3.0 Draft Due Process Handbook – Review of Comments Received

Executive Summary

Purpose of the paper

This paper provides the Board with a summary of the main matters identified by respondents on the draft Due Process Handbook (the “Handbook").

Summary of the Issue

The Handbook was issued for comment on 21 February 2022 and was open for comment until 6 June 2022.

The appendices to this paper include a summary of the main matters identified by respondents on the Handbook (Agenda paper 3 Appendix 1). We are asking the Board for its comments which will help us develop a revised version of the Handbook that we will bring for discussion at a future meeting;

On the other non-substantive matters identified by respondents on the Handbook (Agenda paper 3 Appendix 2) we are also asking for comments, if any.

A copy of the draft Handbook that was published for public comment can be found here.

Decisions for the Board

We are not asking the Board to make any decisions at this meeting. Board members are only asked for their comments on the main matters identified in Appendix 1 and comments on the non-substantive matters in Appendix 2.

Recommendation:

Board members consider the proposed approach and provide comment on proposed actions indicated.

Appendices

• Appendix 1 Comments summary—Main (substantive) matters identified
• Appendix 2 Other non-substantive matters

Introduction

1 The (draft) Due Process Handbook (the “Handbook”) was issued for public consultation on 21 February 2022 and was open for comment (for 105 days) until 6 June 2022.

2 The Board received six comment letters[^1], from the following UK stakeholders:

1. Two respondents are accounting firms;
2. Two respondents are accountancy bodies;
3. One respondent is an individual; and
4. One respondent is a preparer from the insurance sector.

3 Additional comments were also received from the UK oversight body. These comments were similar in nature to the other respondents' comments and consequently have been addressed.

4 Respondents were generally supportive of the processes described in the Handbook. They thought that the processes described provide an adequate framework for the UKEB's due process activities. However, respondents raised several detailed comments and suggestions on the content of the Handbook.

Structure of the papers

5 Agenda paper 3.1 summarises the main (substantive) matters identified by respondents. We are asking the Board for its comments on our preliminary assessment and planned drafting amendments.

6 Agenda Paper 3.2 provides a table with a high-level summary of other non-substantive matters identified by respondents and our planned actions. We are not asking specific questions to the Board but we welcome any feedback on those matters.

Next steps and timeline

7 Subject to the comments we received at this meeting and any amendments/additions required by the Board, we plan to bring for Board review and discussion a revised draft of the Handbook at the September 2022 meeting.

8 We set out our planned next steps in a table and diagram in the next pages.

Timeline

[Draft] Due Process Handbook— Upcoming Tasks

High Level Plan

Appendix 1: Comments summary—Main (substantive) matters identified

Purpose

1 This paper summarises the main (substantive) matters identified by respondents in relation to some of the sections in the (draft) Due Process Handbook (the “Handbook”) (see table below).

2 For each of the main matters identified we describe the issue and provide a preliminary assessment. We also ask the Board for its initial thoughts on the feedback received.

Issue 1—Voting process for adoption decisions

3 Paragraphs 4.2–4.5 of the Handbook describe the voting process requirements for adopting an international accounting standard (hereafter “Standard”)[^1a]. These paragraphs reproduce the requirements in Section 5 of the UKEB's Terms of Reference. The Board's voting process requires an agreement of a two-thirds majority of the members of the Board. Paragraphs 4.4–4.5 describe the process that should be followed when this majority is not reached, including the possibility that the Board may decide not to adopt a Standard in full[^2]; these paragraphs are reproduced below:

4.4 Where the vote to adopt a standard or amendment or interpretation does not reach the required majority, the UKEB Chair may, after consultation with external parties including BEIS, choose to ask the Board to return to the vote. This may include asking the Board to vote on part of the standard, amendment or interpretation if it appears that this will have the required support. A subsequent decision to adopt the part standard or part amendment to a standard or part interpretation must be made by at least two-thirds of the Members (ToR, paragraph 5.4).

4.5 Where a vote by the Board to adopt a standard, amendment, or interpretation, in whole or in part, did not reach the required majority and, in the opinion of the UKEB Chair, there is no prospect of such majority being reached, the UKEB Chair must provide a written explanation of circumstances to the Secretary of State within 10 working days of the failure to adopt. The Secretary of State may require further evidence. The Chair must inform members of the Board of any recommendations by the Secretary of State (ToR, paragraph 5.5).

Matters raised

4 Some respondents raised the following concerns:

1. The UKEB's ability not to adopt a Standard in full (Issue 1A)
2. Additional procedures are needed: (Issue 1B):
   1. in deciding whether to adopt a Standard (i.e. in full or in part); and
   2. after a decision is made to not adopt a Standard (i.e. in full or in part).

Issue 1A: The UKEB's ability not to adopt a Standard in full

Matters raised

5 In respect of the UKEB's ability not to adopt a Standard in full (paragraph 4.4 of the Handbook):

1. One respondent expressed some concerns as this would raise questions about the quality and effectiveness of the UKEB's influencing activities and undermine the position of UK companies.
2. One respondent suggested creating additional steps to ensure that Standards are always endorsed in full. For example, carrying out a public consultation to discuss the contentious aspects of the Standard or amendment to build consensus amongst Board members.
3. One respondent agreed with the UKEB's ability to carve-out or amend a Standard but were of the view that the Handbook should state explicitly that this is not a desired outcome.

Staff view

6 We disagree that the Handbook should state that Standards are always endorsed in full, as this would not be consistent with the purpose of the UKEB to ensure that international accounting standards meet the endorsement criteria before being considered for adoption.

7 We agree that the Board could consider emphasising that non-endorsement (in full or on a partial basis) is not a desired outcome, as we understand that the Board has expressed this desire during its discussions. However, the Handbook sets out the process the Board undertakes in assessing the appropriateness of international accounting standards for use in the UK, not the views on that process.

Issue 1A. Question for the Board

Issue 1B: Additional procedures are needed (i) in deciding whether to adopt a Standard in full and (ii) after a decision is made to not adopt a Standard

Matters raised

(i) In deciding whether to adopt a Standard (i.e. in full or in part)

8 One respondent noticed a perceived inconsistency between paragraph 4.4 and paragraph 6.43(b) of the Handbook. While paragraph 4.4 permits the Chair to return to the vote when a two-thirds majority has not been obtained, paragraph 6.43(b) permits a restart of the adoption process. This respondent suggests that this process be clarified. These paragraphs are reproduced below (emphasis added):

4.4 Where the vote to adopt a standard or amendment or interpretation does not reach the required majority, the UKEB Chair may, after consultation with external parties including BEIS, choose to ask the Board to return to the vote. This may include asking the Board to vote on part of the standard, amendment or interpretation if it appears that this will have the required support. A subsequent decision to adopt the part standard or part amendment to a standard or part interpretation must be made by at least two-thirds of the Members (ToR, paragraph 5.4).

6.43(b) Decisions on the endorsement and adoption of a standard or amendment are made at public Board meetings and follow the requirements of the UKEB's Terms of Reference as follows:

1. Quorum attendance—a minimum of sixty percent of the appointed members are required to attend a meeting of the Board (ToR, paragraph 5.1)
2. Decision-making—an affirmative written vote of at least two-thirds of all of the appointed Board members (ToR, paragraph 5.2), is required for the decision to be passed. Each member of the Board has one vote. A situation where the two-thirds majority cannot be obtained may restart the endorsement and adoption process (ToR, paragraph 5.4).

9 In addition, respondents asked:

1. What determines the Board's decision not to adopt a Standard?
2. Does a vote on full adoption take place before a vote on non-adoption?
3. Does a vote on non-adoption need to be formalised by circulation outside the Board meeting?
4. Is the vote on non-adoption undertaken only by those Board members present at the meeting? Or by all Board members?

(ii) After a decision is made to not adopt a Standard (i.e. in full or in part)

10 Respondents asked:

1. How are any recommendations by the Secretary of State[^3] communicated to the Board and how should they be acted upon?
2. Would a subsequent vote to adopt a standard in full be allowed after the original adoption vote was for part-adoption or adoption with modifications to scope? If this is not allowed, is the UKEB required to give an indication that it will never adopt a Standard?
3. Would a feedback statement (or any other relevant explanatory due process document) be required to clarify or explain a decision not to adopt?

11 One respondent observed that paragraph 6.45 of the Handbook should be amended to require the recording in minutes of the Board's reasons for not supporting the endorsement and adoption of a new or amended standard. This paragraph is reproduced below (emphasis added):

6.45 Where a Board member does not support the endorsement and adoption of a new or amended standard, that is reflected in their vote. If they wish, the reason for this view may be recorded in the minutes.

Staff view

12 We do not agree that there is an inconsistency between paragraphs 4.4 and 6.43(b) of the Handbook (as explained in paragraph 8). We do not consider that any changes need to be made to the Handbook although we suggest clarifying the position by further addition of cross-references as follows:

1. in paragraph 6.43(a) to paragraph 4.1 (Quorum of attendance and decision making); and
2. in paragraph 6.43(b) to paragraphs 4.2–4.5 (Voting process for endorsement decisions).

13 Addressing the respondents' concerns in paragraphs 9–10 of this paper would involve developing additional procedures that are not currently part of the requirements in section 5 of the Terms of Reference. The Terms of Reference are set by the Secretary of State for BEIS. Therefore, we would like to get the Board's view on asking the Secretary of State to undertake a clarification and/or extension of the Terms of Reference so that further procedures be developed to address respondents' concerns. We consider that these procedures do not need to be developed at this time as it is not expected to be a regular occurrence. Due process procedures should be developed when necessary.

14 We disagree with the respondent's suggestion in paragraph 11. Board members are only required to vote in favour or against the adoption of a Standard and are not required to provide their rationale for not adopting a Standard. Consequently, we do not think that paragraph 6.45 should be amended.

Issue 1B. Questions for the Board

Issue 2—UKEB Workplan—priorities, review and discussion

Matters raised

15 Some respondents suggested that in relation to the UKEB workplan:

1. UK-specific issues should be prioritised and be clearly identified (Issue 2A)
2. Endorsement projects should always be top priority (Issue 2B)
3. Additional factors should be considered in prioritising technical projects (Issue 2C)
4. Regular consultations on the UKEB workplan should be undertaken (Issue 2D)

16 We address these issues separately in the paragraphs below.

Issue 2A: UK-specific issues should be prioritised and be clearly identified

Matters raised

17 A couple of respondents observed that although the UKEB's workplan is intended to be aligned with the IASB's work plan[^4], the latter might not necessarily include UK-specific issues. They suggested the UKEB to be proactive in identifying UK-specific issues; to add any of those issues identified to the work plan; and to bring those UK-specific issues to the IASB's attention during the influencing phase of the project.

Staff view

18 We observe that the Handbook already includes requirements that are consistent with the respondents' suggestions. For instance:

1. Paragraph 4.36 includes a requirement to prioritise individual projects that are important to UK stakeholders and that impact UK entities.
2. Regarding how UK-specific issues could be identified:
   1. Paragraph 7.2 (section on “Leading the UK debate”) includes a requirement to engage and collaborate with UK stakeholders to identify key areas of concern.
   2. Paragraph 7.15 (section on “Identification of issues for Research") requires the identification of proposals for research through the interaction with advisory groups or derived from outreach activities or from comment letters by UK stakeholders.
3. Paragraph 4.31(b) states that (emphasis added) “other technical issues derived from the UKEB's own thought leadership and research programme” are also part of the UKEB's workplan.

Issue 2A. Questions for the Board

Issue 2B: Endorsement projects should always be top priority

Matters raised

19 Paragraph 4.31 states that the UKEB's technical plan includes (emphasis added):

4.31

1. Influencing projects that include technical issues identified by the IASB and technical issues identified by the IFRS Interpretations Committee that give rise to:
   1. draft IFRIC Interpretations; and
   2. proposals for minor or narrow-scope amendments to international accounting standards;
2. Other technical issues derived from the UKEB's own thought leadership and research programme
3. Adoption projects.

20 One respondent stated that while research, thought leadership and influencing projects are an important part of the UKEB's work, ensuring that the endorsement process is completed on a timely basis should be the top priority.

Staff view

21 We agree that endorsement projects are a priority. The current order of the sub-paragraphs reflects the order in which a standard is developed, finalised and then considered for endorsement and adoption and we recommend that this is explained in the Handbook. We do not recommend that the order shown in paragraph 4.31(c) needs to be changed although we could explain why it is in that order.

Issue 2B. Question for the Board

Issue 2C: Additional factors should be considered in prioritising technical projects

Matters raised

22 Paragraph 4.36 of the Handbook states that in prioritising individual projects and allocating resources to them, the Board considers various factors, including (emphasis added):

4.36

1. the importance of the issue to UK stakeholders (e.g. users, preparers, academics, accounting firms, accounting bodies and regulators, and others interested in financial reporting);
2. the effect an issue has or is expected to have on UK entities using UK-adopted international accounting standards, including both the number of entities affected and the size of the effect;
3. interactions with other current or proposed projects on the work plan;
4. the urgency of the issue; and
5. the availability of staff resources.

23 A couple of respondents suggested the following additional factors for prioritising technical projects:

1. "the need to align with the IASB effective date of a new or amended standard"; and
2. "the size of the entities affected”, so that an issue that significantly affects a small number of very large entities can be also prioritised.

Staff view

24 We consider that the first suggestion is covered by (d) urgency of the issue and the second suggestion is covered by (b). We do not recommend changing paragraph 4.36 of the Handbook.

Issue 2C. Question for the Board

Issue 2D: Regular consultations on the UKEB workplan should be undertaken

Matters raised

25 A respondent suggested that the Board undertakes regular consultations on its workplan with UK stakeholders and explains the reasons why topics have/have not been added to the plan.

Staff view

26 We consult on our workplan as part of the Regulatory Strategy consultation which will occur every year. The 2022/23 Regulatory Strategy consultation was published in January 2022 and closed on 1 March 2022. We consider that as the consultation on the workplan is within the Regulatory Strategy, that it does not need to be included in the Handbook.

Issue 2D. Question for the Board

Issue 3—Milestones that should be mandatory

Matters raised

27 Some respondents observed that the following milestones should be “mandatory" to support a more robust due process:

Influencing activities (paragraph 5.1)

1. A draft comment letter (DCL). One respondent observed that without a DCL constituents would find it difficult to understand the direction of travel and may result in the accumulation of stakeholder concerns that could only be raised at a later stage in the endorsement process, reducing the UKEB's ability to influence the IASB's decision making process in a timely manner. Another respondent suggested that publishing a DCL should not be mandatory for a tentative agenda decision but that this should be the only exception in the Handbook.
2. Outreach activities. One respondent thought that a certain amount of consultation with stakeholders should always be undertaken (even if this is holding informal meetings or interviews with interested parties or liaising with IASB staff members). Another respondent recommended including an explicit rebuttable presumption that some degree of outreach is expected in an influencing project.
3. Feedback statement. One respondent thought that a feedback statement should be made mandatory if the UKEB issued a DCL.

Research programme (paragraph 7.12)

1. Identification of issues for research. One respondent thought this milestone should be mandatory (this respondent did not provide specific reasons for this suggestion).
2. Outreach activities. One respondent thought that as research projects are influenced by stakeholder engagement, there is merit in considering these activities as mandatory.
3. Feedback statement. One respondent thought that a feedback statement should be made mandatory if the UKEB issued a public consultation document.

First phase of a UKEB post-implementation review (paragraph 8.13)

1. Initial consultation. One respondent thought this milestone should be mandatory given that the "Publication of a Request for Information” (in paragraph 8.13(d)) is a mandatory milestone[^6].

Staff view

28 In practice most projects publish a DCL. The milestone is not “mandatory” because there are some instances where it is not possible due to the urgency of an issue and the existence of reduced comment periods (which are set out by the IASB). This was the case of the project on "Covid-19-Related Rent Concessions beyond 30 June 2021". The IASB issued the Exposure Draft for this project on 11 February 2021 and comments closed on 25 February 2021. The Secretariat did not have time to publish a DCL, however, it emailed many stakeholders (preparers/accounting firms/users) asking them to provide views on specific questions and to submit comments to the Secretariat via email. The Secretariat also held meetings with stakeholders to discuss the Exposure Draft. Based on the feedback received the Secretariat created a final comment letter which was later approved by the Board. In future, consultation with advisory groups may further supplement this activity. Consequently, we think that:

1. A DCL should not be a “mandatory” milestone.
2. A feedback statement in paragraph 5.1(f) should be "mandatory” if a DCL is published.

29 Whilst we agree that a certain amount of consultation with stakeholders is a requirement in Regulation 8 of SI 2019/685[^7], not all outreach activities can be made “mandatory” as they should be proportionate to the significance, complexity and/or size of the project, or to its expected timeline (as mentioned in paragraphs 5.13 and 7.14 of the Handbook). Hence, not all types of outreach activities (these activities are described in paragraph 5.15 of the Handbook) can be listed as “mandatory”. For example, not all projects will receive input from ad-hoc advisory groups or undertake fieldwork because it is a narrow-scope amendment; or not all of the research outputs listed in paragraph 7.11(d)–(e) (i.e. bulletins or quantitative studies) would require outreach activities as they are written to contribute to discussions on specific issues.

30 We:

1. agree that “the identification of issues for research” should be mandatory for the research programme in paragraph 7.12(a).
2. agree that the feedback statement in paragraph 7.12(f) should be mandatory for research documents that invite stakeholder comments.
3. disagree that the “initial consultation” milestone for a UKEB post-implementation review should be mandatory in paragraph 8.13 as implementation problems may be identified only through desk-based research and may not require consultation activities in every instance.

Issue 3. Question for the Board

Issue 4—Considering whether to “pursue” a non-mandatory milestone should not be “optional”

Matters raised

31 Paragraph 1.3 of the Handbook states that the required due process steps in the Handbook (emphasis added):

1.3

1. specify the mandatory milestones to be achieved and other milestones (not labelled as 'mandatory') that may also be considered, as appropriate, to achieve an overall approach to the project that is proportionate to the significance and complexity (i.e. nature or scope) of the project (i.e. relevant standard or amendment), size of the issue and the expected timeline.(...)
2. identify other activities that can be undertaken to achieve the milestones set out in this Handbook. These activities should be proportionate to the issue(s) being addressed (...)

32 One respondent observed that in paragraph 1.3:

1. considering whether to pursue a non-mandatory milestone should not be optional and the Board should explain why an optional milestone will not be pursued.
2. the mention to ‘nature or scope' suggests significance but not complexity.

33 This respondent suggests rewording paragraph 1.3(a) and making similar amendments in related paragraphs (for example, paragraphs 5.2 and 6.11) as follows:

Suggested rewording by the respondent (new text is underlined and deleted text is struck-through):

1.3(a)

1. specify the mandatory milestones to be achieved and other milestones (not labelled as 'mandatory') that may also be pursued considered, as appropriate, to achieve an overall approach to the project that is proportionate to the significance, urgency and complexity (i.e. nature or scope) of the project (i.e. relevant standard or amendment), based on a combined assessment of the nature, scope, impact, size and contentiousness of the issue, and the expected timeline (...)

Staff view

34 Regarding the proposed edits in:

1. Paragraph 1.3, we disagree that the word “considered” should be replaced by "pursued" in paragraph 1.3 as the latter implies that a non-mandatory milestone has to be achieved (similar to a mandatory milestone) and this would create confusion.
2. Paragraphs 5.2 and 6.11, we disagree that milestones not labelled as 'mandatory' will be always considered. Optional milestones will be considered, as appropriate, to achieve an overall approach to the project that is proportionate. Therefore, we do not propose further changes to these paragraphs.
3. Paragraph 1.3, we agree with the proposed edits to explain the application of a proportionate approach (i.e. that is proportionate to the significance, urgency and complexity of the project, based on a combined assessment of the nature, scope, impact, size and contentiousness of the issue, and the expected timeline) as we think they improve the wording of this paragraph. We also agree with the cross-references to this paragraph in paragraphs 5.2 and 6.11.

35 We disagree that the Handbook should require an explanation of why an optional milestone was not undertaken. As mentioned above, the Secretariat will consider non-mandatory milestones as appropriate, to achieve an overall approach to the project that is proportionate. There may be instances where the reason why a non-mandatory milestone is not undertaken is explained, for example, to mention that an optional education session was not held[^8].

Issue 4. Questions for the Board

Issue 5—Instances where consultation periods can be shortened

36 Paragraphs 5.22(a)–(b) of the Handbook consider the possibility that the consultation period for a DCL could be shortened to a period of less than 30 days.

5.22

1. Where amendments to international accounting standards are minor and meet the IASB's criteria for annual improvements or for narrow-scope amendments; and
2. Where there is limited time to consult (e.g. for an urgent narrow-scope amendment issued by the IASB where it shortens the consultation period for an exposure draft from its usual 120 days).

37 A consultation period for a DECA can also be shortened in similar circumstances to a period of not less than 14 days in accordance with paragraph 6.31[^9].

6.31 The UKEB may decide to issue a DECA with a consultation period of not less than 14 days when any of the situations described in paragraph 6.21 (a)–(b) are present.

6.21

1. Where amendments to international accounting standards are minor and meet the criteria for annual improvements or for narrow-scope amendments; and
2. Where there is limited time to consult e.g. for an urgent narrow-scope amendment issued by the IASB where it shortens the period between publication date and effective date of the amendment and the amendment is urgently required to be adopted by entities.

Matters raised

38 Respondents raised concerns on:

1. the situations for shortening comment periods for a DCL and for a DECA.
2. the length of the consultation period for a DCL and for a DECA.

Length of the shorter consultation period for a DCL and for a DECA

39 Most respondents agreed that only urgent matters (and limited to consult) should qualify for a shorter consultation period but that this should not be allowed for amendments that meet the criteria for annual improvements or for narrow-scope amendments (as these can have a far bigger impact than initially identified).

40 One respondent suggested the removal of the instances for shortening comment periods and instead recommended the Board to develop guiding principles that would allow the Board to make an assessment on a case-by-case basis.

Situations for shortening consultation periods

41 Most respondents disagreed with the length of the shortened comment periods for a DCL (less than 30 days) and for a DECA (not less than 14 days) as they thought that both comment periods were too short to be meaningful. These respondents suggested that the minimum comment period for a DCL and for a DECA should be not less than 30 days. Two respondents thought that this period could be reduced only in exceptional circumstances, for example in the event of a true emergency and/or when there are critical and/or time sensitive emerging issues that need addressing urgently.

Staff view

42 We agree that consultation periods for amendments to Standards should only be shortened when the new or amended Standard is urgent. Therefore, we propose:

1. For a DCL (Section 5): Deleting paragraph 5.22(a) (that states that the comment period of a DCL can be shortened for minor or for narrow-scope amendments).
2. For a DECA (Section 6): In paragraph 6.21 (and updating paragraph 6.31):
   1. Deleting paragraph 6.21(a) which permits a shorter comment period for minor amendments.
   2. indicating that the consultation period for a DECA could be shortened only when the situation described in paragraph 6.21(b) is present (i.e. when there is limited time to consult, e.g. the new or amended Standard is urgent).
3. For a research document (Section 7): Amend paragraphs 7.28 to state that only when a research document is on a topic that is related or linked to an urgent project the Board may set a shorter consultation period.
4. For a Request for Information (Section 8): Amend paragraph 8.24 to state that only when a Request for Information is on a topic that is related or linked to an urgent project the Board may set a shorter consultation period.

43 We do not propose amending the length of the shortened consultation periods for a DCL and for a DECA in paragraphs 5.22 and 6.31 (respectively) of the Handbook, as in practice the IASB has sometimes significantly reduced the period between publication date and effective date of an amendment where an amendment has been urgent[^10]. We observe that a few respondents implicitly agreed with this view as they observed that the consultation period could be further reduced in special circumstances.

Issue 5. Questions for the Board

Issue 6—Circumstances for carrying out “minimum outreach activities" for endorsement projects

44 Paragraphs 6.21(a)–(b) describe the situations in which the UKEB carries out minimum outreach activities for endorsement activities (as discussed in Issue 5 these situations are the same for shortening the comment period for a DECA). This is:

6.21

1. Where amendments to international accounting standards are minor and meet the criteria for annual improvements or for narrow-scope amendments; and
2. Where there is limited time to consult e.g. for an urgent narrow-scope amendment issued by the IASB where it shortens the period between publication date and effective date of the amendment and the amendment is urgently required to be adopted by entities.

Matters raised

45 Respondents agreed with the circumstances mentioned in paragraph 6.21 for carrying out minimum outreach activities for endorsement projects. One respondent thought that the amount of outreach undertaken should also be determined by how successful the UKEB has been at the influencing stage. For example, a limited amount of outreach may be appropriate if extensive stakeholder consultation was undertaken (while the Standard was being developed) and if the issues raised had been shared with the IASB and acted upon.

46 Another respondent recommended that paragraph 6.21 includes an explicit rebuttable presumption that outreach beyond the minimum level is to be undertaken as part of an endorsement process.

Staff view

47 We disagree that “the extent of stakeholder consultation during the development of a new or amended Standard” should be added as a new circumstance for determining minimum outreach activities for endorsement activities. The endorsement and adoption phase of a project has a different objective and different criteria that need to be addressed.

48 We think that adding an explicit rebuttable presumption that outreach beyond the minimum level is to be undertaken as part of an endorsement process is not necessary because paragraph 6.23 requires the Secretariat to highlight in the Project Initiation Plan "the amount of outreach undertaken, together with the rationale”.

Issue 6. Questions for the Board

Issue 7—DECA content

49 Paragraph 6.27 of the Handbook states that the main sections of the DECA are as follows (we are reproducing an extract of this paragraph):

6.27

1. Introduction: legislative framework and approach to the assessment:
   1. (...)
2. Rationale for the new or amended international accounting standard, i.e. summary background, context and objectives and main accounting requirements;
3. Technical criteria assessment:
   1. (...)
4. Whether use of the new or amended standard is likely to be conducive to the long term public good in the UK (SI 2019/685 Regulation 7(1)(b)), including: (...)

Matters raised

50 Some respondents raised the following comments:

1. The content of the DECA should be focused on UK-specific issues (Issue 7A)
2. The technical accounting criteria in the DECA should be aligned with the IASB's 2018 Conceptual Framework (Issue 7B)
3. The assessment on long-term public good should be expanded to include the impact of non-endorsement (Issue 7C)

51 We address these issues separately in paragraphs below.

Issue 7A: The content of the DECA should be focused on UK-specific issues

Matters raised

52 One respondent thought that a DECA should not be a document that re-deliberates and re-debates specific issues that have already been considered by the IASB and that instead, it focuses on UK-specific issues that were not adequately addressed by the IASB.

53 This respondent also observed that the lengthy IFRS 17 DECA is not taken as a template going forward.

Staff view

54 We disagree with the respondent's suggestion to focus the DECA on UK-specific issues only as the content of the DECA is derived from the requirements in the UKEB's statutory instrument SI 2019/685.

55 The IFRS 17 DECA was mainly focused on UK-specific issues –the only exception being the assessment of annual cohorts which was additionally considered due to the implications to the UK's long-term public good assessment. Nevertheless, the length of the DECA will not always be the same and will vary depending on the nature, scope or complexity of the new (or amended) Standard. Consequently, we do not think that any further action is needed in this respect.

Issue 7A. Question for the Board

Issue 7B: The technical accounting criteria in the DECA should be aligned with the IASB's 2018 Conceptual Framework

Matters raised

56 One respondent recommends the alignment of the technical criteria for endorsement and adoption (in paragraph 6.27(c)(i) of the Handbook) with the qualitative characteristics in the revised Conceptual Framework issued by the IASB in March 2018. This is because:

1. the UKEB's technical criteria give equal weight to the qualitative characteristics of financial information (i.e. understandability, relevance, reliability and comparability); whereas,
2. the IASB's revised 2018 Conceptual Framework establishes a distinction between fundamental characteristics (relevance and faithful representation) and enhancing qualitative characteristics (comparability, verifiability, timeliness, and understandability).

57 We reproduce an extract of paragraph 6.27(c)(i) below:

6.27

1. Technical criteria assessment:
   1. whether the standard meets the criteria of relevance, reliability, comparability and understandability required of the financial information needed for making economic decisions and assessing the stewardship of management (...)

Staff view

58 We disagree with the respondent's suggestion. The descriptions in the DECA are based on the qualitative characteristics that are part of the criteria for endorsement and adoption of IFRS in the EU's IAS Regulation (1606/2002), and, subsequently, were on-shored in SI 2019/685. Consequently, those characteristics cannot be aligned with the 2018 Conceptual Framework. We observe that the same respondent addressed this same point in its response to the IFRS 17 DECA[^11]. The IFRS 17 Feedback Statement[^12] observed that:

"The technical accounting criteria assessment was completed in accordance with the criteria set out in SI 2019/685, which is separate from the IASB's Conceptual Framework and does not require or indicate a weighting between criteria. On this basis no amendment was made in the final ECA for this point"

59 Based on the above, we do not recommend the Board take any further action in this respect.

Issue 7B. Question for the Board

Issue 7C: The assessment on long-term public good should be expanded to include the impact of non-endorsement

Matters raised

60 Paragraphs 6.27(d) of the Handbook explains that the assessment of whether use of the new or amended standard is likely to be conducive to the long term public good (LTPG) includes an assessment of:

6.27(d)

1. whether the use of the standard is likely to improve the quality of financial reporting;
2. the costs and benefits that are likely to result from the use of the standard; and
3. whether the use of the standard is likely to have an adverse effect on the economy of the UK, including on economic growth

61 Two respondents were of the view that the LTPG assessment in paragraph 6.7(d) should additionally include consideration of the impact of non-endorsement (in full or in part).

Staff view

62 The impact of non-endorsement in full is already considered since, if a standard or amendment is not adopted in full, this is automatically the impact. The Terms of Reference of the UKEB set out that it is after a vote to adopt a standard or amendment or interpretation does not reach the required majority, the Chair may decide to ask the Board to vote on part of the standard or amendment. Consequently, the partial adoption question would only arise after adoption in full has been considered. We do not consider that this needs to be incorporated into the Handbook.

Issue 7C. Question for the Board

Issue 8—Timeframes for completing endorsement activities

Matters raised

63 A few respondents observed that the Handbook does not mention detailed timeframes for completing endorsement and adoption projects. They think that including such timeframes is important because it would provide certainty to UK markets and would allow UK companies to prepare for the implementation of a new or amended Standard.

Staff view

64 The Handbook does not currently require the UKEB to complete the endorsement or adoption of a Standard under a certain timeframe. However, paragraph 6.15(a) (Section 6: “Project initiation Plan”) requires the Secretariat to provide a description of the proposed timeline, which we think should be sufficient. Therefore, we do not propose adding any further requirements in this respect.

Issue 8. Question for the Board

Issue 9—Activities for meeting the objectives of thought leadership and the research programme

Matters raised

65 Some respondents suggested that the following issues should be clarified in Section 7 of the Handbook:

1. Timing and frequency of engagement with UK stakeholders (Issue 9A)
2. Developing the UKEB’s “own views” when 'leading the UK debate' is misleading (Issue 9B)
3. Who represents the UKEB on IASB's consultative groups (Issue 9C)
4. How the UKEB engages with bodies in other jurisdictions (Issue 9D)
5. Why the research programme has a “problem-solving orientation” (Issue 9E)

66 We address these issues separately in paragraphs below.

Issue 9A: Timing and frequency of engagement with UK stakeholders

Matters raised

67 Paragraphs 7.2 and 7.3 in the Handbook explain how the UKEB carries out the objectives to "lead the UK debate on international accounting standards” and to "proactively participate in the development of global accounting standards”. One respondent observed that those paragraphs give no indication on the timing and frequency of the UKEB's engagement with UK stakeholders. This respondent thinks that this additional information would help manage stakeholder expectations as to the frequency and method of engagement.

68 Another respondent observed that smaller entities (i.e. entities that are not listed) sometimes do not have the resources to engage with the IASB directly, and therefore the UKEB should develop a process to engage with these stakeholders directly.

Staff view

69 The level of engagement with UK stakeholders will be project-specific and will depend on the nature, scope or complexity of the project. One of the requirements in the Project Initiation Plan (paragraph 7.18(b) of the Handbook) is to provide “a description of milestones and planned activities that will be undertaken to achieve those milestones...”. Therefore, this plan will give stakeholders an indication on the timing and frequency of the UKEB's engagement with UK stakeholders, including about its engagement with UK stakeholders that do not engage with the IASB directly. Additionally, we are setting-up advisory groups which will also provide regular input to the Board. Consequently, we do not recommend the Board take any further action in this respect.

Issue 9A. Question for the Board

Issue 9B: Developing the UKEB’s “own views” when 'leading the UK debate' is misleading

Matters raised

70 Paragraph 7.2(a) of the Handbook states that the UKEB leads the UK debate on international accounting standards and reporting by (emphasis added):

7.2(a)

1. actively engaging and collaborating with UK stakeholders on areas that concern UK stakeholders during the process of developing its own views, with the aim of building robust and evidence-based recommendations.
2. (...)

71 One respondent observed that the meaning of “its own views” in paragraph 7.2(a) is ambiguous and potentially misleading as it implies that the UKEB will be interpreting Standards.

Staff view

72 We do not agree with the respondent. We consider that the phrase "during the process of developing its own views” is an intrinsic part of our thought leadership guiding principle and does not relate to interpreting standards.

Issue 9B. Question for the Board

Issue 9C: Who represents the UKEB on IASB's consultative groups

Matters raised

73 Paragraph 7.4(b) states that the UKEB directly influences the IASB Board and maintains a global presence on the international financial stage by (emphasis added):

7.4(b)

1. maintaining effective relationships, communication and presence with the IASB and other national standard-setters subject to available UKEB resources.
2. (...)

74 One respondent suggested that the UKEB should provide information about UK representatives attending IASB's consultative groups on the UKEB website for additional transparency.

Staff view

75 We agree with the respondent's suggestion to publish information about UKEB representatives to the IASB's consultative groups on the UKEB website, for example, the Chair is a member of ASAF. As to other UK people being a member of an IASB consultative group, we may publish such information if it is not contrary to the GDPR rules relating to the publication of personal information.

Issue 9C. Question for the Board

Issue 9D: How the UKEB engages with bodies in other jurisdictions

Matters raised

76 Paragraphs 7.5–7.6 of the Handbook in the Section "Engaging with other bodies in other jurisdictions" explain the interaction that the UKEB will have with bodies in other jurisdictions. These paragraphs are reproduced below:

7.5 Regular contact between the UKEB and the FRC as well as with other national standard-setters in other jurisdictions can help increase the understanding, awareness and support for UK views, thereby, allowing the UKEB to lead on the accounting debate.

7.6 The UKEB and other national standard-setters can interact in a range of ways including developing joint thought leadership and research documents, regular and ad-hoc emails, conferences and roundtables, blogs, articles, regional forums or telephone exchanges

77 One respondent observed that paragraphs 7.5–7.6 do not explain how the UKEB will engage with other bodies in other jurisdictions and suggests that those paragraphs be restructured to explain what the UKEB will be committed to do. This respondent suggested that this section should be preceded by the opening sentence “The UKEB engages with bodies in other jurisdictions by...".

Staff view

78 We disagree with the respondent's suggestion. We are unable to state how the UKEB will engage with bodies in other jurisdictions as the type of engagement will differ depending on the type of projects the UKEB is dealing with and the standard-setter we are engaging with. Therefore, we do not propose any changes to the wording in paragraphs 7.5–7.6 of the Handbook.

Issue 9D. Question for the Board

Issue 9E: Why the research programme has a “problem-solving orientation”

Matters raised

79 Paragraph 7.7 of the Handbook explains that the objective of the research programme is as follows (emphasis added):

7.7 Research is generally directed to identify specific issues associated with projects that are on the UKEB's technical agenda. As such, research may be expected to have a problem-solving orientation by collecting evidence on the nature and extent of the perceived shortcomings of, and assessing potential ways, to improve or to remedy a deficiency in international accounting standards.

80 One respondent observed that while a 'problem-solving orientation' is to be encouraged, the UKEB must be careful not to inadvertently publish interpretation guidance or advice about issues where Standards are deficient or unclear.

Staff view

81 We consider that a problem-solving orientation for research does not lead to the UKEB issuing technical advice and/or interpretations of the Standards. We consider that no changes are required to the wording of paragraph 7.7.

Issue 9E. Question for the Board

Issue 10—Requirements for carrying out post-implementation reviews

Matters raised

82 A few respondents suggested that the following issues should be clarified in Section 8 ("Post-Implementation reviews") of the Handbook:

1. Additional activities carried out during post-implementation reviews (Issue 10A)
2. Process for carrying out subsequent reviews (Issue 10B)
3. Clarifications around what constitutes a 'significant change in practice' (Issue 10C)

83 We address these issues separately in paragraphs below.

Issue 10A: Additional activities carried out during post-implementation reviews

Matters raised

84 One respondent agrees that it is appropriate for the UKEB to provide its input on an IASB's post-implementation review as required by paragraph 8.2 of the Handbook. This paragraph is reproduced below (emphasis added).

8.2 The UKEB's work on influencing the development of international accounting standards includes monitoring and responding to IASB post-implementation reviews of international accounting standards.

85 However, influencing an IASB's PIR to meet the IASB's objective for a PIR (i.e. assessing the effect of new requirements) is not the same as the objective of a UKEB PIR which is to focus on the impact of the adoption of a standard (see paragraph 8.6(a) of the Handbook reproduced below). Therefore, this respondent recommends that the UKEB's report setting out its conclusions of the (IASB's) post-implementation review (required by paragraph 8.5[^13] of the Handbook) be reinforced to include the evidence gathered by the UKEB. This evidence could be derived from its own outreach activities as well as its own findings and recommendations.

8.6 Paragraph 3 in Regulation 11 in SI 2019/385 contains a requirement to:

1. 'carry out a review of the impact of the adoption of the standard' where the standard is likely to lead to a 'significant change in accounting practice'; and
2. publish a report setting out the conclusions of the review no later than 5 years after the date on which the standard takes effect (being the first day of the first financial year in respect of which it must be used)'.

86 Another respondent observes that “testing the continuing relevance" of a Standard (as referred to in paragraph 8.10 of the Handbook) is not in line with the objective of a UKEB post-implementation review. Paragraph 8.10 is reproduced below (emphasis added).

8.10 When the IASB decides not to undertake a post-implementation review on a new international accounting standard and it is a significant change in accounting practice, the UKEB must perform its own post-implementation review of the standard to test its continuing relevance in line with the requirements in Regulation 11 in SI 2019/685. This should be completed no later than 5 years after the date on which the international accounting standard takes effect, in accordance with paragraph (3)(b) of this Regulation".

Staff view

87 For Standards that the UKEB did not adopt directly and that were adopted by the European Union before the Transition Period (31 December 2020) (e.g. PIRs on IFRS 9, IFRS 15 or IFRS 16), the UKEB will carry out its own influencing activities[^14] in accordance with paragraphs 8.2–8.5 of the Handbook). We expect that these activities will cover some of the aspects highlighted by the respondent (e.g. outreach activities). The UKEB is also required by paragraph 8.5 of the Handbook to explain in a separate report how the UKEB feedback was addressed by the IASB. Therefore, we do not think it is necessary to amend paragraphs 8.2–8.5.

88 For Standards that the UKEB adopted after the end of Transition Period (e.g. IFRS 17), or that the UKEB will adopt, it will apply the requirements in paragraph 8.6 of the Handbook (i.e. carry out a review of the impact of the adoption of the standard and publish a report setting out the conclusions of the review). We expect that this report will include the aspects highlighted by the respondent (i.e. evidence gathered, UKEB's own findings, recommendations and conclusions). Therefore, we do not think it is necessary to amend paragraph 8.6.

89 We agree that testing the continuing relevance of a new Standard is not an objective of a UKEB post-implementation review and consequently paragraph 8.10 should be amended to remove this objective.

Issue 10A. Questions for the Board

Issue 10B: Process for carrying out subsequent reviews

Matters raised

90 One respondent thinks that the Handbook should set out due process steps for deciding whether the subsequent review required in paragraph 8.7(a) of the Handbook is necessary. This paragraph is reproduced below (emphasis added):

8.7 Paragraph 4 in Regulation 11 in SI 2019/685 contains a requirement to:

1. carry out subsequent reviews from time to time; and
2. publish a report setting out the conclusions of any review conducted.

Staff view

91 We do not envisage situations where we will have to carry out subsequent reviews, so we are not recommending additional procedures in this respect.

Issue 10B. Question for the Board

Issue 10C: Clarifications around what constitutes a “significant change in practice”

92 Paragraph 8.6(a) in the Handbook contains a requirement (in line with paragraph 3 in Regulation 11 in SI 2019/385) to (emphasis added):

8.6(a)

1. carry out a review of the 'impact of the adoption of the standard' where the standard is likely to lead to a 'significant change in accounting practice'.

93 Paragraph 8.8 of the Handbook describes a “significant change in practice” as follows (emphasis added):

8.8 A 'significant change in accounting practice' usually occurs when a new accounting standard is issued by the IASB. A new standard meets a 'significant change in accounting practice' as it will usually have a widespread effect on many entities or a material effect on a few entities.

94 Respondents provided the following comments on paragraph 8.8:

1. include, for example, IFRIC interpretations and major amendments to Standards that are considered 'significant'[^15]. Narrow-scope amendments and annual improvements are unlikely to be considered 'significant' and as such they should be exempted from the PIR requirements.
2. The phrase “widespread effect on many entities or a material effect on a few entities” appears to be a presumption rather than a test that is applied to each adoption.
3. The Handbook should set out the steps that the UKEB should follow to determine whether the potential impact of an amendment is considered 'widespread' enough to be considered 'significant' to UK companies. The UKEB should also explain how it reached a conclusion that a new or amended standard is 'significant' and include this explanation in the DECA.
4. The adoption process should include a vote by the Board as to whether the adoption is a 'significant change in accounting practice'.

Staff view

95 We disagree that the definition of a 'significant change in accounting practice' could be broadened to include “IFRIC Interpretations” as we cannot envisage an Interpretation being a significant change in accounting practice due to its nature, i.e. being an interpretation of existing requirements.

96 We think that a “new standard” will always represent a 'significant change in accounting practice'. We agree that a major amendment could be considered 'significant'. However, whether a major amendment will always be a 'significant change in accounting practice' would ultimately be a matter of judgement and this should be indicated in the Handbook.

97 We do not agree that the meaning of a 'significant change in practice" or the term "widespread" should be further clarified in paragraph 8.8. We only suggest a few edits as follows: (new text is underlined and deleted text is struck-through):

8.8 A 'significant change in accounting practice' usually occurs when a new accounting standard is issued by the IASB. A new standard meets a 'significant change in accounting practice' when it has as it will usually have a widespread effect on many entities or a material effect on a few entities.

98 We suggest adding the following paragraph below paragraph 8.8 of the Handbook to state that:

The Board may conclude that a major amendment constitutes a 'significant change in accounting practice'. If the Board reaches this conclusion, the UKEB will carry out a review of the impact of the adoption of the major amendment by following the requirements in paragraph 8.6 of this Handbook.

99 We disagree that the adoption process should include a vote by the Board as to whether the adoption is a 'significant change in accounting practice' because it is implicit that for new standards or for major amendments to standards, where the UKEB has indicated that it considers the new standard or major amendment to be a significant change in accounting practice, then the UKEB will carry out a PIR.

Issue 10C. Questions for the Board

Issue 11—Supporting the work of the IFRS Interpretations Committee

Matters raised

100 Some respondents suggested that in relation to Section 10 (“Supporting the work of the IFRS Interpretations Committee”), the Board should:

1. Create a mechanism for altering IASB interpretations or agenda decisions derived from partially adopted Standards (Issue 11A)
2. Publish an assessment of whether the Board will respond to a tentative agenda decision (Issue 11B)

101 We address these issues separately in paragraphs below.

Issue 11A: Create a mechanism for altering IASB interpretations or agenda decisions derived from partially adopted Standards

Matters raised

102 One respondent observed that the Board should create a mechanism for altering IASB interpretations or agenda decisions where these rely on Standards that have been partially adopted (i.e. carved out).

Staff view

103 We disagree with this view as we do not think that the UKEB will be developing due process requirements for “carved-out” situations.

Issue 11A. Question for the Board

Issue 11B: Publish an assessment of whether the Board will respond to a tentative agenda decision

Matters raised

104 One respondent suggested the publication of the UKEB's assessment of tentative agenda decision issued by the IFRS Interpretations Committee and whether or not the UKEB will issue a response.

Staff view

105 The Secretariat regularly briefs the Board about the matters under consideration by IFRIC and where appropriate, the Secretariat issues recommendations if further action should be taken.

106 The technical update now included as part of the Secretariat's report on “monitoring” projects (see our discussion for Issue 13C in paragraphs 118–119 of this paper) is discussed publicly and addresses the respondent's concerns. Therefore, we do not recommend the Board take any further action in this respect.

Issue 11B. Question for the Board

Issue 12—Quorum requirements for advisory groups and frequency of meetings

Matters raised

107 One respondent observed that paragraphs 9.15–9.21 of the Handbook should include quorum requirements for each advisory group and an indication of how frequently these groups should meet.

Staff view

108 We observe that the Terms of Reference for each advisory group will set out the requirements for the quorum and for the frequency of advisory group meetings. Therefore, we do not recommend the Board take any further action in this respect.

Issue 12. Question for the Board

Issue 13—Other issues not addressed in the Handbook

Matters raised

109 Some respondents suggested the Board to:

1. Undertake a review of the quality and effectiveness of the UKEB's activities and "lessons learned" (Issue 13A)
2. Add steps for the UKEB's work on sustainability standards (Issue 13B)
3. Cover the "monitoring” stage of influencing projects (Issue 13C)
4. Create a process for receiving complaints (Issue 13D)

110 We address these issues separately in paragraphs below.

Issue 13A: Undertake a review of the quality and effectiveness of the UKEB's activities and "lessons learned"

Matters raised

111 Many respondents observed that the Handbook should include a new requirement to undertake a review of the quality and effectiveness of the UKEB's influencing and endorsement activities. This review could assess for example:

1. Whether the UKEB has been successful in assessing the UK public good when making its endorsement decisions (for example, if the benefits and costs materialised as expected);
2. Whether there are “lessons to be learned” from projects and other engagements; and
3. How the UKEB could improve its processes in the future.

112 One respondent observed that such a review could be undertaken by an independent third party or by an ad hoc advisory group.

Staff view

113 We observe that the respondents' suggestion has been raised before[^16], and we think it is a valuable suggestion. We think that the proposed review might be more adequately addressed as part of the Board's effectiveness review[^17], the FRC oversight, and by the UKEB's continuous improvement efforts.

114 Consequently, we do not consider that the Handbook needs to be amended for this point.

Issue 13A. Question for the Board

Issue 13B: Add steps for the UKEB's work on sustainability standards

Matters raised

115 One respondent suggested that further processes should be added to the Handbook if the UKEB's remit extends to the work of the International Sustainability Standards Board (ISSB) on sustainability-related disclosure standards.

Staff view

116 We observe that the UK government has not yet consulted on which entity will be responsible for the endorsement and adoption of the standards issued by the ISSB. We advise that the appropriate moment to consider whether changes to the UKEB Handbook are necessary for this purpose when the UK Government finalises its approach to the adoption of ISSB standards. Any such amendments to the Handbook will be subject to formal public consultation.

Issue 13B. Question for the Board

Issue 13C: Cover the “monitoring” stage of influencing projects

Matters raised

117 One respondent suggests that the Handbook should include the “monitoring” stage of influencing projects as the UKEB and suggests that this is covered in Section 5 ("Influencing process”) of the Handbook.

Staff view

118 We disagree with the respondent that the “monitoring” stage of influencing projects should be covered in the Handbook.

119 The Secretariat provides regular updates to the Board about matters under consideration by the IFRIC (see paragraphs 105–106 of this paper), and by the IASB[^18]. Therefore, we do not recommend the Board take any further action in this respect.

Issue 13C. Question for the Board

Issue 13D: Create a process for receiving complaints

Matters raised

120 Two respondents recommended the creation of a process for complaints. This is for example if stakeholders think that the UKEB is acting unfairly, has breached its due process, or has not complied with a legal requirement; or, if the stakeholder wishes to appeal a UKEB adoption decision.

Staff view

121 We observe that the UKEB already has a Complaints policy which can be accessed on the UKEB's website. It has two stages: an internal review and an external review. It should be highlighted that this complaints process is not a vehicle through which a stakeholder can try to overturn or change the Board's technical decisions (see for example section 2 in the Complaints Policy[^19]).

Issue 13D. Question for the Board

Appendix 2: Other non-substantive matters

Purpose

1 This paper provides a table with a high-level summary of other non-substantive matters[^1-appendix-2] identified by respondents and our planned actions. We are not asking specific questions to the Board but we welcome any feedback on these matters.