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The UK Financial Reporting Council (FRC) has published its thematic review of fair value measurement. Although the review focuses on disclosure matters, it includes two case studies to highlight measurement issues the FRC found in routine monitoring of corporate reporting.
According to a news release, the review highlights that:
- Fair value measurements should use market participants’ rather than the company’s own assumptions. Whilst the transaction price usually reflects fair value, there may be circumstances where this is not the case, for example, in transactions with related parties. Companies should ensure that appropriate adjustments are made to the transaction price to ensure it reflects fair value in such cases.
- There is scope for improvement of the disclosures provided by many companies. The transparency of reporting about the valuation approach, underlying assumptions, management judgement, and estimation uncertainty is key.
- Companies should consider using specialist third-party advice when valuing a material item and where there is no internal expertise.
“To encourage improvement in the general quality of company disclosures, the review also includes examples of good practice, each of which demonstrates a particular characteristic of a better disclosure,” the release said.
IPSASB begins work on climate-related reporting standards
Following its scoping and research phase, the International Public Sector Accounting Standards Board (IPSASB) decided to proceed with the development of a public sector-specific climate-related disclosures standard, a news release said. A project brief on the board’s new work in this area has been issued.
“The IPSASB’s decision to develop a public sector specific climate-related disclosures standard is a huge first step in addressing the public sector’s need for sustainability reporting standards,” IPSASB Chair Ian Carruthers said in the release. “The board is delighted to be able to respond to stakeholder calls in this way and hopes to be able to initiate other projects in this critical area in the coming months.”
A working group to provide climate-related expertise and advice to support the project’s delivery is also in development. The board will also set up a sustainability reference group to provide advice on its overall sustainability reporting standards development program.
FRC publishes research on proxy advisers and ESG ratings agencies
The FRC has published detailed research into the impact of proxy voting advisers and ESG ratings agencies on actions and reporting by FTSE 350 companies and on investor voting decisions, a news release said.
The regulator believes the research “will be a valuable tool for the various consultations underway about the impact of proxy voting agencies’ activities on corporates, particularly on key issues such as remuneration policies,” the release said.
“Proxy advisors, voting agencies, and ESG ratings agencies are an important resource for fund managers; however, there are always ways to improve engagement, stewardship, and shareholder communications for a better, more efficient, and competitive market,” Mark Babington, the FRC’s executive director of regulatory standards, said in the release.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.
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