Julia Irvine 28 Sep 2018 02:02pm

Majority of listed companies ready for regulatory changes

Preparation for the implementation of new International Financial Reporting Standards (IFRSs) is well underway among listed companies even though very few have actually opted for early adoption

Only one company had gone ahead and implemented IFRS 9, Financial Instruments, while another had adopted IFRS 15, Revenue from Contracts with Customers. Both standards came into operation on 1 January this year.

According to Big Four firm Deloitte’s annual research, which provides an in-depth analysis of 100 FTSE 350 and other quoted companies’ annual reports, no companies had implemented IFRS 16, Leases, which is due to come into operation on 1 January 2019.

However, companies provided much more information than they previously had about the expected impact of these standards on their accounts and had also progressed in their preparations.

Deloitte’s head of reporting, Veronica Poole, told economia she was not surprised that so few companies in the survey had adopted the new IFRSs early, “given certain complexities within the standards and the need to have a robust preparation process completed before adoption”. Instead, she welcomed the progress they had clearly made over the year in terms of preparedness.

“In respect of IFRSs 9 and 15, 14% and 23% respectively were sufficiently advanced in their preparations that they felt able to reliably quantify the anticipated impact prior to its implementation,” she said. “A further 75% and 65% stated that they did not expect IFRS 9 and IFRS 15 respectively to have a material impact.

Only eight companies failed to mention anything about the potential impact that IFRS 15 could have on their accounts.

As far as IFRS 16 was concerned, even though it only becomes effective in 2019, Poole was encouraged by the fact that eight companies were already in a position to quantify the anticipated impact, although two provided a numerical range rather than exact numbers.

“In practice, preparations for IFRS 16 often involve gathering sizeable volumes of data, meaning that companies will need time before they feel able to provide a reliable estimate of the anticipated impact in their audited financial statements,” she said.

A further 36 companies indicated the potential of the impact through a cross-reference to their operating lease commitments.

However, adopting this approach needs particular care, the research warns, because of the potential differences between IAS 17’s disclosures on commitments and the amounts to be recognised under IFRS 16.

Only 12 companies said that they did not expect IFRS 16 to have a material impact.

The research found that companies were also “getting ahead of the game” when it came to the new corporate governance and reporting rules.

Nearly one third of the companies surveyed had already disclosed that their directors were taking into account non-financial issues, such as employee interests and maintaining a reputation for high standards of business conduct, alongside shareholder interests.

In line with the forthcoming requirement to report on s172 reporting, nearly all the companies (97%) had provided information about their impact on the community and environment, while 66% reported on how they had acted fairly between different shareholders and 87% discussed maintaining a good business conduct reputation.

Poole said it was unsurprising that most companies provided information on environmental matters and their employees as the introduction of the non-financial reporting (NFR) disclosure requirements (on 1 January 2017) complemented a number of existing requirements in the UK’s corporate reporting regime.

However, when it came to items that had not previously been required, she was delighted that 61 of the 70 surveyed companies which fell within the scope of the NRF Directive had discussed anti-bribery and anti-corruption matters, “even if briefly”.

Nevertheless, there is still more work to be done. Poole pointed to a certain amount of ambiguity on companies’ NRF reporting. “Some companies do have scope to improve the clarity of information they are providing in addressing the new NFR requirements,” she said. “For example, companies should remember that providing a description of what they have done in a certain area, such as environmental or social matters, is not the same thing as disclosing their policy, which is what the NFR calls for.”

“Since the reports we looked at were published, the Financial Reporting Council has published updated guidance on the strategic report, explicitly addressing the new requirements of the NFR Directive and this will no doubt prove helpful in improving disclosures.”

Companies in the survey included 19 from the FTSE 100, 38 from the FTSE 250 and 43 that were outside the FTSE 350. The annual reports all had year ends between 30 September 2017 and 31 March 2018.