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January

European paper on financial reporting of pensions

31 Jan 2008

EFRAG and several European accounting standard setters have jointly published a discussion paper on The Financial Reporting Of Pensions as part of EFRAG's Pro-active Accounting Activities in Europe (PAAinE) programme.

Work on developing the paper was led by the UK Accounting Standards Board. Comments on the paper are requested by 14 July 2008. The IASB has an Agenda Project on this topic, as does the US Financial Accounting Standards Board. After considering the responses to the proposals in its discussion paper, EFRAG intends to issue a report setting out final recommendations for consideration by the IASB and FASB.

Some points about the EFRAG paper:

Rather than seeking to improve existing accounting standards, the paper proposes a fundamental reconsideration of pension accounting. Consequently, some of the views in the paper differ markedly from existing standards on pensions. Recommendations include:

  • The same principles should be applied to all pension arrangements, whether 'defined contribution' or 'defined benefit' plans.
  • The expected return on assets should not be reported as part of the profit or loss for the year.
  • Only benefits that the entity is presently committed (by legal or constructive obligation) to pay should be reflected in the liability. Where the entity has genuine discretion to vary the amount of future benefit, this is not reflected in the liability.
  • The focus should shift from mechanisms that spread pension costs over employees' service lives to the principle of reflecting only present obligations as liabilities. Therefore, if benefits are linked to employees' salaries at or near retirement or leaving service, expected future salary increases would only be reflected in the liability when increases are required by law or contract or are seen as non-discretionary. Under this approach, the pension expense and the pension liability is increased only when pensionable salaries actually increase. (The report notes differing views on this issue.)
  • Changes in the measurement of assets and liabilities relating to pension plans should not be deferred, such as by spreading them over the average remaining service lives of employees or by a 'corridor' approach under which changes are not recognised at all unless they exceed a certain threshold.
  • Pension liabilities should be measured at a current value, defined as the settlement amount that reflects the cash outflows needed now or in the future to discharge the liability.
  • Pension liabilities should be measured by discounting future cash flows using a current market discount rate that reflects the time value of money only, that is, a risk-free rate. Risks, such as mortality risk, would be reported via disclosure.
  • Assets held to pay benefits should be reported at current values.
  • Regarding financial reporting by pension plans themselves, the IASB should consider withdrawing IAS 26 Accounting and Reporting by Retirement Benefit Plans and requiring, instead, that the standards for the general purpose financial reports of pension plans be consistent with IFRSs in general. Thus, a plan's liability to pay benefits in the future should be measured using the same principles as an employer's liability.

Click for The Financial Reporting Of Pensions (PDF 2,849k, 237 pages).

 

New Deloitte Australia 'what's new in financial reporting' checklist

31 Jan 2008

Deloitte (Australia) has published What's New in Financial Reporting for December 2007.

This guide provides a high level overview of new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2007.

Entities can use this listing to perform a quick check that all new financial reporting requirements have been fully considered as part of their June reporting close process.

Link - What's New in Financial Reporting for December 2007 (PDF 165k).

Questions an audit committee might ask concerning IFRSs

31 Jan 2008

The 4Q 2007 edition of Audit Committee Brief from Deloitte & Touche LLP (USA) includes Questions an audit committee might ask concerning the International Financial Reporting Standards.

In addition, the firm will conduct a Dbriefs Webcast on International Financial Reporting Standards: Strategies for Adopting a Single Set of Standards on 20 February 2008, at 2:00 pm EST. The webcast will discuss:
  • Key strategies for dealing with the movement toward IFRSs
  • Risks and opportunities of converting to IFRSs at the subsidiary-entity level
  • Efficient methods for making the transition to IFRSs
Click for More Information about the Webcast.

Questions Audit Committees Might Ask Concerning IFRSs Thousands of companies have moved to International Financial Reporting Standards (IFRSs) in the past year as a basis of financial reporting. Nearly every country has embraced IFRSs in some way.

  • Has the company inventoried its current IFRS reporting requirements, if any?
  • What is the level of IFRS knowledge within the company, both domestically and globally?
  • Are the company's competitors already reporting under IFRSs, or is there an expectation that they would switch to IFRSs, if given the choice?
  • What would be the impacts on the company of a possible IFRS requirement in the US?
  • Has the company assessed the cost and benefits of adopting IFRSs?

Click to view 4Q 2007 edition of Audit Committee Brief (PDF 292k).

Quarterly update on accounting matters in South Africa

31 Jan 2008

Deloitte (South Africa) publishes a quarterly newsletter Technically Speaking that provides insights, guidance, and summaries of issues that are affecting the accounting, auditing, and regulatory environment in South Africa, as well as other matters of general interest.

We have begun posting these to our South Africa Page. Here is the link to download the January 2008 Issue (PDF 433k). Among the IFRS-related points covered are:
  • The Accounting Practices Board approved the IASB's exposure draft on IFRS for SMEs as South African Statement of GAAP for SMEs.
  • IFRS 7 and Liquidity Risk Disclosures
  • IFRS Current Issues

 

PCAOB addresses consistency and US GAAP hierarchy

30 Jan 2008

The US Public Company Accounting Oversight Board (PCAOB) has adopted Auditing Standard 6 Evaluating Consistency of Financial Statements and consequential amendments to other PCAOB auditing standards.

The PCAOB adopted AS 6 in light of the FASB's issuance of SFAS 154 Accounting Changes and Error Corrections and impending issuance of SFAS The Hierarchy of Generally Accepted Accounting Principles. AS 6 updates the auditor's responsibilities to evaluate and report on the consistency of a company's financial statements and aligns those responsibilities with SFAS 154. AS 6 also requires an auditor's report to indicate whether an adjustment to previously issued financial statements results from a change in accounting principle or the correction of a misstatement. The PCAOB also removed the hierarchy of GAAP from its auditing standards. The GAAP hierarchy identifies the sources of accounting principles and the framework for selecting principles to be used in preparing financial statements. The PCAOB believes that the GAAP hierarchy is more appropriately located in the accounting standards.

 

Advisory Council will meet 14-15 February 2008

29 Jan 2008

The Standards Advisory Council will meet with the IASB on Thursday 14 February and Friday 15 February 2008 at the Renaissance Chancery Court Hotel, 252 High Holborn, London.

The meeting is open to public observation. The agenda for the meeting is set out below.

Standards Advisory Council Meeting Agenda
14-15 February 2008, London

Thursday 14 February 2008 (starts 11:30am)

  • Report from SAC Chairman
  • Presentation by Wang Jun, Ministry of Finance, China: Continuing IFRS convergence in China
  • Report from IASB Chairman: Discussion of IASB work programme – to include comments on Business Combinations, Fair Value Measurement, the subprime crisis and financial reporting, Annual Improvements, and work with the FASB on convergence with US GAAP
  • Proposed IFRS for Small and Medium-sized Entities: Comment letters, field testing, work plan for completion of IFRS

Friday 15 February 2008 (starts 9:00am)

  • Distinction between Equity and Liabilities: Forthcoming Discussion Paper on Financial Instruments with Characteristics of Equity
  • Financial Instruments: Forthcoming Discussion Paper on Reducing Complexity in Reporting Financial Instruments
  • Post-employment benefits: Overview of forthcoming Discussion Paper
  • Address by Gerrit Zalm, Chairman of IASC Foundation Trustees

 

SEC official comments on IFRSs in United States

29 Jan 2008

In two recent speeches, John W White, Director of the Division of Corporation Finance of the US Securities and Exchange Commission, discussed issues relating to the use of IFRSs in the United States and some of the SEC's international initiatives.

Here are the two speeches, and below are two excerpts relating to IFRSs:

International Financial Reporting Standards: Where do I begin on this topic? Tremendous strides have been made in this area over the past year.

  • In March, we conducted a staff roundtable on IFRS.
  • In April, the Commission issued a next steps press release.
  • In July, a proposing release was issued relating to elimination of reconciliation to US GAAP by foreign private issuers using IFRS.
  • In August, a concept release was issued relating to the possible use of IFRS by US issuers.
  • In November, the Commission voted to approve elimination of reconciliation to US generally accepted accounting principles (US GAAP) by certain foreign private issuers using IFRS.
  • In December, the Commission held two roundtables relating to use of IFRS by US issuers.
Quite a year! While I can only speak for myself, I am comfortable telling you that the staff at the SEC – particularly in the Division of Corporation Finance – is deeply committed to the goal of achieving a single set of high quality, globally accepted accounting standards and we truly are interested in hearing from all stakeholders as we continue to progress down this road.

 

How to proceed from the concept release on possible use of IFRSs by US issuers: One of the more debated topics [at the December roundtables] was how to proceed from the concept release. Participants expressed a wide range of views and a number of overlapping options emerged:

  • Have the Commission lay out a so-called 'road map' of steps forward.
  • Allow the voluntary use of IFRS for an indeterminate period. Under this option, we would allow some or all US issuers to use either IFRS or US GAAP for an indefinite period of time.
  • Set a fixed date in the future for the mandatory use of IFRS. Under this option, we would select a date in the future and require that all issuers switch to using IFRS at that time. This was the approach followed in Europe.
  • A 'wait and see' approach on further rulemaking by the SEC, allowing convergence, investor understanding and the infrastructure for IFRS to further develop over the next few years.
  • Various combinations of the above.

 

European paper on liability-equity distinction

28 Jan 2008

EFRAG and several European accounting standard setters have jointly published a discussion paper 'Distinguishing between Liabilities and Equity' as part of EFRAG's Pro-active Accounting Activities in Europe (PAAinE) programme.

Comments on the paper are requested by 28 July 2008. The IASB has an Agenda Project on this topic, as does the US Financial Accounting Standards Board (FASB).
  • EFRAG's paper. The paper analyses the distinction between equity and liabilities under the existing IASB Framework and current IFRSs. The paper concludes that "the distinction principle used therein has apparent shortcomings. The shortcomings cannot be accommodated by merely 'fixing' bits and pieces or by amending definitions. Rather, a fundamental review of the principle itself is warranted." The paper concludes that participating or sharing in losses is "the decisive factor for distinguishing equity from debt". Therefore, any capital that is available to absorb the reporting entity's losses should be classified as equity. Click to download the Discussion Paper (PDF 1,023k).
  • FASB's paper. On 30 November 2007, the FASB published its Preliminary Views (PV) on Financial Instruments with Characteristics of Equity (see IASPlus News Story 5 Dec 2007). FASB favours the 'basic ownership' approach, which limits the instruments that can be classified as equity to the lowest residual interests in an entity. The holders of those instruments are viewed as the owners of the entity. All other instruments represent either liabilities or assets. An instrument that reduces the net assets available to the owners of the entity is a liability; and an instrument that enhances net assets available to the owners is an asset. Under this approach, forward contracts, options, and convertible debt would be classified as liabilities or assets. You can download the paper from FASB's Website (PDF 510k) without charge.
  • IASB's paper. At its December 2007 meeting, the IASB decided to issue a Discussion Paper on Financial Instruments with Characteristics of Equity. The IASB's DP is planned for March 2008. It would incorporate FASB's preliminary views document, possibly with additional material or questions, and invite public comments.

 

Study finds adoption of IFRSs is 'good news for investors'

28 Jan 2008

The French Asset Management Association and the French Federation of Insurance Companies have co-sponsored a survey of Investor Perspectives on IFRS Implementation.

The two groups had published a similar survey in December 2004 – shortly before IFRSs became required for listed companies in Europe. The new study is a collection of 14 essays based on interviews that took place mainly at the end of 2006 and early in 2007. The overall impression of IFRSs is quite positive, both in terms of perceived benefits and smoothness of the transition. Perhaps the principal concern expressed is the need for more detailed implementation guidance to achieve consistency of application. An introduction to the essays concludes:

Adoption of IFRS is a good news for investors, assuming that consistent practices emerge in terms of implementation – a condition which, two years after first-time adoption, has still not really been met.

We are grateful to the two sponsoring organisations for giving us permission to post the study. Click to download the English or French version:

 

IAS Plus quarterly newsletter for January 2008

28 Jan 2008

The January 2008 IAS Plus Quarterly Newsletter has been published.

The newsletter reports on the 4th quarter 2007 activities of the IASB, the IFRIC, and the IASC Foundation, and also on worldwide issues and events relating to international financial reporting:

 

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