2009

IFRIC 19 on liability-equity swaps

27 Nov 2009

The International Financial Reporting Interpretations Committee has issued IFRIC Interpretation 19 'Extinguishing Liabilities with Equity Instruments' following its approval by the IASB.

The Interpretation applies when a debtor extinguishes a liability fully or partly by issuing equity instruments to the creditor. IFRIC's key conclusions in IFRIC 19:
  • If a debtor issues equity instruments to a creditor to extinguish all or part of a financial liability, those equity instruments are 'consideration paid' in accordance with IAS 39.41. Accordingly, the debtor should derecognise the financial liability fully or partly.
  • The debtor should measure the equity instruments issued to the creditor at fair value, unless fair value is not reliably determinable, in which case the equity instruments issued are measured at the fair value of the liability extinguished.
  • If only part of a liability is extinguished, the debtor must determine whether any part of the consideration paid relates to modification of the terms of the remaining liability. If it does, the debtor must allocate the fair value of the consideration paid between the liability extinguished and the liability retained.
  • The debtor recognises in profit or loss the difference between the carrying amount of the financial liability (or part) extinguished and the measurement of the equity instruments issued.
  • When only part of the liability is extinguished, the debtor must determine whether the terms of the remaining debt have been substantially modified (taking into account any portion of the consideration paid that was allocated to the remaining debt). If there has been a substantial modification, the debtor should account for an extinguishment of the old remaining liability and the recognition of a new liability (see IAS 39.40).
IFRIC 19 must be applied in annual periods beginning on or after 1 July 2010. Earlier application is permitted. It would be applied retrospectively from the beginning of the earliest comparative period presented. Click for:

 

IASB amends IFRIC 14

27 Nov 2009

On 26 November 2009, the IASB issued 'Prepayments of a Minimum Funding Requirement (Amendments to IFRIC 14)'.

The amendments correct an unintended consequence of IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

Without the amendments, in some circumstances entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem.

The amendments are effective for annual periods beginning 1 January 2011, with earlier application permitted. The amendments must be applied retrospectively to the earliest comparative period presented. Click for IASB Press Release (PDF 101k).

 

IASB proposes disclosure relief under IFRS 1

27 Nov 2009

The IASB has issued an exposure draft (ED) proposing to amend IFRS 1 'First-time Adoption of IFRSs' to state that an entity need not provide the comparative prior-period information required by the March 2009 amendments to IFRS 7 'Improving Disclosures about Financial Instruments' for first-time adopters adopting before 1 January 2010.

As a result, IFRS 1, Appendix E, paragraph E1 will be amended as follows:

E1 A first-time adopter may apply the transitional provisions in paragraph 44G of IFRS 7 to the extent that the entity's first IFRS reporting period starts earlier than 1 January 2010.

The proposed limited exemption from comparative IFRS 7 disclosures for first-time adopters is consistent with the exemption permitted for early adopters of the March 2009 amendments to IFRS 7. Deadline for comments on the ED is 29 December 2009. Click for IASB Press Release (PDF 101k).

 

We comment on IASCF Constitution proposals

26 Nov 2009

On 9 September 2009, the Trustees of the IASC Foundation (IASCF) published for public comment proposals arising from the second part of their two-part review of the IASCF Constitution.

The objectives of the proposals are to enhance the governance of the organisation, improve the involvement of stakeholders with a broad range of perspectives in both developed and emerging markets, and make operational improvements. The key proposals for changes to the IASCF Constitution are:
  • Change of name of the IASC Foundation to the IFRS Foundation and the IASB to the IFRS Board
  • Replace all references to 'accounting standards' with 'financial reporting standards' throughout the constitution
  • Clarify the objectives of the organisation, in particular:
    • Clarify the need to take account of emerging economies and, as appropriate, the special needs of small and medium-sized entities, and
    • Not to broaden the scope to cover standards for public and not-for-profit entities
  • Clearly acknowledge the role the Monitoring Board now plays in the governance structure of the organisation
  • Formally recognise Africa and South America in the composition of the Trustees by requiring one Trustee from each of those two regions
  • Establish a procedure for an accelerated due process in exceptional circumstances
  • Provide for appointing up to two vice-chairmen for both the Trustees and the IFRS Board
  • Amend the length of a possible second term of the IFRS Board members to ensure appropriate turnover, as follows:
    • Board members would be appointed initially for a term of five years, with the option for renewal for a further three-year term. This will not apply to the Chairman and Vice-Chairman, who may be appointed for a second five-year term.
    • The Chairman or Vice-Chairman may not serve for longer than ten consecutive years.
  • Expressly provide that the IASB must consult the Trustees and the SAC when developing its technical agenda
Deloitte has submitted a Letter of Comment on Part 2 of the Constitution Review: Proposals for Enhanced Public Accountability (PDF 77k).

Some key points that we made in our letter

We think that the Trustees' proposals with respect to consultation on the IASB's technical agenda and priorities do not go far enough. In our view, the Constitution should require the IASB to consult formally with constituents on a regular basis about the topics on its technical agenda and the relative priorities that have been assigned to those topics. The comment period must give constituents a realistic opportunity to comment on these matters.

We also recommend that the positions of IASB Chair and Chief Executive Officer of the IASC Foundation be separated. The IASCF and the IASB are under increasing public scrutiny from many jurisdictions and it is vitally important that there be no conflict of interest (real or perceived) between the roles of IASB Chairman and the chief executive of its oversight body.

We do not support the proposal to allow the Trustees, in exceptional circumstances, to authorise a shorter due process period. In order to maintain its credibility as an international standard-setter, the International Accounting Standards Board must expose all proposals for a period of time that affords all constituents a reasonable opportunity to understand, digest and comment on the IASB's proposals. As explained in Appendix A, our view is that permitting anything less than 30 days cannot be said to be proper 'due process'.

Finally, we have concerns about the operations and output of the International Financial Reporting Interpretations Committee. We do not wish to see the IFRIC become an urgent issues group, but we think that there are issues that could be addressed efficiently by the IFRIC, but which – because of the Constitution's mandate for the IFRIC and the operating procedures documented in the IFRIC's Due Process Handbook – are referred to the IASB for action. In Appendix B we offer some suggestions about how the IFRIC's role and mandate could be reformed to make better use of the Committee.

You can find background information on the 2008-2009 IASC Constitution Review Here.

Revised IFRS 1 endorsed for use in Europe

26 Nov 2009

The European Commission has completed the process of endorsing, for use in Europe, the November 2008 restructured version of IFRS 1 First-time Adoption of IFRSs.

Click for the Commission Regulation (EC) No 1136 (PDF 908k), the endorsement Regulation published in the Official Journal of the European Union on 26 November 2009.

Proposed Roadmap for IFRS convergence in China

26 Nov 2009

The Ministry of Finance (MOF) of the People's Republic of China has invited comment on an exposure draft of a Roadmap for Continuing and Full Convergence of the Chinese Accounting Standards for Business Enterprises (ASBE) with the International Financial Reporting Standards (IFRSs).

Comments are due by 30 November 2009. The current ASBE were adopted by the MOF in February 2006. The principles in the ASBE are substantially in line with IFRSs, with a few exceptions. Because the IASB plans to complete a number of major projects by 2011, the Roadmap targets 2011 as the year for completion of the convergence programme of the ASBE and IFRSs. As part of that programme, during 2010 the ASBE standards will be revised; the existing Implementation Guidance will be incorporated into them; and the existing Explanatory Guidance will be renamed Implementation Guidance with enhanced content and illustrative examples. Once completed, all large and medium-sized enterprises will be required to use the revised standards as of 2012.

New IFRS e-Learning modules in Chinese

26 Nov 2009

Three additional IFRS e-Learning modules have now been translated into Chinese and posted on Deloitte's CAS Plus website: - IAS 27 Consolidated and Separate Financial Statements - IAS 28 Investments in Associates - IAS 31 Interests In Joint Ventures In addition, the Conceptual Framework module has been updated.

To download the modules (there is no charge, but registration is required) Click Here.

UK ASB pension accounting study

26 Nov 2009

The United Kingdom Accounting Standards Board (ASB) has issued a report 'The Financial Reporting of Pensions: Feedback and Redeliberations'.

The objective is to provide the IASB with recommendations on matters it might consider in developing a future financial reporting standard on pensions.

The report is being published under the Pro-active Accounting Activities in Europe (PAAinE) initiative by the ASB, EFRAG, and the accounting standards boards of Germany and France. The recommendations are, however, only those of the ASB. The report is a follow-up to a discussion paper issued by the ASB in January 2008 and sets out the ASB's redeliberations and recommendations after consideration of the 103 responses to the discussion paper.

Some key recommendations of the ASB:

  • Recognition should be based on the principles of reflecting only present obligations as liabilities.
  • The liability to pay benefits that is recognised (and the pension expense for each period) should be based on current salaries plus any future increases that are required by law or contract including other increases that are seen as nondiscretionary (ie there is a constructive obligation).
  • Pension plans should be subject to the same principles of consolidation as are usually applied in determining whether one entity controls another.
  • Pension assets and liabilities should be recognised immediately, but recognition of the changes in assets and liabilities relating to pension benefits are inextricably linked to the presentation of those changes in the financial statements.
  • Future cash flows used to measure the liability to pay pension benefits should be:
    • explicit;
    • based on observable market prices that are adjusted to take into consideration entity-specific circumstances;
    • incorporate in an unbiased way all available information about the amount, timing and uncertainty of cash-flows arising from the contractual obligations; and
    • current – they correspond to conditions at the end of the reporting period.
  • The liability to pay pension benefits should not be reduced to reflect an entity's credit risk.
  • In measuring liabilities, the discount rate used should reflect the time value of money, and therefore should be a risk-free rate.
  • Assets held to pay pension benefits should be reported at current values.
Click for:

 

Notes from IASB fair value roundtable

25 Nov 2009

On 2 November 2009, the IASB held a roundtable at the FASB offices in Norwalk, CT to discuss its Fair Value Measurements exposure draft (ED).

Roundtable participants consisted of a cross-section of representatives including auditors, financial statement preparers, valuation experts and industry. We have posted Notes Taken by Observers at the Roundtable (PDF 34k). Participants in the roundtable were asked to address the following issues and questions relating to fair value measurements:

Issue A – Fair value as an exit price

  • When does a market-based exit price not reflect the present value of the expected future cash inflows and outflows from an asset or a liability?
Issue B – Fair Value of liabilities
  • Can the principles of ASU No 2009-5 be applied in practice in IFRSs? If not, why not?
  • When might the fair value of a liability not be equal to the corresponding asset's fair value?
Issue C – Fair value of non-financial assets and liabilities
  • What specific additional guidance is needed to measure the fair value of non-financial assets and liabilities?
  • Are any of the proposals in the exposure draft inconsistent with measuring the fair value of non-financial assets and liabilities?
Issue D – Fair value in inactive markets
  • Is the proposed guidance sufficient for measuring fair value when markets have become inactive (when they previously were active)? If not, what additional guidance do you think is necessary?
Issue E – Fair value in emerging and transition economies
  • What proposals in the exposure draft are not applicable to emerging and transition economies? Why are they not applicable?
  • What specific additional guidance is needed?
Issue F – Jurisdiction-specific issues
  • Are there measurement considerations specific to your jurisdiction that the exposure draft does not seem to have contemplated? If so, what are they?
Issue G – US GAAP convergence
  • Aside from the reference market and blockage factors, would you expect there to be a numerical difference between a fair value calculated using the proposals in the exposure draft and a fair value calculated using the Topic 820?
  • Have you learned anything from applying Topic 820 that the IASB should consider when finalising an IFRS on fair value measurement guidance?

 

Reporting by audit firms begins 31 December

25 Nov 2009

In our news stories of 15 August 2009 and 1 October 2009 we reported that the US Public Company Accounting Oversight Board has adopted rules that require registered public accounting firms (domestic and foreign) to report to the PCAOB about certain specified events (starting with events occurring 31 December 2009) and also to file annual reports (with the first annual reports due 30 June 2010).

The PCAOB has now released Sample Forms and Other Details (link to PCAOB website). There are currently 2,261 audit firms registered with the PCAOB. Of those, 1,336 (59%) are US firms and the remaining 41% are foreign firms.

 

Correction list for hyphenation

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