The purpose of the paper is to confirm the view of the ASB and APB that the true and fair requirement remains of fundamental importance in both UK GAAP and IFRS.

The paper discusses the need for professional judgement, the role of 'prudence' under UK GAAP, reflecting 'substance over form', how the true and fair concept is represented in accounting standards, and the approach to be taken by auditors.

Click for FRC press release (link to FRC website).

We have posted Deloitte observer notes from some of the sessions held on Wednesday and Thursday (click through for direct access to the notes):

Wednesday, 20 July 2011 (earlier sessions)

• Leases (IASB-FASB)
  • Lessor accounting - lessor accounting model, profit recognition under a 'receivable and residual' approach
  • Accounting for variable lease payments
  • Embedded derivatives
• Financial Instruments – Impairment (IASB-FASB)
  • Transfers between impairment 'buckets'
  • 'Bucket One' measurement

Thursday, 21 July 2011

• Insurance Contracts (IASB-FASB)
  • Short term insurance contracts
• Asset and liability offsetting (IASB-FASB)
  • Disclosure - Scope
  • Disclosure - Presentation

Notes from the IASB-FASB additional sessions held on Thursday will be posted soon.

Agenda changes. Further changes have been made to the agenda, as follows: the joint discussion on asset and liability offsetting on Friday has been cancelled, the discussion on effective dates was brought forward to Thursday, and the order of the IASB-only sessions on Friday has been revised.

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

We have posted Deloitte observer notes from the IASB only sessions held on Wednesday (click through for direct access to the notes):

Wednesday, 20 July 2011

• Financial Instruments – Hedge Accounting (IASB only)
  • Forward points
  • Aggregated exposures
• Future agenda consultation report (IASB only)

Notes from the IASB-FASB sessions on financial asset impairment and leases held on Wednesday will be posted soon.

Agenda changes. A number of changes have also been made to the agenda for the meeting. Impairment will no longer be discussed on Thursday and asset and liability offsetting will be added to Thursday's discussions. The agenda for Friday 22 July also remains subject to change.

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

Meeting time is 13:30 to 18:15 (London time).

 

The IDW met on 19 July 2011 to discuss the measurement of Greek sovereign debt in the interim financial statements of financial institutions, insurance companies and other investors, with particular emphasis on a need for the recognition of an impairment.

The IDW press release notes the IDW has concluded there is a need to recognise an impairment of Greek sovereign debt in financial statements at 30 June 2011.

The following is an extract from the IDW press release (Deloitte translation):

From today's perspective, the IDW has identified a need for recognition of impairments. Considering the development of the political discussions over the last weeks, a bail-out of Greece without participation of private-sector creditors is deemed unlikely. Accordingly, the IDW does not find strong enough evidence for any approach that would avoid the recognition of an impairment loss. ... Subject to changes in circumstances before the authorisation of the interim financial statements as per 30 June 2011, auditors may only confirm accordance with GAAP within their review if the interim financial statements appropriately reflect the requirement to recognise impairments as mentioned above. In the light of the increased risk in connection with Greek sovereign debt and the considerable uncertainties concerning the future political handling of the Greek debt crisis, the IDW continues to believe it is of vital importance that appropriate transparency is achieved through reporting within the notes and/or the MD&A. The key judgements applied when making accounting policy decisions and the risks involved in these judgements (risk of future need for participation of private-sector investors in a bail-out at yet unclear conditions, increasing exposure for investments in Greek sovereign debt) have to be disclosed appropriately by the reporting entity. Furthermore, quantitative disclosures about the amount of (direct or indirect) exposures are necessary.

Click for full press release (link to the IDW website, PDF 24k, in German).

The European Federation of Accountants (FEE) has also issued a general alert on the consideration of sovereign debt exposures in the half-year financial reporting (link to FEE website, PDF, 38k).

The Committee of European Securities Regulators (CESR), the predecessor of ESMA, issued a statement in April 2007 discussing the issue of whether or not rejection notes published by the Committee itself or the explanatory text included in such a rejection note, should result in an accounting change and, if so, whether the change should be regarded as the correction of an error or a change in accounting policy in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

The CESR statement indicated such rejection statements should not lead to a retrospective adjustment in accordance with IAS 8, noting it had been argued by some that the conflicts of views on how IFRSs should be applied were transitional issues and would disappear over time as all stakeholders become more familiar with the interpretation and application of IFRS.

ESMA's statement issued today changes this view, noting the following:

"ESMA believes that, 6 years after the implementation of IFRS, we are no longer in such a transitional period. Rejection notes published by the IFRS Interpretations Committee often provide clarification of the standards. There is an expectation on the part of the stakeholders in IFRS that rejection notes concluding that IFRSs are sufficiently clear will be carefully considered by preparers in determining their accounting policies. In the case of a change in a previous accounting treatment following the issue of a rejection note, an issuer should apply IAS 8 and provide proper and sufficient disclosure on the reasons for the change, having regard to the particular facts and circumstances of the individual case, including reference to the rejection note."

Click for ESMA press release (link to the ESMA website).

The EFRAG TEG meeting was held on 13 to 15 July 2011. Highlights from the meeting were:

• EFRAG finalised its draft endorsement advice and a draft effects study report on IAS 19 Employee Benefits, as revised in 2011, and on the Amendments to IAS 1 Presentation of Items of Comprehensive Income.
• EFRAG finalised its draft comment letter to the IASB on the Exposure Draft Improvements to IFRSs 2009-2011 (the ED). The draft comment letter supports the amendments proposed in the ED, however recommends bringing further clarifications to IAS 12 in respect of taxes on distribution to owners.

Click for the EFRAG Update (PDF 175k, link to EFRAG website).

The report, at the request of the G-20 presidency, provides assistance to the G-20 in its goal of providing comparability and consistency for investors, regulators, and market participants. It also identifies some of the current gaps in global convergence and provides a method of minimising the systemic risk these gaps may cause. The final report is expected in September 2011.

Click for:

• Interim report, Regulatory Convergence in Financial Professions and Industries (PDF 545k, link to IFAC website)

 

The new IVS update the previous version published in 2007, and cover valuation of a wide range of assets for financial reporting and other purposes.

The IVSC published an Exposure Draft of the proposed changes in June 2010. The new IVS:

• focus on principles rather than prescriptive requirements – 'Technical Information Papers' (TIPs) will provide detailed guidance in the future (draft TIPs have been released on real property and business valuations and depreciated replacement cost)
• remove the code of ethics, which are currently subject to a separate consultation
• introduce new requirements, including for financial instruments (see our earlier story) and investment property under construction
• streamline a number of requirements – merging or eliminating guidance notes on particular topics (particularly where existing IVSC projects are underway or planned), eliminating repetition, and removing the glossary in favour of definitions in individual standards where required.

The new IVS will be effective from January 2012 and can be ordered via the IVSC's website at www.ivsc.org. The individual standards are expected to be made electronically available on the IVSC website in due course.

Click for IVSC press release (link to the IVSC website).

In the report, the FASB staff provides details about its initial assessment of "how and why the needs of those who use private company financial statements differ from those who use public company financial statements and how the cost-benefit considerations of financial reporting vary between private companies and public companies." The staff identified six key factors that differentiate private company financial reporting considerations from public. Those factors are:

• Types of users
• Access to management
• Investment strategies
• Ownership structures
• Accounting resources
• Education

This assessment is the first step FASB is taking in developing a 'differential framework' when deciding how to adjust the requirements for recognition, measurement, presentation, disclosure, effective dates and transition methods for financial accounting standards that apply to private companies. In January 2011, the 'differential framework' was a key recommendation suggested by the Blue-Ribbon Panel on Standard Setting for Private Companies in a report to the Board of Trustees of the Financial Accounting Foundation (FAF). In addition, the panel called for a creation of a new board, overseen by the FAF, to focus on U.S. GAAP for private companies.

Click for:

• FASB in Focus — Private Companies: The Path to a Differential Standard-Setting Framework (link to FASB website)