April

IASC Foundation Chairman speech to EU Parliament committee

13 Apr 2008

On 8 April 2008, Gerrit Zalm, Chairman of the International Accounting Standards Committee Foundation, under which the IASB operates, spoke before the Economic and Monetary Affairs Committee of the European Parliament.

Among other things, his presentation outined the Trustees' plans to create:
  • A new Monitoring Group that would end the practice of self-appointment of IASCF Trustees, and
  • A formal link to public authorities, including the European Commission.
He also outlined the Trustees' plans to expand the IASB to 16 members. Click for Mr Zalm's Prepared Statement (PDF 52k).

G-7 ministers seek 'urgent action' by the IASB

12 Apr 2008

The G-7 Finance Ministers and Central Bank Governors, meeting in Washington, have strongly endorsed the recommendations in the FSF report highlighted in our news story immediately below.

Regarding the IASB, the G-7 said:

We have identified the following recommendations among the immediate priorities for implementation within the next 100 days: The International Accounting Standards Board (IASB) and other relevant standard setters should initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities and enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.

Click for the Statement of G-7 Finance Ministers and Central Bank Governors (PDF 23k).

FSF urges IASB to improve accounting for off-balance sheet entities

12 Apr 2008

The Financial Stability Forum, a global organisation of regulators and central bankers, has submited a report on Report on Enhancing Market and Institutional Resilience to the G7 Ministers and Central Bank Governors.

The IASB participated in preparing the report. The report analyses the causes and weaknesses that have produced the recent turmoil in financial markets worldwide and makes recommendations for correcting those weaknesses. The report addresses the following areas:
  • Strengthened prudential oversight of capital, liquidity and risk management
  • Enhancing transparency and valuation
  • Changes in the role and uses of credit ratings
  • Strengthening the authorities' responsiveness to risks
  • Robust arrangements for dealing with stress in the financial system
Regarding accounting and disclosure standards for off-balance sheet entities, the report concludes:

The IASB should improve the accounting and disclosure standards for off-balance sheet vehicles on an accelerated basis and work with other standard setters toward international convergence. The report notes: Off-balance sheet treatment in financial reports can arise as a result of the standards for derecognition (e.g., removing assets from balance sheets through securitisations) and consolidation (e.g., special purpose entities). The standards of the IASB and the US Financial Accounting Standards Board (FASB) differ for both topics and with respect to the required disclosures about off-balance sheet vehicles. The IASB and FASB have projects underway to converge their standards in these areas and this work should be accelerated so that high-quality, consistent approaches can be achieved. In doing so, and consistent with their required due process, the IASB and the FASB should consider moving directly to exposure drafts on off-balance sheet issues, rather than discussion papers, to meet the urgent need for improved standards. Standards should require the risk exposures and potential losses associated with off-balance sheet entities to be clearly identified and presented in financial disclosures. The IASB and FASB should consult investors, regulators, supervisors and other stakeholders for their views during this process, and should take note of issues that have come to light during the current market turmoil and the progress reflected in 2007 annual reports and other disclosures.

Regarding valuations, the report concludes that:

International standard setters should enhance accounting, disclosure and audit guidance for valuations. The report states that:

  • The IASB will strengthen its standards to achieve better disclosures about valuations, methodologies and the uncertainty associated with valuations.
  • The IASB will examine its principles and requirements for disclosures about the valuation of financial instruments to identify areas for enhancement in light of lessons learned from the market turmoil. This effort will assess disclosures in year-end 2007 annual reports and draw on the views of investors, firms, auditors, supervisors and regulators about the quality of valuation disclosure practices.
  • The IASB will enhance its guidance on valuing financial instruments when markets are no longer active. To this end, it will set up an expert advisory panel in 2008.

Click to download:

 

'Leading-Practice Disclosures for Selected Exposures'

12 Apr 2008

The Senior Supervisors Group of financial regulators from major countries has published a set of recommendations for Leading-Practice Disclosures for Selected Exposures.

The report responds to the Financial Stability Forum's request that the Senior Supervisors Group undertake a review of disclosure practices regarding exposures to certain instruments that the marketplace now considers to be high-risk or to involve more risk than previously thought, including:
  • collateralised debt obligations,
  • residential mortgage-backed securities,
  • commercial mortgage-backed securities,
  • other special purpose entities, and
  • leveraged finance.
Click to Download the Senior Supervisors' Report (PDF 358k).

Study of financial statement restatements in the US

10 Apr 2008

The United States Treasury Department has published a study of financial statement restatements by US companies during the period 1997-2006: The Changing Nature and Consequences of Public Company Financial Restatements.

The study, part of Treasury's efforts to encourage US capital markets competitiveness, was conducted by University of Kansas Professor Susan Scholz. Its purpose is "to understand characteristics and consequences of financial statement restatements for violations of US Generally Accepted Accounting Principles (GAAP) over this decade". The study analyzes 6,633 restatements over this period.

These are the broad findings of the restatements study:

  • Over the 1997-2006 decade, restatements grew nearly eighteen-fold, from 90 in 1997 to 1,577 in 2006. However, the increase is largely driven by companies that do not trade on the major stock exchanges. Non-exchange-listed companies account for only 23% of all restatements in 1997, but increase to 62% by 2006.
  • Restatement frequencies begin to accelerate in 2001 – well in advance of the passage of the Sarbanes-Oxley Act of 2002. Th is acceleration is likely due in part to the economic downturn about this time.
  • The average market reaction to restatement announcements is negative throughout the study period. However, beginning in 2001, the magnitude of market reactions declines notably. This decline coincides with an increase in the number of restatements between 2001 and 2006.
  • In particular years, restatement frequencies and market reactions are associated with several disparate factors. These include overall market returns and volatility, regulatory activities, and changes in the mix of underlying accounting issues. Regarding the shift in accounting issues:
    • Restatements attributed to fraud and those affecting revenues tend to have more negative market reactions. However, the percentages of both fraud and revenue restatements decline over the decade. Fraud is a factor in 29% of all 1997 restatements, but only 2% of 2006 restatements. The proportion of revenue restatements also decreases, from 41% in 1997 to 11% in 2006.
    • On the other hand, restatements related to accounting for non-operating expenses, non-recurring events, and reclassifications typically do not have discernibly negative market reactions. Together, these groups represent about 24% of all 1997 restatements, increasing to nearly half at the end of the study period.
  • Across the decade, the average restating company increases in size, but remains similar to a comparison group of non-restating companies. Companies of differing sizes tend to restate different accounting issues, and several of the distinctions are consistent with expected variations in the activities of larger versus smaller companies.
  • Finally, restating companies are typically unprofitable even before the restatement. In the year prior to announcing a restatement, more than half of restating companies report a net loss.

Click to view The Changing Nature and Consequences of Public Company Financial Restatements (PDF 1,558k).

New process for endorsing IFRSs in the European Union

09 Apr 2008

The European Union has formally published Commission Regulation (EC) No 297/2008 of 11 March 2008 amending the EU 'IAS Regulation' with respect to the Process for Endorsing IFRSs for Use in the EU.

The procedure requires the Commission staff to submit their recommendations for endorsement to both the European Parliament Committee on Economic and Monetary Affairs and the Council for approval. The regulation calls on the Commission, the Council, and the European Parliament to act speedily to ensure that IFRSs and interpretations are adopted in a timely manner.
Click to view Commission Regulation (EC) No 297/2008 (PDF 33k).

 

Accounting Roundup – first quarter 2008 review

08 Apr 2008

We have posted Accounting Roundup: First Quarter in Review–2008, prepared by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (USA).

This newsletter provides brief descriptions of pronouncements affecting accounting, financial reporting, and corporate governance issued during 1Q-2008 by standard setters and regulators including FASB, EITF, AICPA, SEC, FASAB, PCAOB, GASB, IASB, and IFRIC. It also outlines other third-quarter regulatory and professional developments. This quarterly review consists of articles, adapted as necessary, from issues of Accounting Roundup published in January and February 2008, as well as new articles for the month of March. You will find past issues Here. International developments covered in this edition of Accounting Roundup are:
  • IASB Amends Financial Instruments Standard for Puttable Instruments and Obligations Arising on Liquidation
  • IASB Revises Accounting for Business Combinations and Noncontrolling Ownership Interests
  • IASB Amends IFRS 2 on Share-Based Payments
  • IFRIC Proposes Guidance on Distributions of Noncash Assets to Owners
  • IFRIC Proposes Guidance on Accounting for Customer Contributions
  • IASB Publishes Discussion Paper on Employee Benefits
  • IASB Publishes Discussion Paper on Reducing Complexity in Financial Instrument Reporting
  • FASB Proposes to Narrow Definition of Equity; IASB Issues Discussion Paper Seeking Constituents' Views
  • IASC Foundation Releases 2008 IFRS Taxonomy

Click to view Accounting Roundup: First Quarter in Review–2008 (PDF 1,101k, 55 pages).

 

Concern about banks' disclosures in Europe

08 Apr 2008

At a hearing conducted by the Economic and Monetary Affairs Committee of the European Parliament, Kerstin af Jochnick, Chair of the Committee of European Banking Supervisors Expressed Some Concerns about current financial statement disclosures by European banks:

We are concerned that the lack of disclosure on banks' business models and on their role in structured finance activities could make it difficult for market participants to properly assess the banks' risk profile. While the coming into force of the Pillar 3 requirements of the CRD [EU Capital Requirements Directive] and of new accounting disclosure requirements (IFRS 7) should contribute to the quality, granularity and comparability in the disclosure of exposures, the disclosures seem in many cases to be aimed at banks' immediate stakeholders – i.e. at their shareholders – and not so much at market participants in the wider sense. It may be necessary for banks to reconsider their disclosure policies and the principle they build on, especially in times of stress.

Click to view Hearing at the Economic and Monetary Affairs Committee of the European Parliament (PDF 40k).

Deloitte Australia Insights Podcast on the 'IFRS experiment'

08 Apr 2008

Deloitte (Australia) has released a new Insights Podcast discussing IFRS-related issues.

In this podcast, Bruce Porter, leader of Deloitte's Accounting Technical group in Australia and member of the AASB, talks with Stig Enevoldsen, Chairman of the Technical Expert Group of the European Financial Reporting Advisory Group (EFRAG) and a partner of the Deloitte practice in Denmark, about the experience with IFRSs in Europe and Australia and the key IFRS challenges moving forward.

Agenda for the joint IASB-FASB meeting

07 Apr 2008

The International Accounting Standards Board will hold a joint meeting with the US Financial Accounting Standards Board on Monday and Tuesday 21 and 22 April 2008. The meeting venue is Painters' Hall, 9 Little Trinity Lane, London EC4V 2AD.

The full agenda for the meeting can be found here. We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.