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Heads Up on new US fair value option

24 Feb 2007

In our news story of 16 February 2007, we reported that the US Financial Accounting Standards Board has issued a standard that provides companies with an option to report selected financial assets and liabilities at fair value.

Statement 159 The Fair Value Option for Financial Assets and Financial Liabilities also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. Deloitte (United States) has prepared a Special Issue of the Heads Up Newsletter (PDF 120k) explaining FASB's new fair value option.

Statistics database on cross-border securities updated

23 Feb 2007

We have updated our Database of Statistics that, we believe, provide clear evidence of the globalisation of the world's capital markets and of the need for global financial reporting standards.

The latest updates reflect January or February 2007 data on the number of non-US companies listed on member exchange of the World Federation of Exchanges and details of cross-border listings on the New York Stock Exchange, NASDAQ, and the London Stock Exchange.

Notes from day 3 of the February 2007 IASB meeting

23 Feb 2007

The International Accounting Standards Board held its February 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 20-22 February 2007.

Click here for Complete Meeting Notes (preliminary and unofficial) taken by Deloitte observers at the February 2007 IASB meeting.

Proposal to amend related party disclosure standard

22 Feb 2007

The IASB has published an exposure draft of proposed amendments to IAS 24 'Related Party Disclosures'.

The amendments would:

  • Exempt some state-controlled entities from related party disclosures
  • Change the definition of a 'related party'.

Comment deadline is 25 May 2007. The ED is now available for eIFRS subscribers and will be freely available on the IASB's website from 5 March 2007.

Click for Press Release (PDF 63k). Here is the IAS Plus Project Summary for the IAS 24 amendment project.


Proposed amendments to IAS 24

State controlled entities

The ED proposes to reduce the disclosure requirements in IAS 24 for some entities that are related only because they are each state-controlled or significantly influenced by the state. The changes respond to concerns expressed by interested parties about the difficulties that these entities have in obtaining the information required by IAS 24. In many cases, the entities affected may not even know that they are related to others controlled or influenced by the state. The IASB concluded that for those entities affected the cost of complying with IAS 24 is likely to outweigh the benefits of the disclosures to users of their financial statements. The exemption proposed is limited to those circumstances in which it is clear that the related entities are not influencing each other.

Definition of 'related party'

The main amendments to the definition are:

  • the inclusion, in the definition of a related party, of the relationship between a subsidiary and an associate of the same entity, in the individual or separate financial statements of both the subsidiary and the associate.
  • the removal, from the definition of a related party, of situations in which two entities are related to each other because a person has significant influence over one entity and a close member of the family of that person has significant influence over the other entity.
  • the inclusion, within the definition of a related party, of two entities where one is an investee of a member of key management personnel (KMP) and the other is the entity managed by the person that is a member of KMP.


UK FSA risk outlook includes IFRSs

22 Feb 2007

The United Kingdom Financial Services Authority has published Financial Risk Outlook 2007.

This annual publication is intended to raise awareness of the priority risks which the FSA believes it, along with providers and users of financial services, should consider. In the areas of accounting and auditing, the FSA sees three potential risks stemming from:
  • the move to International Financial Reporting Standards
  • the convergence between IFRSs and US Generally Accepted Accounting Principles
  • the concentration of audit services, and international coordination.
In the area of financial reporting, the FSA sees "two major risks to the continued success of IFRSs": Inconsistent application across national economies, and the potential direction of the future development of the IFRS Framework, including decision-usefulness, greater emphasis fair value accounting, and convergence with US GAAP. Some excerpts:

Inconsistent application

With regard to inconsistency, the true benefit of IFRS can only be realised through enabling a better comparison of similar entities across national boundaries, which, in turn, will provide enhanced transparency for markets and a more efficient global capital market. We also acknowledge that, under a principles-based accounting framework, there may be relevant economic and legal differences between countries such that similar transactions might legitimately be reported in different ways. However, should local custom or national interest operate to threaten the consistent application of IFRS, much of this anticipated benefit could be lost.

IASB Framework

For the development of the IFRS framework itself, there are concerns that the standards in some areas are of lesser quality than those that they have replaced. There is also a growing concern that IFRS will be interpreted and audited in a more prescriptive and rules-based way than was typically the case under UK GAAP – a risk of more 'form-over-substance' when agreeing accounting treatments. Going forward, the main areas of concern arise, in part from convergence with US GAAP and in part from the move towards 'decision usefulness' and an increasing emphasis on fair-value accounting.... Should the move towards fair value for all assets and liabilities advance significantly, many question whether the resulting information would remain sufficiently reliable to enable investors to make informed decisions about the effectiveness of the stewardship of their companies. At the same time, the ability of the audit profession to apply judgement on what constitutes a 'true and fair' view might be ever more constrained by detailed rules, resulting in a 'presents fairly in accordance with' model of financial reporting. The progress made over the next 18 to 36 months will be critical in determining whether the potential benefits of IFRS and convergence are realised, or whether the costs connected and the ultimate outcomes experienced are potentially disproportionate, or even negative, for UK stakeholders.

Notes from day 2 of the February 2007 IASB meeting

22 Feb 2007

The International Accounting Standards Board held its February 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 20-22 February 2007.

Click here for Complete Meeting Notes (preliminary and unofficial) taken by Deloitte observers at the February 2007 IASB meeting.

IASCF trustees publish IFRIC's Due Process Handbook

22 Feb 2007

The trustees of the IASC Foundation (IASCF) have published the Due Process Handbook for the International Financial Reporting Interpretations Committee (IFRIC).

When the trustees initiated a review of the organisation's Constitution in November 2003, they identified the resources and effectiveness of the IFRIC as one of the major issues to review. In March 2005 the IASCF invited comment on a consultation paper IFRIC Review of Operations, and in May 2006 the trustees published the IFRIC due process handbook in draft for public comment. The Trustees approved an amended version at their meeting in January 2007. The Handbook may be downloaded from the IASB's Website. Click for Press Release (PDF 51k).

Notes from day 1 of the February 2007 IASB meeting

21 Feb 2007

The International Accounting Standards Board held its February 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 20-22 February 2007.

Click here for Complete Meeting Notes (preliminary and unofficial) taken by Deloitte observers at the February 2007 IASB meeting.

Market approach to valuing share-based payment

21 Feb 2007

Because employee stock options and other share-based payment awards do not trade in a market, most companies use pricing models, such as the Black-Scholes-Merton model, to measure an award's grant date fair value for accounting purposes under IFRS 2 Share-based Payment and under the comparable US standard FAS 123(R).

In the United States, Zions Bancorporation believes, and the SEC concurs, that it has sufficiently designed an instrument to serve as a market-based approach to valuing employee share-based payment awards, including employee stock options. Based on a test auction, Zions's approach suggests a value of 68-72 percent of the value of the same stock option as determined by the Black-Scholes-Merton model. Deloitte (United States) has prepared a Special Issue of the Heads Up Newsletter (PDF 78k) explaining Zions's model, the SEC's views about it, and how it could be applied for accounting purposes. There are hyperlinks to Zions's report and related SEC reports and commentary.

Support for SME ED in Australia, Ireland, UK

20 Feb 2007

Australia, Ireland and the United Kingdom respond positively to the IASB's draft guidance on IFRSs for small and medium-sized entities.


At its February 2007 meeting, the Australian Accounting Standards Board considered staff papers on differential reporting and small and medium-sized entities (SMEs) and tentatively decided that Australia should adopt a two tiered approach in relation to Australian corporate entities, as follows:

  • Australian equivalents to IFRSs (A-IFRSs) will be required for corporates that are publicly accountable
  • an Australian version of the IFRS for SMEs will be adopted by corporates that are not publicly accountable but which prepare general purpose financial reports.

The AASB decided that under a revised financial reporting regime, all financial reports that are prepared and lodged with Australia Securities and Investments Commission under the Corporations Act 2001 would be regarded as general purpose financial reports, because they are available on a public register for access by users. Once the new reporting regime (based on IFRSs and the IFRS for SMEs) is put in place, this decision will effectively remove the 'reporting entity' concept for corporate entities that report under the Corporations Act 2001.


A press release issued by the Institute of Certified Public Accountants of Ireland said: 'The Institute of Certified Public Accountants positively welcomes the publication by the International Accounting Standards Board (IASB) of draft guidance on International Financial Reporting Standard for Small and Medium-sized Entities.... This initiative is designed to facilitate a move towards one common set of international financial reporting standards without disadvantaging SMEs.' Click for CPA Ireland Press Release (PDF 132k).

United Kingdom
United Kingdom

The United Kingdom Accounting Standards Board (ASB) has issued a press release welcoming the publication of the Exposure Draft of an IFRS for SMEs (see 15 February 2007 news item). The ASB is currently defining its strategy and approach to this Exposure Draft. The Board is minded to issue the ED of IFRS for SMEs for consultation with an accompanying ASB invitation to comment (ITC) giving an insight into the Board's initial views on the Exposure Draft and potential implications for UK and Irish entities. The ITC would also set out with any additional questions the ASB considers appropriate. The ITC would also aim to provide an analysis of the significant differences between the existing FRSSE [UK Financial Reporting Standard for Smaller Entities] and the proposed IFRS for SMEs. The ASB encourages UK and Irish constituents to comment both to our forthcoming consultation and directly to the IASB. The IASB has asked for comments on the Exposure Draft by 1 October 2007. The ASB plans to publish its formal comments by the same date after considering UK constituents feedback to their proposed consultation paper on the IFRS for SMEs Exposure Draft. Click for ASB Press Release (PDF 16k).

Correction list for hyphenation

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