INTEREST Newsletter 3

INTEREST - INTEgrated REporting for SMEs Transparency INTEREST project Newsletter #3 - June 2021 Table of contents INTEREST PROJECT: IN FULL SYNC WITH POLICY INNOVATION Regulatory developments and progress towards project objectives (page 2) AN INTERVIEW WITH Mr. Paul Thompson, Director of the European Federation of Accountants and Auditors for SMEs (page 3) EFAA WEBINAR Future of Non-Financial Reporting and Role of Small- and Medium- sized Accountancy Practices – June 1st, 2021 (page 5) COMING SOON Follow our activities! (page 7) This project has been funded with support from the European Commission. The European Commission support for the production of this publication does not constitute endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. INTEREST - INTEgrated REporting for SMEs Transparency INTEREST project Newsletter #3 - June 2021 IN FULL SYNC WITH POLICY INNOVATION In April 2021 a major policy development proved the relevance and timeliness of the original idea underpinning the INTEREST project: the European Commission put forward a proposal for a Corporate SustainaBility Reporting Directive meant to innovate radically non-financial reporting. Its importance is demonstrated by the caliBre of the keynote speakers in the High Level Conference on May 6th, 2021 that launched the proposal, including European Central Bank President Christine Lagarde, Italian Minister of Finance Daniele Franco and European Commission Executive Vice President Valdis DomBrovskis. According to the proposed Directive only SMEs with securities listed on EU regulated markets will be suBject to mandatory sustainaBility reporting. The European standard setter envisaged by the Directive, On this backdrop, the INTEREST project though, by OctoBer 31st, 2022 is expected proved extremely forward-looking by to set specific reporting standards that all focusing on the need to build capacity for SMEs will be able to adopt on a voluntary non-financial reporting by SMEs. Work on basis. Expanded reporting requirements on the intellectual outputs to be delivered by larger firms’ supply chains and on banks’ the project progressed smoothly in the lending portfolios are likely to trickle down Spring of 2021. In particular: on SMEs, though, creating strong pressure for the adoption of sustainaBility reporting. • the Integrated Reporting framework for SMEs (IO1) has been published; • the Integrated Reporting guide (IO2) has been completed; • the detailed structure of the Integrated Reporting curriculum (IO3) has been agreed upon. A research monograph is in the pipeline as well, but we are going to let you know more on this deliverable in the next Newsletter. 2 INTEREST - INTEgrated REporting for SMEs Transparency INTEREST project Newsletter #3 - June 2021 AN INTERVIEW WITH Paul: The primary policy objectives of the European Green Deal, most notaBly the Mr. Paul Thompson commitments towards net zero carBon emissions and other SustainaBle Q: Can you please let us know a bit more Development Goals (SDGs), demand a about EFAA and your role? radical overhaul of the corporate reporting system. The proposed Corporate Paul: I joined the European Federation of SustainaBility Reporting Directive (CSRD) Accountants and Auditors for SMEs (EFAA) promises to do just that. In the next five as Director in January 2017 after working years I expect to see a great levelling up, for almost thirteen years with the with sustainaBility reporting assuming equal International Federation of Accountants prominence to that of financial reporting. (IFAC), a body representing the gloBal accountancy profession, latterly as Director, GloBal Accountancy Profession Support. EFAA, the voice of small and medium accountancy practices (SMPs) in Europe, strives to speak out to influence regulators, policy makers, standard setters, and other key stakeholders in the European Union, and where necessary gloBally. The end goal is to promote the role of SMPs as well as ensure that regulation and standards are proportional and scalaBle and that there is a level playing field in the market for professional services. SMPs are their most important provider of professional services to SMEs. As we come out of the pandemic, SMPs can play a key role helping SMEs “build back better”, with a strong focus on being sustainaBle and digital. You can learn more about EFAA on our recently revamped weBsite at www.efaa.com. Q: The issue of sustainaBility reporting, and more specifically of sustainaBility reporting by SMEs, is very heated in Brussels right now. What is EFAA's standpoint in this respect? 3 INTEREST - INTEgrated REporting for SMEs Transparency INTEREST project Newsletter #3 - June 2021 AN INTERVIEW WITH Q: What do you think the INTEREST Project can deliver in this respect, to SMEs and to Mr. Paul Thompson SMPs? EFAA has advocated strongly for SMEs to The INTEREST Project is uniquely placed to be carefully considered from the outset, provide the help that SMEs, and and the proposed CSRD does just that. We consequently SMPs need to rise to the have also loBBied for sustainaBility challenge and leverage the opportunity reporting to be voluntary for unlisted offered by the rapid emergence of the SMEs; again, the proposed CSRD does just sustainaBility agenda: SMEs will look to that. Given their collective size and position SMPs for help, just as they do for their in the value chain, we have recognized the financial reporting needs, and SMPs will importance of SMEs providing some need implementation guidance and tools sustainaBility information, and accordingly such as those being produced by the we have pushed hard for the development INTEREST Project. of EU sustainaBility reporting standards But more than that. Due to the significant including a simpler set for use by listed increase in the numBer of entities expected SMEs and unlisted SMEs; once again, the to produce sustainaBility reports, there will proposed CSRD promises just that. be an urgent need across Europe to expand What the proposed CSRD does not and accelerate the training and retraining of guarantee, however, is that reports suitaBly qualified specialists, especially prepared in accordance with the simplified SMPs, to meet the expected boom in SME sustainaBility reporting standards will demand. The INTEREST Project deliverables be accepted as sufficient by larger will be especially useful in this regard. They businesses in the value chain or banks are very timely, coming on stream just as the providing finance. And it also does not European Financial Reporting Advisory promise SMEs help to build the capacity to Group (EFRAG), the body charged with provide sustainaBility information, whether developing EU sustainaBility reporting voluntarily or a de-facto requirement standards, drafts the first set of core through the value chain, and to undertake standards. In late 2022 we can expect this a sustainaBle transition of their businesses. first set of standards to be adopted by the EU, and by then the INTEREST Project will SMPs, as the primary trusted advisor of have published its suite of tools. While we SMEs, are presented with a significant do not know yet the exact shape and form challenge and opportunity here. They have of those standards, there is broad consensus the potential to advise SMEs on making on the fact that they are going to the sustainaBle transition, to prepare the incorporate many of the core concepts of sustainaBility reports, and to provide integrated reporting. assurance where necessary on these reports. But they need direction and help if they are to rise to the challenge and realize the opportunity. 4 INTEREST - INTEgrated REporting for SMEs Transparency INTEREST project Newsletter #3 - June 2021 “FuturE oF Non-Financial REporting The main provisions of the proposed Corporate SustainaBility Reporting Directive and RolE oF Small- and MEdium- were outlined by Alain Deckers, Head of the sizEd Accountancy PracticEs” EFAA Corporate transparency, reporting, audit webinar – JunE 1st, 2021 and credit rating agencies unit (DG FISMA). The proposed Directive is part of the SustainaBle Finance Package: the goal of the Over the years the European Federation of Commission is to enaBle, not to endanger, Accountants and Auditors for SMEs (EFAA) SME participation in and contriBution to has demonstrated a strong commitment to transition to a sustainaBle economy. The the promotion of non-financial reporting. principle envisaged by the proposed An EFAA survey on non-financial reporting Directive is to include SMEs in the EU requirements for SMEs served as one of sustainaBility reporting landscape in a the most important stepping stones in the proportionate manner, i.e. on the basis of design of the INTEREST project. The small- simplified reporting standards carefully and medium-sized accountancy practices adapted to the specific context of SMEs. (SMPs) represented by EFAA are a key SMEs listed on regulated markets could use partner for SMEs, and certainly their most these standards to meet their disclosure likely port of call if they decide to emBark obligations, while non-listed SMEs could on non-financial reporting. choose to use them on a voluntary basis. This commitment was confirmed by the The first reports prepared according to the organization of a weBinar meant to new standards would refer to financial year address the implications for SMPs of the 2023 and be published in 2024. proposal for a Corporate SustainaBility

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