February

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Agenda for 23-24 February 2009 SAC meeting

17 Feb 2009

The International Accounting Standards Board will meet with the Standards Advisory Council (SAC) on Monday and Tuesday, 23 and 24 February 2009, at the Renaissance Chancery Court Hotel in London.

The meeting will be open to public observation all day Monday and Tuesday morning. The agenda is presented below.

Standards Advisory Council Meeting Agenda
23-24 February 2009, London

Monday 23 February 2009

  • Opening remarks
  • Orientation – To provide SAC members with an overview of the IASB and IASCF structures so that SAC members are familiar with the context in which the SAC will operate.
  • SAC Mandate
  • IASB Work Plan
  • Financial Statement Presentation

Tuesday 24 February 2009 (morning only)

  • Global Financial Crisis
    • Response to G20, FSF and other bodies
    • Report on initial Financial Crisis Advisory Group meetings
  • Constitutional Review Part 2

 

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Newsletter on IFRIC 18

17 Feb 2009

Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – Guidance Issued on Accounting for Transfers of Assets from Customers.

The newsletter explains IFRIC 18 Transfers of Assets from Customers, which was published on 29 January 2009 and will be effective for transfers received received from customers on or after 1 July 2009.
  • The basic principle of IFRIC 18 is that when the item of property, plant and equipment transferred from a customer meets the definition of an asset under the IASB Framework from the perspective of the recipient, the recipient must recognise the asset in its financial statements. If the customer continues to control the transferred item, the asset definition would not be met even if ownership of the asset is transferred to the utility or other recipient entity.
  • The deemed cost of that asset is its fair value on the date of the transfer.
  • The timing of the recognition of the revenue arising from the transfer will depend on the separately identifiable services included in the agreement.

Click to view IAS Plus Update Newsletter – Guidance Issued on Accounting for Transfers of Assets from Customers (PDF 107k).

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IFRS considerations for audit committees

16 Feb 2009

Deloitte LLP (United States) has published IFRS Considerations for Audit Committees.

The strong global movement toward IFRSs and recent US SEC activity have created a need for audit committees and company management to discuss the potential costs, benefits, and other effects of a transition to IFRSs. Because audit committees have a fiduciary responsibility to protect the interest of shareholders and oversee the integrity of the company's financial reporting process, their involvement in the transition to IFRS is essential. This 21-page publication is designed to assist audit committee members in preparing for meaningful and effective conversations about IFRSs, and includes:
  • A high-level overview of IFRS accounting requirements and potential IFRS-U.S. Generally Accepted Accounting Principles differences.
  • Implementation considerations.
  • Key questions audit committees should ask.
Click to view IFRS Considerations for Audit Committees (PDF 238k).

 

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Require IFRSs for Japanese listed companies?

16 Feb 2009

The Japan Financial Services Agency (FSA – the securities regulator) has launched a public consultation on Application of International Financial Reporting Standards (IFRS) in Japan.

The official consultation document – known as the Draft Interim Report of the Business Accounting Council – is, of course, in Japanese. However, the FSA has released a provisional and unofficial English Translation of the Draft Interim Report (PDF 100k). In the FSA Press Release (PDF 31k) announcing the consultation, the FSA said that the following are the key points of the Draft Interim Report:
  • The use of IFRS on a voluntary basis could be permitted, for instance, from the fiscal year ending March 31, 2010, for the consolidated financial statements of certain listed companies. However, the decision needs to be made after assessing various factors.
  • On the other hand, the decision regarding the mandatory use of IFRS could be made around, say, 2012. However, this timing could be moved either forward or back depending on various factors and the situation of the implementation of the use of IFRS on a voluntary basis.

Contents of the Draft Interim Report:

  • I. International Developments in Accounting Standards 1. Progress in Convergence of Accounting Standards 2. Developments in Other Countries toward IFRS Application
  • II. The Direction for Japanese GAAP 1. The Need for Continuing Convergence of Japanese GAAP 2. Issues Concerning the Application of IFRS in Japan and the Required Approach
    • (1) Basic concept regarding the application of IFRS by Japanese companies
    • (2) Issues Concerning the Application of IFRS
    • (3) Optional Application of IFRS
    • (4) Considerations for Future Mandatory Application
  • III. Toward Future Action
On page 15, the Draft Interim Report states that Japan will consider 'carve-outs' from IFRSs:

Nevertheless, because of the grave importance of accounting standards as the yardstick for assessing financial statements, with punitive action under law taken in case of violation, there may be cases in which Japan must suspend application of the parts of IFRS developed by the IASB that are found seriously inappropriate and cannot be recognized as accounting standards 'that are generally fair and just' in Japan.
The deadline for comments is 6 April 2009.

 

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IFRSs required for all companies in Mongolia

16 Feb 2009

We have created a new country page for the Republic of Mongolia and have updated our Table Reporting Use of IFRSs by Jurisdiction to reflect our understanding of the requirements in Mongolia, as follows:

  • Accounting standards. Mongolian Accounting Law requires that any business entity or organisation operating within Mongolia, including both for-profit and non-profit entities, SMEs, and state-owned entities to publish financial statements that are prepared in accordance with IFRSs.
  • Auditing. The Audit Law requires the financial statements of the following types of entities to be independently audited: entities that are listed or planning a listing; unlisted with capital exceeding appoximately US$40,000; foreign-invested; wholly or partly state owned; and financial institutions including banks, insurers, broker/dealers, and investemnt funds. Auditing standards are established by the Audit Committee of Mongolian Institute of Certified Public Accountants.
Click for our Mongolia page and our Table Reporting Use of IFRSs by Jurisdiction.
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Pakistan grants 'relaxation' of IAS 39

15 Feb 2009

The Securities and Exchange Commission of Pakistan (SECP) has granted a 'relaxation' of the requirements of IAS 39 by allowing impairment losses on available-for-sale (AFS) equity securities to be charged against equity, rather than against profit or loss as IAS 39 requires.

Click for SECP Announcement (PDF 79k). The 'relaxation' is valid till 31 December 2009. The 'relaxation' was granted in response to requests from various financial institutions in Pakistan, including mutual funds, insurance companies, leasing companies, banks, and the corporate sector in general. The SECP said it granted the relaxation because recognising impairment losses on AFS equity securities through profit or loss 'will not reflect the correct financial performance of the corporate entities'. Nonetheless, the SECP's announcement said that 'those companies who are willing to follow the full requirements of IAS 39 are encouraged to do so'. The current and former presidents of the Institute of Chartered Accountants of Pakistan (ICAP) expressed support for the 'relaxation'. Asad Ali Shah, current ICAP President, said that 'such deviations from IFRSs have been witnessed in extraordinary situations in the world'. The Competition Commission of Pakistan, however, expressed concern that failure to recognise losses could be viewed as deceptive marketing of securities.

 

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Can financial reporting be made simpler?

15 Feb 2009

The Global Accounting Alliance (GAA) has published a report Getting to the Heart of the Issue – Can Financial Reporting Be Made Simpler and More Useful?

The GAA is an alliance of professional accountancy bodies in nine significant capital markets, with total membership of 750,000 professional accountants in over 140 countries. The report is based on interviews conducted in 2008 with financial regulators from Australia, Canada, China, France, the European Commission, South Africa, the United Kingdom, and the United States of America, international regulators, and major accounting firms. Interviewees included IASB Chairman Sir David Tweedie and Jeff Willemain, Global Managing Partner–Regulatory and Risk, Deloitte Touche Tohmatsu. The research was undertaken to consider the barriers to a more principles based accounting regime, and the increasing complexity and detail in company financial statements. The GAA is arranging a number of roundtable events where regulators and other stakeholders in financial reporting around the world can begin discussing ideas emerging from the research.

The GAA proposes that a number of questions be considered by the key stakeholders in financial reporting, such that some agreed recommendations might emerge. The GAA is intending to facilitate a series of events internationally where these debates can take place. These questions are as follows:

  1. Should an agreed international framework for accounting standards be adopted with a clear hierarchy comprising (i) a conceptual framework; (ii) principles based standards; and (iii) limited authoritative guidance?
  2. Should guidance be provided for preparers and auditors on the exercise of judgement in the application of principles based standards and on the documentation of reasons for the judgements made?
  3. Should regulators be encouraged to accept a reasonable degree of variation in accounting treatments and to take a more effective, outcome oriented approach to regulation?
  4. Should a single definitive set of general purpose financial statements be retained?
  5. Should standard setters be encouraged to drop requirements considered redundant?
  6. How can company boards be encouraged to provide better quality communication?
  7. Should an international framework for high level summary financial statements be developed in order to provide information suitable for retail and less sophisticated investors?
  8. Should general purpose financial statements be developed and published in XBRL format to allow users to drill down to whatever level of detail is required?
  9. Should company communication be improved through the use of clearer language, less jargon and coded language, and a focus on clarity and transparency?
  10. How has the recent financial crisis affected the debate on these issues?

Click to view GAA's Getting to the Heart of the Issue – Can Financial Reporting Be Made Simpler and More Useful? (PDF 880k).

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Second meeting of Financial Crisis Advisory Group

15 Feb 2009

The Financial Crisis Advisory Group (FCAG) was established by the IASB and US FASB in response to the recent global financial crisis.

Its purpose is to advise both boards about the role of accounting during the crisis and potential changes. The FCAG held its second meeting in New York on 13 February 2009. Presented below are the preliminary and unofficial notes taken by a Deloitte observer at the meeting. For related information please see our Credit Crunch Page.

IASB-FASB Financial Crisis Advisory Group Meeting
13 February 2009

The members of the FCAG discussed various issues ranging from the focus and purpose of the financial statements to fair value measurements. Noted below are highlights of the issues discussed:

Aim of financial statements

The FCAG members generally agreed that the financial statements are primarily directed toward investors, which includes a broad range of stakeholders, including lenders, investors, and creditors. The members also agreed that the joint project on financial statement presentation and XBRL will significantly improve and enhance how the users view the financial statements.

Financial statements vs. financial stability

The members generally agreed that financial statements must serve the purpose of helping users in making informed decisions by providing transparent information. Further, most agreed that accounting should not be used to counteract pro-cyclicality and should be neutral. In addition, the members generally agreed that it is the job of the prudential regulators to ensure financial stability and incorporating financial stability in the financial statements would jeopardize its transparency.

Dynamic provisioning for regulatory capital allocation

Various views were raised and discussed regarding the application of 'dynamic provisioning'. Some members voiced concerns that allowing entities to create reserves (without having appropriate guidelines or regulation) may lead to earnings management, while others suggested that prudential regulators should establish a minimum requirement for capital adequacy that should drive the reserve requirement.

The Chairman of the IASB voiced concern that dynamic provisioning will distort the income statement and suggested that regulators and standard setters work together to figure out how best to display the impact of dynamic provisioning on the balance sheet, that is, through equity with no impact on the income statement. Certain members also supported this view recommending that accounting should not be changed to meet regulatory capital requirements. Certain members also recommended that regulators prohibit entities from distributing such capital reserves (recorded in equity) through dividends or stock buyback to maintain the adequacy of such reserves.

Although there was much discussion on this topic, the chairman of the FCAG recommended that this issue be discussed in greater detail during the March 5 meeting, prior to which a concept paper on dynamic provisioning will be distributed to the members. The concept papers will discuss the two models (that is, change in provision through income or equity) and may broaden the concept of dynamic provisioning to not just loans, but to other financial instruments.

Fair Value Measurements

The chairman of the FCAG highlighted that the SEC's study on mark-to-market accounting highlighted that fair value was used to measure a minority of assets and liabilities at the financial institutions studied and was not to be blamed for the failure of the financial institutions. In fact members pointed out that credit losses (as highlighted in the study) were the primary driver of bank failures.

Certain FCAG members highlighted that the real issue is how to apply fair value in distressed markets. These members also identified that recording gains on liabilities (due to credit downgrade) does not provide useful representation of bank's performance and results in misrepresentation of true losses, which are suppressed by such gains. Members also noted that Statement 157 provides flexibility in measuring fair value, which requires the use significant judgment, but due to litigation risk and risk of being second guessed, results in incorrect application of fair value.

Further, members agreed that fair value provides transparency; however, the Boards (the IASB and FASB) should continue to explore methods to improve fair value before broadening its application to other financial assets and liabilities.

In addition, the members agreed that the mixed attribute model should be reviewed and the Boards should consider simplifying the impairment guidance.

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

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New designs, numbering for IASB pronouncements

14 Feb 2009

The IASB has changed the layout of the cover of its due process documents and has introduced reference numbers to help constituents keep track of consultative documents.

  • Reference numbers. These numbers will indicate the type of document, the year of publication, and a serial number. For example, ED/2009/02 indicates that the document is the second exposure draft to be published by the IASB in 2009.
  • Covers. The covers of documents are colour coded as follows: blue for discussion papers, beige for exposure drafts (illustrated to the left), and red for standards. All accompanying booklets such as the basis for conclusions and implementation guidance will be grey. Education publications will have either a green cover or a green bar at the top right corner of the front cover.

 

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Heads Up – evaluating an entity's internal controls

13 Feb 2009

We have posted a new issue of the Heads Up Newsletter: COSO, PCAOB, and CAQ Address Internal Controls from Deloitte (United States).

This Heads Up discusses three new publications released by COSO, the PCAOB, and the CAQ to assist management and auditors in evaluating an entity's internal controls. The three publications are:
  • Guidance on Monitoring Internal Control Systems, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
  • Staff Views – An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies, finalised by the Public Company Accounting Oversight Board (PCAOB)
  • CAQ Lessons Learned – Performing an Audit of Internal Control in an Integrated Audit, published by the Center for Audit Quality (CAQ)
Click to view Heads Up Newsletter: COSO, PCAOB, and CAQ Address Internal Controls (PDF 87k).

 

Correction list for hyphenation

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