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JUNE 2006

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30 June 2006: June 2006 edition of EITF Roundup
We have posted the June 2006 Edition of EITF Roundup (PDF 609k), which provides an overview of the issues discussed, consensuses reached, and administrative matters discussed at the 15 June 2006 meeting of FASB's Emerging Issues Task Force. You will find past issues Here. Issues covered in the June 2006 edition include:

  • Issue No. 05-1 Accounting for the Conversion of an Instrument That Becomes Convertible Upon the Issuer's Exercise of a Call Option*
  • Issue No. 06-1 Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service From the Service Provider
  • Issue No. 06-2 Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 Accounting for Compensated Absences*
  • Issue No. 06-3 Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue- Producing Transactions*
  • Issue No. 06-4 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split- Dollar Life Insurance Arrangements
  • Issue No. 06-5 Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance With FASB Technical Bulletin No. 85-4 Accounting for Purchases of Life Insurance
  • Issue No. 06-6 Application of EITF Issue 05-7, 'Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues'
    * Final Consensus Reached

29 June 2006: Notes from IASCF trustees' meeting
The trustees of the International Accounting Standards Committee Foundation met on Wednesday and Thursday, 28 and 29 June 2006, at the Grand Hyatt Hotel, Berlin, Germany. A portion of the meeting on Wednesday afternoon was open to public observation. Presented below are the preliminary and unofficial notes taken by Deloitte observers that the open meeting:

Public Portion of IASCF Meeting, 28 June 2006

The Chairman of the IASB updated the Trustees on IASB activities. He pointed out that the Board's work programme would reflect its three main objectives pursued:

  • convergence with US GAAP,
  • getting more countries to use IFRSs, and
  • the SME project.

Convergence with US GAAP

The Chairman said that while the two Boards have a common base from which they are looking at the issues, they acknowledged the need to update and converge their conceptual frameworks – a project that the Boards are pursuing in stages. Due process steps will be taken on a chapter-by-chapter basis rather than for the entire framework. On each chapter the Board will first publish a Discussion Paper, then an Exposure Draft, and lastly a final version of the chapter. Of the eight chapters envisaged by the Board, the one on measurement seems to be the one that elicits most concerns from constituents. To address these, the Board plans to hold public round-tables early in 2007.

Convergence projects are classified as short-term (resolvable by the end of 2007) and medium- to longer-term (after 2007). The IASB has already issued two Exposure Drafts on short-term projects – segment reporting and borrowing costs. EDs on three more – income taxes, joint ventures, and impairment – are likely towards the end of the year.

Under the Memorandum of Understanding agreed between the IASB and the FASB in February, the Boards expect to have made progress on each of the longer-term projects by 2008. For some projects, this may mean simply an agenda decision, whilst for others some due process document or considerable progress is expected. The Chairman briefly described each of the longer-term projects and said that only two of them are likely to be finalised by the end of 2007 – business combinations and the fair value measurements. Regarding the latter, the Board has decided not to issue the forthcoming FASB statement on Fair Value Measurement as an Exposure Draft, but rather as a Discussion Paper. Comments received will be fed into an ED at a later stage.

Other convergence activities

In addition to seeking convergence with US GAAP, the Chairman reported that the Board had also launched convergence projects with its Chinese, Canadian, and Japanese counterparts. He remarked that he had received a further request from India to initiate a convergence project with the IASB.

Amendments to IFRSs

The Chairman said that at its June meeting the Board made two important decisions about the frequency of standard issuances or amendments:

  • Any pronouncement to be published would foresee at least a one-year implementation period. This means that even a standard that is finished before year-end 2007 would not become effective before January 1, 2009.
  • If the Board detects a flaw in its literature, that flaw will be put on a list of amendments that will be published as an 'omnibus amendments draft' on a yearly basis.

With those two decisions, the Board hopes to have adequately addressed the concerns expressed by preparers.

Use of IFRSs

As regards the second objective, the Chairman pointed out that there were some 100 countries that were using IFRSs already. He expressed the hope of increasing that number by another 50 in the next few years.

IFRS for Small and Medium-sized Entities (SMEs)

The Chairman reported that work towards an SME Exposure Draft was in its final stage and is planned for completion in September. He noted the following key decisions that the Board had made:

  • the standard should cover all transactions usually expected to occur in an SME environment;
  • the SME book should be self-contained;
  • if a transaction occurring is not dealt with in the SME book, an SME should try to develop its accounting policy by using the principles in the SME book. Only when an SME could not derive a policy by following this path, it would be referred back to the full IFRSs;
  • the Board will describe the type of entities for which the standard is intended to apply. However, it will be left to the discretion of the individual jurisdiction to decide which entities should/could apply the SME standard.
  • All but three chapters of the SME draft standard are completed, the ones requiring further work being financial instruments, income taxes, and pensions. In response to a question from the Trustees, the Chairman said that an audit report would explicitly refer to the accounting regime used, that is, full IFRSs or IFRSs for SMEs.

Principles-based standards

The Chairman reiterated the Board's full support for principles-based accounting standards. He said that FASB and IASB had agreed to try to formulate 'overriding principles' that would leave no room for exceptions. From these, the individual accounting principles would be derived. If, for whatever reason, the FASB decided to add guidance in their version of the agreed-upon pronouncements, a mechanism would have to be installed to prevent these from flowing into the IFRSs.

The Chairman of the Trustees thanked the IASB Chairman for his report and asked for comments from the Trustees. The Trustees discussed the issues presented and had several follow-up questions for the Chairman. There was overall support for what the Chairman had presented. In response to a question whether he could see any problems or hindrances on the way to pursue the agenda presented, the IASB Chairman reminded the Trustees that out of the eleven major convergence projects, only two would have to be completed by the end of 2007. He acknowledged that the agenda is ambitious but feasible and not overburdening the resources at hand. The only concern he expressed is that the next SEC Chief Accountant may be someone who would not feel bound to what had been agreed with the former Chief Accountant. No decisions were taken.

Report of the Chairman of the Standards Advisory Council (SAC)

The SAC Chairman reported on the SAC meeting held on Monday and Tuesday, 26 and 27 June 2006. Among the points he noted:

  • The SAC members had showed full support for the SME project.
  • They had given their approval for pensions and leasing projects to be added to the agenda.
  • They seemed to be less sympathetic to taking a related parties project on the agenda (see below).
  • SAC members expressed some disappointment about the long timeframe envisaged for the big issues to be resolved, although the SAC members acknowledged that this was partly due to the restricted number of staff available.
  • SAC discussed the IFRS brand, strategy, interpretation of IFRSs, and funding/staffing issues in closed session. With regard to strategy, a small working group will be formed to define 'effectiveness' (in terms of the Board's way to tackle its agenda) and to put forward ideas of how it could be measured.

Few questions were asked, and no decisions were taken.

IASB agenda proposals

The IASB Chairman said that three issues would be put forward for consideration, namely:

  • amendment to IAS 24 Related Party Disclosures;
  • Revision of IAS 19 Employee Benefits; and
  • Revision of IAS 17 Leases.

The first of the three issues had been brought to the Board's attention by China and Japan. The basic question put forward had been how IAS 24 could be applied in a jurisdiction where most/many companies are state-owned and engage in transactions with each other. If all of those transactions must be disclosed – as the current IAS 24 requires – a huge amount of information of questionable benefit will be included in the notes to the financial statements. The Pensions and Leases projects are included in the MoU and would require an agenda decision. The Chairman pointed at the necessity to look at both issues, since the current literature allow entities to exclude substantial liabilities from the balance sheet.

The Trustees debated the issue for some time. A strong majority favoured moving Pensions and Leases to the active agenda, although not all Trustees saw the immediate need for a decision at this stage. With regard to the Related Party issue one Trustee remarked that it would be preferable to deal with the issue as well since it would support the Board in achieving its second major goal (namely to increase the number of countries using IFRSs).

The Chairman of the Trustees then asked the Vice Chair of the IASB to give a brief overview about the current stage of IFRIC's project on service concession arrangements. The Vice Chairman pointed out that despite considerable progress being made some 'noise' was expected as soon as the final interpretation would be published. One of the Trustees claimed that even the revised interpretation would be unacceptable in his jurisdiction, as 30 to 40 percent of all listed entities would be forced to go out of business if the draft Interpretations are issued unchanged.

Report from IFRIC Chairman

The Chairman of the IFRIC pointed out that most requests for interpretation were received on the subjects of financial instruments, leases, revenue recognition, and share-based payments. He said that IFRIC actually spends most of his time on issues that are not taken to the agenda, mostly because the submitter sought implementation guidance and not an interpretation. The IFRIC Chairman told the Trustees that the IFRIC will seek to enhance its process in a number of ways:

  • All future IFRIC meetings will be webcast and stored on the IASB's website, starting with IFRIC's July 2006 meeting.
  • IFRIC plans to keep its constituents informed as to the stage of due process for each issue submission. The Chairman of the IFRIC pointed out that all of IFRIC's decisions not to take an issue on the agenda were already available on the IASB's website by IAS/IFRS concerned, although the references would not be kept updated.

Although most Trustees seemed to agree with IFRIC's procedure in dealing with the issues, some concerns were raised with regard to the number of 'non-interpretations' issued, since other 'interpretive bodies' might fill the gap and issue guidance they believed to be correct. The Chairman acknowledged that this was a known issue.

This summary is based on notes taken by observers at the IASCF Trustees' meeting and should not be regarded as an official or final summary.

27 June 2006: UK FSA voluntarily reports using IFRSs
The United Kingdom Financial Services Authority (FSA, the securities and banking regulator) has chosen voluntarily to report under International Financial Reporting Standards starting with the financial year ending 31 March 2005. A report from the FSA shows the greatest impact of IFRSs was in the areas of leases, employee benefits, and intangible assets. Click for FSA Report (PDF 185k).

26 June 2006: New page for Public Interest Oversight board
We have st up a new page on IAS Plus for the Public Interest Oversight Board (PIOB), which was formed last year to oversee the work of those committees of the International Federation of Accountants (IFAC) that have public interest responsibilities, namely:

  • International Auditing and Assurance Standards Board
  • International Accounting Education Standards Board
  • International Ethics Standards Board for Accountants
  • Their respective Consultative Advisory Groups
  • IFAC's Compliance Advisory Panel (CAP).
We have put a permanent link to our PIOB page among the 'Key Groups' at the bottom of the right-hand column on this page, as well as on our IFAC Page.

26 June 2006: Insurance regulators comment on IASB measurement issues
The International Association of Insurance Supervisors (IAIS) has published its second set of observations on Issues Arising as a Result of the IASB's Insurance Contracts Project - Phase II (PDF 164k). The IAIS "believes that it is most desirable that the methodologies for calculating items in general purpose financial reports can be used for, or are substantially consistent with, the methodologies used for regulatory reporting purposes, with as few changes as possible to satisfy regulatory reporting requirements." The issues paper comments on measurement issues common to both general purpose financial reporting and regulatory reporting for consideration by the IASB.

25 June 2006: Regulatory implications of cross-border exchange mergers
In a speech at the Harvard Business School titled Cross-Border Exchange Mergers in the Context of Global Trade (PDF 66k), US SEC Chairman Christopher Cox discussed the heightened importance of uniform securities regulation and global accounting and auditing standards. An excerpt:

National regulation will still be important. Indeed, it will be more important than ever, in order to protect investors from the new opportunities for fraud, unethical trading practices, and market manipulation that truly international markets could create. But equally important will be cooperation among national regulators. If national regulators don't cooperate with one another, and update their own rules and practices, the combination of global exchanges could serve as a robust new means for the unscrupulous to circumvent laws and regulations and to hide illegal activities from surveillance....

There are still many areas of significant difference between our standards and those of other countries. For example, we have different accounting and auditing standards, and, importantly, different liability standards. But the key to success going forward is to recognize that harm to investors will be minimized if we agree to adhere to high quality securities regulation and there is a strong degree of cooperation and coordination among regulators.

Click for Related SEC Fact Sheet on cross-border exchange mergers (PDF 35k).

24 June 2006: Notes from fourth day of June 2006 IASB meeting
The International Accounting Standards Board held its June 2006 Board meeting at its offices in London on Tuesday through Friday 20-23 June 2006. We have combined the preliminary and unofficial notes taken by Deloitte observers onto a Separate Page.

24 June 2006: AASB interpretations plan
The Australian Accounting Standards Board (AASB) has adopted an interpretations model that interacts with the International Financial Reporting Interpretations Committee (IFRIC) to provide guidance to Australian constituents in the context of the formal adoption of International Financial Reporting Standards (IFRSs) in Australia, while maintaining a capacity to deal with issues relating to purely domestic Standards. The new model will apply from 1 July 2006. Under the new model, the AASB will have direct responsibility for Interpretations, replacing the existing Urgent Issues Group. Under the new model:

  • An Interpretations Agenda Committee (IAC) will consider issue proposals and recommend that either AASB do nothing or AASB refer the issue to IFRIC.
  • For all issues dealt with by the IFRIC, the AASB will decide whether to adopt IFRIC's interpretation locally.
  • If AASB refers an issue to IFRIC but IFRIC declines to address the issue, the AASB will decide whether to add the issue to the AASB's own work programme.
  • For each issue that the AASB takes on, the AASB will form an Advisory Panel. The panel will prepare alternative views and, where appropriate, recommendations for consideration by the AASB.
  • The AASB's due process will include publishing the recommendations of a panel on the AASB's website, followed by public exposure of a proposed AASB Interpretation, before the AASB considers it for formal adoption.
Click to download AASB Interpretations Model (PDF 34k).

23 June 2006: Notes from third day of June 2006 IASB meeting
The International Accounting Standards Board held its June 2006 Board meeting at its offices in London on Tuesday through Friday 20-23 June 2006. We have combined the preliminary and unofficial notes taken by Deloitte observers onto a Separate Page.

23 June 2006: Mark W. Olson named PCAOB Chairman
US Federal Reserve Board Governor Mark W. Olson has been appointed Chairman of the five-member US Public Company Accounting Oversight Board until 2010. Mr. Olson, 63, joined the Federal Reserve on Dec. 7, 2001. In addition to his policy-making duties as a Fed Governor, he has served as Administrative Governor since August 2002, responsible for management of the Federal Reserve Board. Before joining the Federal Reserve Board, Mr. Olson had a 35-year career in banking and was president of the American Bankers Association. Click for:

22 June 2006: Notes from second day of June 2006 IASB meeting
The International Accounting Standards Board held its June 2006 Board meeting at its offices in London on Tuesday through Friday 20-23 June 2006. We have combined the preliminary and unofficial notes taken by Deloitte observers onto a Separate Page.

22 June 2006: IASB ED on puttable shares
The International Accounting Standards Board (IASB) has published an exposure draft on Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation. The proposals would amend IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements. The ED would require:
  • An obligation to redeem or repurchase a financial instrument puttable at fair value would be classified as equity provided that specified criteria are met, particularly that all financial instruments in the most subordinated class of instruments with a claim to the assets of the entity are financial instruments puttable at fair value.
  • An instrument that imposes an obligation to deliver to another entity a pro rata share of the net assets of the entity upon its liquidation to be classified as equity, provided specified criteria are met. Thus, for example, ordinary shares of limited life entities and partners' interests in a partnership that must liquidate upon exit of a partner (eg on retirement or death) would be equity.
Comments are due by 23 October 2006. The ED will be available on the IASB's website on 3 July 2006. Click for Press Release (PDF 67k).

22 June 2006: IVSC ED on bases other than market value
The International Valuation Standards Commission has published for public comment an exposure draft of a proposed revised International Valuation Standard 2 Bases other than Market Value. The IVSC is proposing to update IVS 2 "in the light of the debates on the use of value in financial statements, and the evolution of other parts of the International Valuation Standards". The ED is available on the IVSC Website. comments are due 31 August 2006. Click for IVSC News Alert (PDF 271k). The IVSC has also issued an exposure draft of a proposed revised International Valuation Application 2 Valuation for Lending Purposes.

22 June 2006: Convergence of global valuation standards
The International Valuation Standards Committee (IVSC) and The Appraisal Foundation of the United States (TAF) have issued a memorandum of understanding that commits the two bodies to the ultimate goal of a single set of understandable and enforceable global valuation standards. As a first step towards the goal, both parties are preparing to seek greater convergence of the Uniform Standards of Professional Appraisal Practice (USPAP) and the International Valuation Standards (IVS), and have appointed small working groups to identify current differences between the two sets of standards and to report by September 2006. Both organisations will then use their best efforts to progress towards the elimination of identified differences working within the due process procedures of each organisation. Click for:

21 June 2006: UK iGAAP alert on proposed amendments to IAS 23
We have posted a new United Kingdom iGAAP Alert: Proposed Amendments to IAS 23 Borrowing Costs (PDF 51k). You will find links to this and all past iGAAP Alerts and Newsletters Here.

21 June 2006: Notes from first day of June 2006 IASB meeting
The International Accounting Standards Board held its June 2006 Board meeting at its offices in London on Tuesday through Friday 20-23 June 2006. We have combined the preliminary and unofficial notes taken by Deloitte observers onto a Separate Page.

19 June 2006: SEC Office of International Affairs
We have added to our US Securities and Exchange Commission Page some background information about the SEC's Office of International Affairs (OIA). OIA promotes investor protection in the global capital market by advancing international regulatory and enforcement cooperation, promoting the adoption of high regulatory standards worldwide, and facilitating technical assistance programs to strengthen the regulatory infrastructure in emerging market countries. The office also seeks to facilitate cross-border securities transactions, while working to minimise the extent to which international borders can be used to avoid regulatory compliance or escape detection and prosecution of fraudulent securities activities. Using OIA staff's specialised knowledge of international markets and foreign law and regulations, the office provides the Commission and staff with advice and assistance in international enforcement and regulatory matters. On the OIA Web Site there is information about the SEC's various international program activities, including in the areas of SEC rulemaking, multilateral policy initiatives, international enforcement cooperation, and technical assistance. There is also find information about the SEC's cooperative arrangements with foreign regulators.

18 June 2006: New edition of EITF Snapshot posted
The FASB's Emerging Issues Task Force (EITF) met on 15 June 2006. They reached consensuses on three issues. They also reached tentative conclusions on several other issues that will be exposed for public comment. Deloitte & Touche (United States) has prepared an EITF Snapshot Newsletter (PDF 161k, previously known as EITF Flash) summarising the discussions at the meeting. Issues on which consensuses were reached are the following:

  • Accounting for Conversion of an Instrument that Becomes Convertible upon the Issuer's Exercise of a Call Option
  • Accounting for Sabbatical Leave and Other Similar Benefits
  • How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation)
Past issues of EITF Snapshot and EITF Flash are Here.

18 June 2006: Insurance Working Group meets 29-30 June
The IASB's Insurance Working Group will meet at the Crowne Plaza London City Hotel, London, on Thursday and Friday 29-30 June 2006. The agenda (details on IASB's Website):

Insurance – 29-30 June 2006, London

Thursday 29 June
  • Project planning
  • The Board's preliminary conclusions so far
  • Presentation by the [European] CFO Forum, Group of North American Insurance Enterprises and four Japanese life insurance companies
  • International Association of Insurance Supervisors
  • Estimating cash flows
Friday 30 June
  • Policyholder continuation and cancellation options
  • Margins – risk margins and profit margins
  • Participating contracts
  • Unit-linked payments
  • Performance reporting, including presentation of premium

17 June 2006: ASX will retain its two month reporting deadlines
The Australian Stock Exchange (ASX) will retain the two-month deadline for listed entities to report their full-year and interim financial results. An ASX consultation found significant market agreement with the ASX's view that such prompt reporting is both desirable for shareholder protection reasons as well as appropriate given international practice and trends. This means:

  • Listed entities with 31 December financial year ends will need to report their half yearly results to 30 June 2006 by 31 August 2006 and full-year results by 28 February 2007. Approximately 200 listed entities are in this category.
  • The nearly 1,400 listed entities with 30 June year ends will need to report their half yearly results to 31 December 2006 by 28 February 2007 and their full-year results by 31 August 2007.
Click for ASX Media Release (PDF 73k).

16 June 2006: EC Roundtable on Consistent Application of IFRSs
Earlier this year, the European Commission agreed to form a Roundtable on Consistent Application of IFRSs. The purpose of the Roundtable is to identify cases where the accounting treatment in Europe under IFRSs is so divergent, significant, and widespread as to warrant 'common concern' among the different groups of participants (preparers, auditors, national standard setters, regulators). When such issues of common concern are identified, the Roundtable will generally recommend referring them to IFRIC, though circumstances could also arise where the matter should be addressed directly to the IASB Board. The Roundtable itself will not make any interpretations. We have formed a Roundtable Web Page on IAS Plus that includes background information and summaries of Roundtable meetings. There is a permanent link to the Roundtable page from our Main Europe IFRS Page. The Roundtable held its first meeting in May 2006 at which it considered 11 issues. Roundtable members concluded that three issues are of common concern, one of which (de facto control) should be further discussed at the Roundtable's next meeting. The other two are already on IFRIC's agenda; the Commission will monitor and work with IFRIC on these.

16 June 2006: Agenda topics for IFRIC meeting 6-7 July 2006
The International Financial Reporting Interpretations Committee (IFRIC) will meet at the IASB's offices in London on Thursday 6 July and Friday 7 July 2006. The list of topics to be discussed has been released, but not yet the running order:


6-7 July 2006, London

Draft Interpretations to be approved for publication: Discussion of previously published Drafts: Issues papers:
  • Employee Benefit Trusts (Consideration of various difficulties arising in practice in the separate or individual financial statements of an entity sponsoring an employee benefit trust established in connection with a share-based payment arrangement within the scope of IFRS 2);
  • Guidance on Identifying Agency Arrangements (Proposal for new agenda item considering inter alia possible criteria for distinguishing agency from sub-contracting and other arrangements);
  • Financial Instruments - Eligibility of 'portions' of exposures for hedge accounting
IFRIC Agenda Decision IFRIC Tentative Agenda Decisions
  • Various items, including those deferred from the May meeting and others subsequently reviewed by the Agenda Committee.

15 June 2006: IASB Chairman testifies before US Senate committee
IASB Chairman Sir David Tweedie testified yesterday before the US Senate Committee on Banking, Housing and Urban Affairs, which was conducting a hearing on "FASB's Proposed Standard on Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans". FASB Chairman Robert H Herz also testified. Sir David updated the committee on the work of the IASB in general, the use of IFRSs globally, the February 2006 joint IASB-FASB memorandum of understanding, the SEC 'roadmap', and progress toward convergence of IFRSs and US GAAP. He then commented on pension accounting – here is an excerpt:

Accounting standard-setters often hear that accounting should not change behaviour, but there is a case, I fear, that poor accounting has led to neglect or mismanagement of pension resources. The numbers are staggering, and the emergence of large pension deficits are not confined to the United States. The overall deficit for the European companies in the Dow Jones STOXX 50 was €116 billion at 31 December 2004 and for the UK FTSE 100 was £37 billion at July 2005. The SEC staff estimated in June 2005 that the overall deficit for active US filers might be $201 billion. [Citations omitted]

For a long time, companies and investors failed to give proper attention to a growing problem of increasingly unhealthy pension programmes, and the accounting shares some of the blame. The international standard, IAS 19 Employee Benefits, and US GAAP obscure reality by permitting gains and losses to be smoothed over time with the result that

  • income and expense may be under or overstated.
  • the asset or liability in the balance sheet may be under or over stated.
Click to download:

14 June 2006: CEBS annual report cites benefits of IFRSs
The Committee of European Banking Supervisors (CEBS) has published its Annual Report for 2005 (PDF 1,386k). The report discusses a number of implementation and regulatory issues relating to the adoption of IFRSs by European banks, including the following:

  • IFRS "provides CEBS with a unique opportunity to promote greater consistency in supervisory approaches across the EU"

  • "On 16 December 2005, CEBS published final guidelines establishing a standardised framework for consolidated financial reporting for credit institutions (FINREP). The framework has been designed for banks that use IFRS for their published consolidated financial statements and that have to provide similar information in the periodic reports... The introduction of IAS/IFRS has been a source of concern to supervisory authorities, notably because of concerns that these standards could jeopardise the criteria that regulatory own funds have to fulfil. CEBS subsequently undertook an analysis of a sample of institutions' financial data... The analysis of the aggregate sample data confirmed that the Guidelines neutralise the negative impact on credit institutions' regulatory own funds that IAS/IFRS were observed to have at transition."

  • "CEBS has now published most of the guidelines related to the implementation of the CRD and IFRS. When all of these guidelines have been finalised, CEBS will compile a compendium or Guidebook of standards, guidelines, advice, and other CEBS work. This Guidebook will be aimed at both supervisors and market participants, with the principal objective of promoting consistent implementation of EU legislation and convergence of supervisory practices."

14 June 2006: New EU statutory audit directive becomes law
The European Union's new Directive 2006/43/EC on Statutory Audits of Annual Accounts and Consolidated Accounts, (PDF 218k) was published in the Official Journal of the European Union on 9 June 2006, bringing it into law, The main provisions are as follows:

  • Statutory auditor and audit firm. Clear definition of 'audit firm'. Many of the new provisions deal specifically with audit firms.
  • Public reports of audit firms. Firms that audit public interest entities must provide a detailed public report that gives an insight into the audit firm and the network to which it belongs, including information about quality assurance reviews, policies on continuing education, and a fee break-down.
  • Independent audit committees. Required. They must monitor the financial reporting process and the statutory audit.
  • Registration of auditors and audit firms. Member states must ensure that each statutory auditor and audit firm is identified in an electronic public register and that the registration information is kept updated. For audit firms, the register must show size of the firm and owners and members of the management of the audit firm.
  • Independence. Clearly defined. Auditor/firm can not be involved in any way in decision-making of the audited entity.
  • Quality assurance and auditing standards. All statutory auditors and audit firms are subject to a system of quality assurance and subject to public oversight.
  • Audit standards. Statutory audits must be carried out in accordance with international standards on auditing.
  • Investigations and sanctions. Member states must organise effective systems of investigation and sanctions, which may be civil, administrative, or criminal.
  • Competent authorities. Member states must designate competent authorities responsible for approval, registration, quality assurance, inspection, and discipline for the purposes stipulated by the directive. They must cooperate with each other.
  • Public oversight. Member states must handle this with integrity and independence.
  • Appointment, dismissal, and communication. Various principles established, including one whereby the statutory auditor or audit firm can only be dismissed if there is a significant reason why the statutory auditor cannot finalise the audit. The reasons for dismissal or resignation must be disclosed.
  • Registration of non-EU audit firms. Auditors and/or audit firms from non-EU countries that issue audit reports in relation to securities traded in the EU must be registered in the EU and be subject to member state systems of oversight, quality assurance, and investigations and sanctions. Only auditors or audit firms that meet quality criteria equivalent to the directive can be registered. The directive allows for exemption from registration, oversight, quality assurance, and investigations and sanctions only if audit firms from non-EU countries are subject to equivalent systems of registration and oversight.
  • Fees. Audited companies must disclose total fees paid to the statutory auditor or audit firm, broken down by fees for audit services, other assurance services, tax services and other non-audit services.
  • Local adoption. Member states are required to adopt provisions to comply with the new directive within two years of its entry into force.

13 June 2006: IFRSs discussed at IOSCO annual meeting
The International Organization of Securities Commissions (IOSCO) held its XXXI Annual Conference in Hong Kong on 5-8 June. IASB Chairman Sir David Tweedie was among the speakers on an IFRS panel. The Final Communiqué (PDF 55k) of the conference includes the following summary of the panel:

International Financial Reporting Standards

The arrival of IFRS promised a new era of high quality international standards and a better way for investors to assess their investment decisions. In the course of their discussion, the Panel confirmed that within a short time since the adoption of the IFRS, the debate over their implementation has been intense. Although expectations have been high, it was agreed that managing these expectations will play a role in their ultimate success.
IASB Director of Standards for SMEs Paul Pacter briefed the Emerging Markets Committee on the IASB's SME project. The Final Communiqué also reports on progress in developing an International Financial Reporting Standards enforcement database:

International Financial Reporting Standards Database

In October 2005, IOSCO approved a Statement of Principle for the development of a database in order to facilitate the sharing by securities regulators of regulatory decisions relating to the enforcement of International Financial Reporting Standards (IFRS). Such a database of information will provide a useful reference source for regulators on IFRS decisions and will facilitate coordination and convergence.

IOSCO anticipates that the database will be fully operational during the second half of 2006. IOSCO is liaising with the Committee of European Securities Regulators (CESR) which has developed and implemented a similar database for use in the European Union.

13 June 2006: Adherence to global standards
In his remarks on Globalisation and Financial Services (PDF 77k) at a conference in Dublin yesterday, Charlie McCreevy, the European Commissioner for Internal Market and Services, spoke about the 'competitive edge' that IFRSs bring to European capital markets:

The EU's openness is exemplified in our decision to adhere to high quality global standards. To give just two examples, since the 1st of January 2005, listed companies throughout the EU have been obliged to prepare their financial statements in compliance with IFRS. And next year, the Capital Requirements Directive, which implements the Basel II regime, will enter into force. Being an early mover to such highly regarded international standards can provide a decisive competitive edge in attracting economic activity, as well as in facilitating the expansion of EU companies abroad. And incidentally, the rest of the world is basically following our lead, and adopting IAS or IAS-type standards.

Given our commitment to these stringent global standards, it is only right that the EU, through the European Commission, should continue to play a leading role in international rule-making and standard-setting bodies, in order to ensure that the best interests of European businesses and citizens, who abide by these rules, are rigorously defended.

13 June 2006: Over 1 million SEC reports now fully searchable via Web
The US Securities and Exchange Commission has Announced (PDF 34k) that every SEC document filed by registered companies and mutual funds within the past two years is now fully searchable online. SEC Chairman Christopher Cox said: "This is a giant leap for America's 90 million investors toward tapping the full potential of the Internet to provide customized financial information. This new full-text search capability will give investors and analysts instant access to the specific information they want."

The new search tool can be found at www.sec.gov/edgar/searchedgar/webusers.htm.

13 June 2006: New Global Offerings Services newsletter
We have posted the May 2006 Edition of the Deloitte Global Offerings Services Newsletter (PDF 110k). Global Offerings Services is a global team of Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US and International accounting standards (that is, US GAAP and IFRSs) and in complying with the SEC's financial reporting rules. The GOs Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications. Past GOs Newsletters are Here.

12 June 2006: Philippe Danjou will succeed Geoffrey Whittington on IASB
Philippe Danjou, director of the accounting division of the Autorite des Marches Financiers (AMF), the French securities regulator, will join the IASB this autumn, replacing Geoffrey Whittington, who is retiring. Mr Danjou graduated from HEC, then qualified as a Chartered Accountant and Registered Statutory Auditor, and rose to be an audit partner with Arthur Andersen & Co. (Paris). He was also Executive Director of the French Ordre des Experts Comptables (OEC) from 1982 until 1986. Mr Danjou was a member of the International Auditing Practices Committee and a technical advisor to the French delegate to the former International Accounting Standards Committee, the predecessor to the IASB. While at the AMF, he has served on the IASB's Standards Advisory Council, as an observer at the Committee on Auditing of the European Commission, as a member of IOSCO's Standing Committee 1 on Multinational Accounting and Disclosure, and the Financial Reporting Committee of the Committee of European Securities Regulators (CESR-Fin). Mr Danjou is appointed for a five-year term ending 30 June 2011. Click for Press Release (PDF 60k).

12 June 2006: Bruns, McGregor, Yamada reappointed to IASB

Mr. Bruns

Mr. McGregor

Mr. Yamada
Following a recommendation of their nominating committee, the Trustees of the International Accounting Standards Committee Foundation, under which the IASB operates, voted unanimously to reappoint three members of the International Accounting Standards Board to five-year terms beginning 1 July 2006 and ending 30 June 2011. The three Board members are Hans-Georg Bruns, Warren McGregor, and Tatsumi Yamada. Click for Press Release (PDF 60k). The Trustees had previously announced that IASB Chairman Sir David Tweedie has been reappointed to a five-year term beginning 1 July 2006.

11 June 2006: EC's Accounting Regulatory Committee agenda
The Accounting Regulatory Committee, which makes recommendations to the European Commission on accounting matters, will meet in Brussels on 7 July 2006. The Agenda (PDF 17k) includes the following IASB-related items:

10 June 2006: PCAOB Q&A on prior period adjustments
The US Public Company Accounting Oversight Board has published a series of staff questions and answers related to adjustments to prior-period financial statements audited by a predecessor auditor. Prior period adjustments may be required, for instance, for discontinued operations, retrospective application of a change in accounting principle, or the correction of an error in prior-period financial statements. If the prior-period financial statements that require adjustments were audited by a predecessor auditor, which auditor, the predecessor or the successor, should audit the adjustments to prior-period financial statements? Click to Download the PCAOB Q&A (PDF 60k).

10 June 2006: IASCF trustees to meet in Berlin 28-29 June 2006
The trustees of the International Accounting Standards Committee Foundation will meet on Wednesday and Thursday, 28 and 29 June 2006, at the Grand Hyatt Hotel, Berlin, Germany. A portion of the meeting on Wednesday afternoon is open to public observation:

Agenda, Public Portion of IASCF Meeting, 28 June 2006

  • 14:30-15:00pm Report of the IASB Chairman
    • Board activities
    • Progress on the Memorandum of Understanding
    • Convergence initiatives
  • 15:00-15:30pm Report of the SAC Chairman
  • 15:30-16:45pm Review of the IASB's Work programme and Proposals for new agenda items
  • 16:45-17:45pm Effectiveness of the IASB/IFRIC interpretations process

9 June 2006: Proposal to improve FASB consideration of private company views
The US Financial Accounting Standards Board and the American Institute of Certified Public Accountants have jointly issued an Invitation to Comment on a joint proposal titled Enhancing the Financial Accounting and Reporting Standard-Setting Process for Private Companies. Under the proposal, the FASB would implement certain improvements to enhance the transparency of its standard setting process for private companies and consider input from private company constituents. The press release notes that in the United States there are 17,000 companies registered with the SEC and 20,000,000 private (non-registered) companies. Specifically:

  • 1. The FASB would make certain improvements to its current processes for determining whether differences are needed in prospective and existing accounting standards for private company financial reporting.
  • 2. The FASB and the AICPA would jointly sponsor and fund a committee designed to increase private company constituent input in the standard-setting process. In assessing the need for differences for private companies in recognition, measurement, disclosure, and presentation, the FASB will consider the needs of users of financial statements as well as cost-benefit considerations.
Click for Press Release (PDF 111k). Click here to Download the Invitation to Comment (PDF 68k) from a new Joint Website on which responses to the Invitation to Comment can be submitted (due 15 August 2006).

9 June 2006: May 2006 Accounting Roundup posted
We have posted the May 2006 Edition of Accounting Roundup (PDF 325k) published by Deloitte & Touche LLP (USA). Topics covered in this issue include:

FASB Developments
  • Proposed FSP on Accounting for Planned Major Maintenance Activities
  • Invitation to Comment on Bifurcation of Insurance Contracts by Insurance Companies and Corporate Policyholders
  • FASB Announces Appointment of New Board Member
AICPA Developments
  • Final SAS on Communicating Internal Control Matters Identified in an Audit
  • TPAs Regarding Loan Pool Accounting Under SOP 03-3
  • Revised Draft SOP on the Scope of the Audit and Accounting Guide for Investment Companies Sent to FASB for Final Approval
  • AICPA Issues Analysis of PCAOB Inspection Reports on Firms
  • AICPA Issues Employee Stock Option Financial Reporting Alert
SEC Developments
  • SEC and PCAOB Roundtable on Second-Year Experiences With Internal Control Provisions
  • SEC and PCAOB Announce Plans to Improve Implementation of Internal Control Reporting Requirements
  • SEC, Office of Thrift Supervision, and Other Federal Agencies Issue Proposed Statement on Complex Structured Finance Activities
PCAOB Developments
  • PCAOB Issues Statement on 2006 Inspections
  • PCAOB Proposes Rules for Periodic Reporting by Accounting Firms
  • PCAOB Proposes Rules Regarding Continuation of the Registration Status of Accounting Firms Upon a Merger or Change in Legal Form
International Developments
  • Proposed Amendments to Accounting for Borrowing Costs
  • Draft IFRIC Due Process Handbook
You will find past issues of Accounting Roundup Here.

9 June 2006: Managing in the face of exchange-rate uncertainty
Deloitte Research has published a new study Managing in the Face of Exchange-Rate Uncertainty: A Case for Operational Hedging (PDF 167k). This report examines the risk exposures of large and long-term shifts in currency values to future business cash flow, especially changes to the US dollar vs Asian currencies. The report identifies operational hedging as a means for companies to create flexibility in their operating models. In contrast to financial hedging, operational hedging provides companies a broader range of options to manage long-term exchange rate risks and sustain future cash flows.

Operational hedging is a strategy designed to manage risks through operational means. It provides companies with flexibility in their supply chains, financial positions, distribution patterns and market-facing activities by allowing dynamic adjustments in the locations used to manufacture, source, and sell. When deployed carefully, such flexibility can help to reduce the impact of large and long-term shifts in currency values on costs and revenues.

9 June 2006: IASB will hold round-tables on IAS 37
As part of its due process for possible amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the IASB will host public round-table discussions in three locations. In June 2005, the IASB published an Exposure Draft proposing to change the conceptual approach to recognising non-financial liabilities. All obligations that satisfy the definition of a liability in the IASB's Framework would be recognised, unless they cannot be measured reliably. Uncertainty about the amount or timing of the cost to settle a liability would be reflected in measuring the liability instead of (as is currently required) affecting whether it is recognised. Thus, some liabilities now only disclosed in the notes will be included in the balance sheet. Moreover, it would make the IASB approach more consistent with US GAAP. Comments were due 28 October 2005. The round-table panels will include constituent representatives and members of the IASB. Each round-table discussion will be open to observation by the press and public and made available on the IASB Website.

IAS 37 Round-table Dates and Locations
  • Thursday 30 November 2006, Connecticut, United States
  • Friday 8 December 2006, London, United Kingdom
  • Wednesday 20 December 2006, Melbourne, Australia

8 June 2006: Agenda for June 2006 IASB meeting
The International Accounting Standards Board will hold its June 2006 Board meeting at its offices in London on Tuesday through Friday 20-23 June 2006. Presented below is the preliminary agenda for the meeting. The Board will meet with the Standards Advisory Council on Monday and Tuesday 26-27 June 2006 (SAC Agenda).


20-23 June 2006, London

Tuesday 20 June 2006 (afternoon only)

Wednesday 21 June 2006 Thursday 22 June 2006 Friday 23 June May 2006 (morning only)
  • Earnings per Share
  • ASB project on pensions accounting [Education Session]
  • Technical Plan

8 June 2006: Agenda for June 2006 Advisory Council meeting
The Standards Advisory Council will meet with the International Accounting Standards Board on Monday and Tuesday 26-27 June 2006 at the Renaissance Chancery Court Hotel, 252 High Holborn, London. Presented below is the preliminary agenda for the meeting.


26-27 June 2006, London

Monday 26 June 2006

  • Views on the Strategic Direction of Financial Reporting
    • Issues for reflection
    • Financial Reporting and Financial Stability
    • Ideas from the CFA Institute
  • Accounting Standards for Small and Medium-sized Entities
  • IASB Work Programme and Convergence
    • Report from IASB Chairman
    • Work Programme
    • Convergence with US GAAP
    • Priorities
Tuesday 27 June 2006 (morning only)
  • Proposals for IASB Agenda
    • The agenda setting process
    • Proposals for additions to the agenda
  • Conceptual Framework
    • General update
    • Assets and liabilities
    • Measurement - plan

8 June 2006: EU ministers discuss IASB funding
At the 7 June 2006 meeting of the EU Economic and Finance Ministers Council in Luxembourg, the Agenda for the Meeting (PDF 115k) indicates that EU ministers will discuss ideas for funding of the IASB, as well as issues relating to IASB's governance. An excerpt from the EU's announcement:

Finally, also over lunch, the Council is expected to have a first discussion on the current funding arrangements of the International Accounting Standards Board (IASB). Continuation of the current system of funding after 2007, relying on only a small number of voluntary contributions, is believed not to be sustainable in the light of increasing global application. This would not enable the international standard setting body to be independent and sufficiently resourced to conduct its work in a timely fashion. Therefore, a new system is needed with a proper allocation between geographical areas. Commissioner McCreevy is expected to outline that a clear political signal to the IASB and the outside world, via a Declaration at the level of the Ecofin Council, appears the most appropriate means to contribute to the implementation of a reasonable and workable solution in the short term. In such a Declaration, a strong message should be included on the longer-term objective to improve IASB's governance by further developing its approach to consultation, feedback and due process.

8 June 2006: Explanation of the proposed IAS 23 revisions
On 25 May 2006, the International Accounting Standards Board (IASB) issued an Exposure Draft (ED) to amend IAS 23 Borrowing Costs. Deloitte has published a Special Edition of Our IAS Plus Newsletter (PDF 57k) explaining the proposed changes to IAS 23. The most fundamental change would be to eliminate the option in IAS 23 of recognising all borrowing costs immediately as an expense. To the extent that borrowing costs relate to the acquisition, construction or production of a qualifying asset measured on a cost basis, the revised standard would require that they be capitalised as part of the cost of that asset. All other borrowing costs would be expensed as incurred. This and nearly 90 past newsletters are always available Here.

8 June 2006: IFRS do kapsy – Czech language IFRS in your Pocket
Deloitte Czech Republic has published IFRS do kapsy, the Czech Language Version of IFRS in your Pocket for 2005 (PDF 536k). This edition includes a special introduction by Michal Petrman, Office Managing Partner of Deloitte Czech Republic, plus all of the information in the English language edition. Copies of this and all other Deloitte IFRS publications can always be found on our IFRS Publications Page.

7 June 2006: PIOB publishes its first annual report
The Public Interest Oversight Board (PIOB) has published its first annual report. The PIOB is an independent body formed in 2005 to exercise comprehensive oversight over all of the activities of the International Federation of Accountants that affect the public interest – particularly the establishment of auditing, ethics, and education standards for accountants and compliance of IFAC member bodies with IFAC rules. In introducing the report, PIOB Chairman Stavros B. Thomadakis said:
I firmly believe that high quality standards in the areas of audit, ethics and education for the accounting profession can be instrumental in the re-establishment of confidence in the audit process and in promoting the integrity of firms and markets. I also believe that high quality standards, if and when uniformly applied, create an international 'public good' that represents a very important part of the governance arrangements for our world financial system. That the standards are also being formulated in the broad public interest is a further safeguard that these arrangements will foster stability and development around the world.
Click for:

7 June 2006: IFAC will develop guidance for audits of SMEs
At its meeting in Beijing last week, the Board of the International Federation of Accountants approved a project to develop guidance materials on applying International Standards on Auditing (ISAs) for use in engagements to audit the financial statements of small and medium-sized entities. The guidance will be based on ISAs effective as of 31 December 2006 and is scheduled for publication in early 2007. The IFAC Board also named Kuala Lumpur as the site of the 2010 World Congress of Accountants. Click for IFAC Press Release (PDF 84k).

6 June 2006: SEC Chairman speaks about benefits of XBRL reporting
US SEC Chairman Christopher Cox recently spoke about The Interactive Data Revolution: Improved Disclosure for Investors, Less Expensive Reporting for Companies (PDF 55k). 'Interactive data' is financial and other information that is tagged using the XBRL programming language. Benefits of XBRL cited by Chairman Cox include easier and more timely access to the information; more accurate and reliable information; and significant new analytical capabilities. With regard to accuracy of financial data, Chairman Cox noted:

And the numbers the investor sees using interactive data will be vastly more accurate than they have been up to this point. Most people think that the numbers analysts and investment professionals work with come directly from SEC filings. Even some CEOs think this. But it's not true. An entire industry has developed to extract information in the financial statements that companies file with us. The error rate from this process is unacceptably high. According to one study, for example, computers taking down data from the SEC website get the numbers right only 72% of the time. People must then manually check every one of these hundreds of items in every company's financial statements to get that 28% that was not captured correctly. This is time consuming and, because human fingers are involved, error prone. Even after the human extraction has taken place, the error rate can range between 5% and 20%. With all of the advancements we have today, and with all of the money we spend on making sure that companies put out accurate numbers, why do we allow this low-tech approach to continue unabated?

Edgar Online, a Connecticut company whose business it is to extract information from our SEC filings and resell it to users downstream, has given us an idea of what the future could be like. They have embraced interactive data, and have already tagged more than 10,000 companies' statements - including all the 10Ks, and all the 10Qs - going back several years. Edgar Online says that, thanks to XBRL, it has attained a greater than 99% accuracy rate.

Imagine retail investors having access to better numbers than professional analysts ever dreamed of, and imagine combining this accuracy with the power to mix and match, and to compare and analyze those numbers.

5 June 2006: IFAC seeks public member of IAESB
The International Federation of Accountants (IFAC) is seeking nominations for a public member for the independent International Accounting Education Standards Board (IAESB). Individuals, organisations, accountancy firms, and IFAC member and regional accountancy bodies are asked to submit nominations for the public member position by 23 June 2006. The IAESB develops standards and guidance on pre-qualification education, training, and continuing professional development for all members of the accountancy profession. Click for IFAC Announcement (PDF 93k).

5 June 2006: CESR report cites 'concerns' about IFRSs
The Committee of European Securities Regulators (CESR) has published its report on CESR's 'Wholesale Day' (PDF 78k), which took place in CESR's offices in Paris on 20 February 2006. A wide range of securities industry representatives met with CESR to identify and discuss current major trends in the European wholesale markets and to assess whether any regulatory or supervisory implications exist. One of the "main conclusions of the discussion by market participants" related to IFRSs:

There are concerns on International Financial Reporting Standards (IFRS), which seem to result in EU issuers seeking listings in non EU exchanges or in the "unregulated" EU markets in order to avoid the application of IFRS. The same applies to non-EU issuers, who are facing uncertainty on whether and when the European Commission is going to consider US, Canadian, and Japanese GAAP equivalent for the purposes of the Transparency Directive.

4 June 2006: New IFRS presentation and disclosure checklist
We have posted to our Model Financial Statements Page a new IFRS Presentation and Disclosure Checklist for 2005 (PDF 1,084k) that is formatted to allow the recording of a review of financial statements, with a place to indicate yes/no/not-applicable for each presentation and disclosure item. This checklist reflects 2005 reporting requirements. We expect to publish our IFRS Presentation and Disclosure Checklist for 2006 in third quarter 2006.

2 June 2006: Nominations invited for IASC Foundation chairman
The IASC Foundation has begun a search for a new Chairman of the Trustees to replace Tommaso Padoa-Schioppa, who has been named the Finance Minister of Italy. Before Mr Padoa-Schioppa, Paul Volcker, the former Chairman of the US Federal Reserve Board, served as Chairman. The appointment will be for a term expiring on 31 December 2008. The appointment may be renewed for a further three years. Nominations are requested by 7 July 2006. Click for IASCF Announcement (PDF 69k).

1 June 2006: Model half-year report under Australian IFRSs
Deloitte Touche Tohmatsu (Australia) has published 2006 Consolidated Model Half-Year Report (PDF 645k) to illustrate an interim report for periods ending on or after 30 June 2006 in accordance with Australian equivalents to International Financial Reporting Standards (A-IFRSs). The model illustrates a half-year report that complies with:

  • the Australian Corporations Act 2001;
  • accounting standard AASB 134 Interim Financial Reporting, as amended by AASB 2004-2 and AASB 2005-7 'Amendments to Australian Accounting Standards'; and
  • other requirements and guidelines current as at the date of issue, including Australian Stock Exchange (ASX) Listing Rules and Australian Securities and Investments Commission (ASIC) Class Orders, Practice Notes, Policy Statements and Media Releases.
This model is intended to meet the needs of the vast majority of entities in complying with the half-year reporting requirements of the Corporations Act 2001. It does not illustrate the special reporting requirements for such industries as life insurance and credit unions. Further, of course, this model cannot cover all situations that may be encountered in practice and is not a substitute for knowledge of the disclosure provisions of the Corporations Act 2001, Accounting Standards, and Interpretations are pre-requisites for the preparation of financial reports. We have put a permanent link to these and other A-IFRS model financial statements on our Australia Page.
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