under the principal risks table in the strategic

report

• Looking forward 5 years

• No reference elsewhere in the annual report


Auditor reporting requirements


Corresponding changes to auditor reporting

FRC using the auditor as the last line of defence

on new reporting requirementsThe auditor must report by exception if they do not agree

with the board’s statement that the annual report, taken as a

whole, is Fair, Balanced and Understandable.

The auditor must report by exception if they do not

agree with the audit committee’s list of significant issues

considered.

Fair, Balanced

and

Understandable

Audit committee

significant issues

A statement in the

audit report as to

whether the

auditor has

anything material

to add or draw

attention to in

relation to:

The directors’ statement that they have carried out a

robust assessment of the principal risks facing the

company, including those that would threaten its solvency

or liquidity

The disclosures in the annual report that address

how those risks are being managed or mitigated and

which, if any, are material uncertainties in relation to the

company’s ability to continue to adopt the going concern

basis of accounting

Already

in place

NEW!



What your auditors will be assessing

Is it Fair, Balanced and

Understandable?

Consistency with the

knowledge the auditor has

acquired during the audit

(including the assessment of

going concern)



Executive remuneration and reporting

David Cullington

©2015 Deloitte LLP. All rights reserved.94


Disclosure

Current reporting season

Policy report

• Significant minority had new vote

• Many companies reprinting full Policy

Annual bonus disclosure

• Generally improved

• Outliers getting increasingly criticised

Single figure

• Press fixated on total figure not the

logic underlying it

Ahead?

Shareholder Rights Directive

• Ratio between average remuneration

of directors and average remuneration

of full time employee and why this ratio

is appropriate

Equal pay

• Businesses with more than 250

employees to disclose information

showing whether there are differences

in the pay of male and female

employees

Deloitte Finance Club – Summer finance checklist (14 May 2015)



Issues

Executive Pay Structures

Clawback & Malus

Holding periods

Shareholding guidelines

Notice periods

Getting incentives

to work “better”

Key 2015 AGM issues

• Large salary rises

• Large bonus payouts &

poor disclosure

• Recruitment awards

• Use of discretion

• Currency issues




Planning, Budgeting & Forecasting – our next global survey

Simon Barnes


Planning, Budgeting & Forecasting

2014 global survey and research




Key findings – ownership

In over a third of

organisations

PBF is seen as a

largely financial

exercise.

Forty-two per

cent take two-to-

three months to

complete their

budget while 32

per cent of

respondents take

up to six months.




Key findings – forecasting

Sixty-seven per

cent of

respondents

execute a

forecast in under

two weeks.

Forty-seven per

cent of

respondents

believe they

confuse

forecasting with

targets and

commitments.




Key findings – technology

Spreadsheets

remain ubiquitous

in both large and

small

organisations.

Over a third of

survey

respondents still

use spreadsheets

as their main tool.



Management Information – 2015 global survey

Get your teams to participateQuestions the survey addresses:

• How can Finance deliver accurate and timely reporting that is also insightful and

actionable?

• What technologies can be easily implemented to aid reporting and analytics?

• What skills and behaviours are needed to generate insight and communicate it to

stakeholders?

Support you can expect:

• Customised benchmark report comparing your results with your peers

• Thought-leadership report providing analysis of global trends

• Industry-specific data cuts for comparison

101 Deloitte Finance Club – Summer finance checklist (14 May 2015)

Have your say

To take part in the upcoming

Management Information survey,

email: [email protected]



Discussion



Upcoming programme

Our post-Summer programme is currently in development – send any

requests or suggestions to us at [email protected]



Contacts and resources• James Bates +44 20 7303 0094 [email protected]

• Philip Barden +44 20 7007 0023 [email protected]

• Amanda Swaffield +44 20 7303 5330 [email protected]

• Peter Westaway +44 20 7007 9024 [email protected]

• Sarah Waddington +44 20 7007 9157 [email protected]

• Stephanie Hurst +44 20 7007 4305 [email protected]

• Tracy Gordon +44 20 7007 3812 [email protected]

• Hans-Kristian Bryn +44 20 7007 2054 [email protected]

• David Cullington +44 20 7007 0899 [email protected]

• Simon Barnes +44 20 7007 6376 [email protected]

Resources:

• Deloitte Finance Club home page: www.deloitte.co.uk/financeclub

• UK Accounting Plus (formerly IAS Plus): www.ukaccountingplus.co.uk

• Annual report insights 2014: www.deloitte.co.uk/annualreportinsights

• Future of UK GAAP: www.deloitte.co.uk/futureofukgaap

• BEPS.tax portal: www.beps.tax












http://www.deloitte.co.uk/financeclub


http://www.deloitte.co.uk/annualreportinsights

http://www.deloitte.co.uk/futureofukgaap

http://www.beps.tax/



Recent seminars• Business Partnering: better decision-making through Finance insight –

Wednesday, 29 April 2015

• The rise of omnichannel: what it means for Finance – Wednesday, 25 March

2015

• Holiday finance checklist 2014 – Wednesday, 10 December 2014

• All change! Key trends and developments in the UK insurance market –

Wednesday, 19 November 2014

• Managing pensions risks and costs and a Tax update –

Wednesday, 22 October 2014

• Football Finance and Fraud: an inevitable cost of doing business? –

Wednesday, 1 October 2014

• Summer finance checklist – Thursday, 17 July 2014

• Finance IT systems – Wednesday, 7 May 2014

• Accounting for real estate and a Tax update – Wednesday, 23 April 2014

• Revenue recognition and the TMT sector – Wednesday, 26 March 2014


http://www.deloitte.co.uk/email/DFC-BusinessPartnering.pdf

http://www.deloitte.co.uk/email/DFC-Retail.pdf

http://www.deloitte.co.uk/email/DFC-HolidayFC14.pdf

http://www.deloitte.co.uk/email/DFC-Insurance.pdf

http://www.deloitte.co.uk/email/DFC-pensions-tax.pdf

http://www.deloitte.co.uk/email/DFC-Football-Finance-Fraud.pdf

http://www.deloitte.co.uk/email/DFC-SummerFC14.pdf

http://www.deloitte.co.uk/email/Tjt5tUwru.pdf

http://www.deloitte.co.uk/email/DFC-Real-estate-Tax.pdf

http://www.deloitte.co.uk/email/DFC-revenue-recognition.pdf


©2015 Deloitte LLP.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of

which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is the United Kingdom member firm of DTTL.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon

the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this

publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP

accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.


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