Phillipa Lamb: Hello and welcome back to the insights Podcast. I’m Philippa Lamb with this month’s key developments in accountancy. Today, we’re discussing the first two standards published by the International Sustainability Standards Board, plus the newly launched E-Commerce Trade Commission. And we’ll have more on CPD. What will firms’ responsibilities be as the regulations change in November? Briefing us today we have Sally Baker, Head of Corporate Reporting, Ed Saltmarsh, Technical Manager, and Sophie Wales, Head of Regulatory Affairs, who’s joining us remotely. Hello, everyone. Good morning. So, Sally, shall we start with the ISSB’s standards. Can you just remind us when the board was established and what the plan is – what are the goals?
Sally Baker: So the International Sustainability Standards Board – the ISSB – the formation of it was announced at COP26 in Glasgow at the end of 2021. It’s been formed under the governance of the IFRS Foundation and it’s a sister board to the more established International Accounting Standards Board. And the role, the role really is to develop a comprehensive global baseline of high-quality sustainability disclosure standards. And by that we mean consistent, comparable disclosures that is going to provide decision-useful information to investors. And one of their kind of key aims is to streamline what became a bit of an alphabet soup, referred to as an alphabet soup of reporting frameworks that were out there.
PL: Now these are the first two standards – what do they cover?
SB: So IFRS S1 one looks at the general requirements for disclosure of sustainability related financial information, and IFRS S2 looks specifically at climate-related disclosures.
PL: So thinking about specifics, what’s in the standards?
SB: In terms of IFRS S1, it requires an entity to disclose material information about all sustainability related risks and opportunities that could be reasonably expected to affect an entity’s prospects, either over the short term, the medium term or the long term. And that’s covering information over four different areas: governance – the processes that an entity uses to manage and monitor those risks and opportunities; strategy – so the approach taken by the entity in managing those risks and opportunities; risk management – how the entity assesses and prioritises those risks and opportunities; and then finally metrics and targets, which is looking at the entity’s performance in relation to the risks and opportunities and progress towards any targets that have been set, either by itself or through other regulatory requirements. I think it’s also worth noting that in identifying the risks and opportunities, entities must refer to and consider the topics in the standards of the Sustainability Accounting Standards Board, so the SASB standards as well as the ISSB standards. Other guidance that is out there may also be referred to and when it comes to IFRS S2, there is also a separate document accompanying IFRS S2 containing industry-based guidance, which entities must refer to and consider.
PL: And what about IFRS S2 – this is the one that’s about climate-related risks?
SB: So IFRS S2 specifically looking at climate-related risks and opportunities, and that’s either physical risks such as weather events, or transition risks, ie risks associated with transitioning to a low-carbon economy, and IFRS S2’s requirements are based on the same four areas in terms of governance, strategy, risk management, metrics and targets.
PL: So who exactly is affected by these standards? Are they voluntary or are they mandatory at this sta?
SB: So at the moment, they would be voluntary. There is an effective date in the accounting standards of the first of January 2024, with early adoption permitted, but that date to some extent is is irrelevant because it’s up to individual jurisdictions around the world to adopt the use of the ISSB’s standards. They are designed to be GAAP agnostic, which means that they can be used in conjunction with any local accounting standards. So whether you’re currently using IFRS accounting standards, UK GAAP or another framework, they are designed to be used in addition to those frameworks.
PL: Okay, but from a UK perspective?
SB: From a UK perspective, these standards first need to be endorsed for use by the government. That process is underway. The green finance strategy that the UK government produced in March, committed to an endorsement decision within 12 months of the final standards being published. And then once they’ve been endorsed for use in the UK, UK entities will be able to apply them voluntarily. Any mandatory application would be subject to further consultation.
PL: And what does ICAEW make of these standards? You know, are you happy with them?
SB: Yes. I think we should say, first of all, that ICAEW has been a long-standing supporter of global standards. So we’re very pleased to see a similar framework being developed for sustainability reporting, as we’re used to for more traditional financial reporting. We also congratulate the ISSB with the speed with which these two standards have been produced. Producing them and publishing them within an 18-month timeframe, whilst balancing that with proper due process, is quite a feat.
PL: And that’s impressive isn’t it?
SB: It is impressive, and that proper due process really is critical to achieving high-quality standards. And I think the other area to comment on is that we’re pleased that in terms of the industry specific guidance, and these additional materials that entities must refer to, we’re pleased that they have been retained in the final standards, but there has been movement compared to when the standards were exposed for consultation, when they were required to be considered on a mandatory basis or as an integral part of the standard, rather than just being additional guidance. We think that’s a definitely a step in the right direction.
PL: So what is next for the ISSB now?
SB: So the ISSB is now undertaking a consultation on its agenda priorities for the next couple of years. It’s seeking views on for potential projects, which cover biodiversity, human rights, human capital, as well as the integration between financial reporting and sustainability reporting.
PL: And this is – I’m sorry to interrupt you – there’s a consultation isn’t there?
SB: So that’s the consultation. That consultation is open until the first of September and ICAEW is in the process of responding.
PL: If members want to keep up to date – this is obviously moving quite fast – how would they do that?
SB: It is a very fast moving landscape, it has to be said. So we have several resources. We have a non financial reporting hub at icaew.com/nfr where all the latest developments will be. We also publish articles in our digital magazine, By All Accounts, at icaew.com/byallaccounts and we have just recently produced a selection of articles relating to sustainability reporting. And if you want to have content delivered straight to your inbox, then do sign up to join the corporate reporting faculty at icaew.com/joincrf
PL: Is that ICAEW members only?
SB: No, that’s open to everybody. There are charges for non-ICAEW members, but everybody’s welcome.
PL: Thanks, Sally. Next, the newly launched E-Commerce Trade Commission. Ed, what is it? Why was it launched?
Ed Saltmarsh: So the E-Commerce Trade Commission has been formed by the Institute of Export and International Trade off the back of a Social Market Foundation report, which was published last year. That found that with the right support, an additional 70,000 micro, small and medium-sized businesses could start exporting. So, ICAEW as a founding member, along with the Federation of Small Businesses, the Association of International Courier and Express services and most of the major online marketplaces – and it’s very much supported by the Department for Business and Trade as well.
PL: So what’s the timeframe here because it’s running for two years, is that right?
ES: Yes, yeah, it’s running for two years. And it’s going to publish a report at the end of those two years, with recommendations on how to make exporting easier.
PL: And an interim report after just one year?
ES: An interim report after one year, yeah.
PL: So what is the Commission hoping to achieve during this quite short period of two years?
ES: So there are three main objectives of the Commission, which is simplification, perception and promotion. So simplification is about simplifying trade policy and processes. And that’s where the report really come in because we’ll make recommendations to government about practical changes that can be made in this area. So that might be around simplifying customs processes, for example. Perception is about changing perception of small businesses about exporting and actually telling them it’s not as hard as it may seem. But it’s also about changing perceptions of international consumers about buying from the UK. And then the final objective is promotion, which is about promoting the benefits of exporting, but also about promoting all the support that is available to businesses and where that support isn’t available, creating it.
PL: Now, I think the Social Market Foundation report, it highlighted didn’t it how important accountants are in all of this. Obviously, ICAEW is now involved, isn’t it?
ES: Yes. Yeah. So we’re a founding member and we’ll be hosting the next meeting of the Commission. I think we found that our members are increasingly becoming a bit of a one stop shop. And the report really backed this up by finding that accountants are the first port of call for businesses looking to export. And the report found that the three main barriers to small businesses from exporting are customs, taxes and tariffs, which are all areas that ICAEW is working in.
PL: So what specifically is ICAEW hoping to bring to the table? As you say these are definitely their area.
ES: Yeah. So I think we have a lot to offer to the Commission. It might be the perspective of our members in business who are exporting or in businesses that could be exporting. It might be the perspective of members working in practice, who are advising on this area. But we also have a lot of general tax expertise and experience of working with policymakers to address issues.
PL: What activities will the Commission actually be undertaking? I mean, can ICAEW members get involved themselves?
ES: Yes, absolutely. So there’s a number of events being planned to coincide with International Trade Week in November, and also an E-Commerce month. And those events will likely include presentations, workshops to help businesses about learning to export, and members will be very much invited to get involved in those. There will also be a series of working parties and round tables running throughout the Commission’s life on a variety of topics, which will feed into the report at the end of the two years. And we’ll be looking for input from our members on this in due course, and provide more details when we have them. We will regularly be seeking input from our VAT and Duties Committee, from our Global Trade Community, that we’d be delighted for any interested member to get involved. And to express an interest they should contact me at ed.saltmarsh@icaew.com
PL: And the address again?
ES: ed.saltmarsh@icaew.com
PL: That’s great. Thanks very much.
Finally, part two of our explainers about the major changes to CPD that are taking effect in November. We had an overview of the changes as a whole in Episode 54, if you’d like to catch up on that. Today, though, we’re going to be looking specifically at what the changes mean for firms. So Sophie, can you just give us a recap of what’s changing and when.
Sophie Wales: So the headline, as you said, is that from the first of November 2023, ICAEW is introducing some revised CPD regulations. And these are going to bring a greater focus to lifelong learning and clarify the amount of CPD that members should be doing. And everyone in scope of these new regulations is going to have to do a minimum number of hours of CPD, some of which must be verifiable. And ICAEW firms will have responsibilities for their ICAEW member employees, plus other individuals who are regulated by us.
PL: Thinking about firms, then, what exactly will their responsibilities be now under this new system? How will they be different?
SW: So under the revised regulations, firms will have to firstly ensure that all of their ICAEW members and relevant persons are complying with at least this minimum number of relevant and verifiable hours for their CPD category, for the professional work that they do for the firm. The firm’s are then going to have to maintain records of those minimum hours. And they will have to make sure that they can make those records available to ICAEW’s quality assurance department, if they get asked to provide those in relation to the CPD that their staff is doing.
PL: Now, we mentioned ethics, when we talked about this before, but it’s worth stressing there will now be mandatory ethics training?
SW: Absolutely. So everybody in scope of the CPD regulations will have to do at least one hour of ethics training a year. And this is something that’s quite new. So to help members do this, we’ve produced an online ethics course – it’s going to be freely available to all members. And because it’s the first year, the course is going to have more than one hour of content. In fact, I think if you wanted to do all the parts available, you’d probably have 12 hours of learning.
PL: Okay.
SW: But it’s very much up to members how much they want to do as long as they do at least one hour. And firms can choose to use this module that we’ve produced, but they could also choose to use their own training or third-party training that they’ve sourced, as long as it’s got the same learning outcomes that align to our code of ethics.
PL: So which firms have these responsibilities under the revised regulations?
SW: So it will be all firms that are ICAEW member firms, and that broadly means firms who are owned and majority controlled by ICAEW members, but it’s also any firms that are that are regulated by ICAEW because we licensed them for a regulated area of work. So that could include audit, local audit, investment business, probate, or as a licensed practice. And there are also some firms who we allow to use the description ‘chartered accountants’ and they will be in scope as well.
PL: And who are all those firms actually responsible for under these new regulations?
SW: So they will be responsible for all of their employees who are ICAEW members, but also any employees who we regulate. So that would include somebody who is a responsible individual for audit, a key audit partner for local public audit, an insolvency practitioner, a probate-authorised individual or a licensed practitioner under the licence practice scheme.
PL: Now clearly, there’s going to be a lot of record keeping here. So what are the requirements there?
SW: So the records need to contain details of what the CPD activity was, including the number of hours that were spent, and where that CPD activity is considered to be verifiable, the records will need to have sufficient evidence to support that. But in terms of the format, it’s very much up to the firm’s how they want to do this and how they want to keep the records. Some of the larger firms will already have learning management systems in place, whereas other firms might take a more straightforward approach and use, for example, Excel spreadsheets. So what we’re saying to firms is they should look at their existing systems and procedures and decide whether they comply or whether they would need to have something new.
PL: And how long do they have to retain these records?
SW: They need to be kept for three years in case the quality assurance department asked to see the evidence.
PL: All this happens in November, doesn’t it? This is only, what, about three months away?
SW: Yeah.
PL: So crucially, what steps do firms need to take right now?
SW: So, there’s a few things. We would say the first thing is having a look at the CPD regulations, and make sure their staff know the changes are coming and which CPD category that they sit in because that will depend on the type of work the staff do. Then they need to ensure that both the firm and the staff understand what is meant by verifiable hours, how they’re going to record this, and what evidence will be needed. Firms also need to think about which ethics training they’re going to use to comply with this mandatory one-hour requirement. And also start thinking about what monitoring processes they’re going to put in place to make sure their staff are complying.
PL: There’s a lot here, Sophie, so where should firms go to make sure that they are doing everything they need to do and keeping informed about these changes?
SW: So the main place to go is our website. There’s loads of information there on icaew.com/cpdchanges, that includes the regulations and a CPD self assessment tool that individuals can use to work out which category they sit in. But we’re also going to continue to issue a lot of communications on this because we appreciate it’s a big change. So there’s going to be comms in our daily, weekly and monthly emails and other newsletters. And there’s going to be specific emails coming out in the run-up to November. And there’s also going to be a webinar coming up on the 27th of September, and that will be specifically for firms, and it’s going to have quite a detailed focus on what verifiable CPD is.
PL: Okay, so that sounds really helpful. When does registration open for that?
SW: So registration is open now. So if you’re interested, please do sign up.
PL: Oh, that’s great. Thanks very much, Sophie. And we will have a third and final update on the CPD changes in September, so listen out for that. Sophie, Ed, Sally – thanks very much indeed for your time. You can find more information on all those topics in the show notes for this episode. Do sign up to daily, weekly or monthly newsletters from ICAEW insights. That way, you’ll get all the latest accountancy news in your inbox, but at your preferred frequency. Join us later in the month for the August In Focus podcast. The Insight series will return in early September. Meantime, I will end with my regular request for you to please take a moment to rate, review and share this episode and subscribe to ICAEW insights on your favourite podcast app. Thanks for being with us.