February — IAS Plus

Agenda for 23-24 February 2009 SAC meeting

Feb 17, 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.

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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Analyst Representative Group will meet 25 February

Feb 17, 2009

The IASB will meet with the Analyst Representative Group on 25 February 2009, 9:00am to 4:30pm at the IASB Offices, 30 Cannon Street, London.

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IFRSs required for all companies in Mongolia

Feb 16, 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:

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Require IFRSs for Japanese listed companies?

Feb 16, 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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IFRS considerations for audit committees

Feb 16, 2009

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

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Second meeting of Financial Crisis Advisory Group

Feb 15, 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.

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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Can financial reporting be made simpler?

Feb 15, 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:

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?
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?
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?
Should a single definitive set of general purpose financial statements be retained?
Should standard setters be encouraged to drop requirements considered redundant?
How can company boards be encouraged to provide better quality communication?
Should an international framework for high level summary financial statements be developed in order to provide information suitable for retail and less sophisticated investors?
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?
Should company communication be improved through the use of clearer language, less jargon and coded language, and a focus on clarity and transparency?
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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Pakistan grants 'relaxation' of IAS 39

Feb 15, 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.

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New designs, numbering for IASB pronouncements

Feb 14, 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.

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China's CPA exam is undergoing reforms

Feb 13, 2009

The Chinese CPA Examination System is undergoing reform. The finalised examination reform scheme was issued in January 2009, and the new system will run in parallel with the current system for 2009 to ensure a smooth transition.

Highlights of the reforms are as follows:

Exam structure

The CPA examinations will be transformed into a dual-level structure:

Level 1: Professional Stage
Level 2: Comprehensive Stage

There is a hierarchy in the two levels of the examinations, which means that an examinee can take the examinations of the comprehensive stage only after passing those of the professional stage

Examinations will be held once a year for both levels

Exam subjects

The Professional Stage will cover six subjects, that is, one new subject will be added to the current five subjects as follows:

Accounting
Auditing
Financial and Cost Management
Economic Law
Taxation Law
Corporate Strategies and Risk Management (the newly added subject)

Compared with the current system, the new examination is intended to give more focus on the basic theories and their application. It is the intention of the CICPA to reduce the complexity of the six subjects but broaden their scope.

The new subject, Corporate Strategies and Risk Management, combines some of the content from Financial and Cost Management under the current system supplemented with additional topics. It is aimed at assessing the required relevant knowledge about organizations and businesses as set in the Guidance on Competence of Chinese CPAs.

The Comprehensive Stage examination will require candidates to apply their knowledge to practical situations. It is aimed at assessing: professional and legal knowledge, professional values, ethics and attitudes, intellectual ability, inter-personal communication skills and skills in managing an organization/business.

Validity Period for the examination results

The examination results of each of the subjects in the Professional Stage will be valid for five years. After successfully passing all the required subjects of the Professional Stage examinations, candidates will receive a 'Certificate for Passing the Professional Stage Examination'.

The Comprehensive Stage examination has to be completed within five years after obtaining the "Certificate for Passing the Professional Stage Examination'.

After successfully passing the Comprehensive Stage examination, candidates will obtain a 'Certificate for Passing All Subjects'.

Transition plan for the Chinese CPA examination system reforms

In 2009, first-time enrolled candidates and candidates who have enrolled in previous years but have yet to pass any subject must participate in the new system.

For those who have passed one or more of the subjects under the current system, they have a choice to either (1) take the remaining examinations under the current or (2) enroll in the new system.

At the end of the 2009 examinations, those who have passed all five subjects under the current system shall be granted the 'Certificate for Passing All Subjects'.

The results obtained from 2006 to 2008 and any passes in 2009 for those who elect to take the current system will be credited towards the corresponding subjects under the new system. Please note that the result of the Financial Management and Cost Management examination shall be credited towards both the Corporate Strategies and Risk Management and Financial and Cost Management examinations under the new system.

The validity of the results of any of the subjects transferred from the current to the new system will be extended to 2013.

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IAS Plus

IAS plus

Deloitte User?

Agenda for 23-24 February 2009 SAC meeting

Analyst Representative Group will meet 25 February

IFRSs required for all companies in Mongolia

Require IFRSs for Japanese listed companies?

IFRS considerations for audit committees

Second meeting of Financial Crisis Advisory Group

Can financial reporting be made simpler?

Pakistan grants 'relaxation' of IAS 39

New designs, numbering for IASB pronouncements

China's CPA exam is undergoing reforms

Exam structure

Exam subjects

Validity Period for the examination results

Transition plan for the Chinese CPA examination system reforms