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July

ESMA chairman speaks at IFRSF conference

06 Jul 2011

Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), was a keynote speaker at the IFRS Foundation conference currently being held in Zurich.

He spoke about financial stability, investor protection, a level playing field in financial supervision, the supervision of credit rating agencies and a single rulebook for financial markets and showed the links between these topics and financial reporting.

Following are a few short extracts from his speech, however, we recommend reading the speech in its entirety. It can be found on the ESMA's website (5 pages, 44k).

On financial stability

"How could financial reporting best contribute to financial stability? Let us not forget that there is no unambiguous definition of financial stability. Nevertheless there seems to be a broad consensus that financial stability refers to the smooth functioning of the key elements that make up the financial system. In fact I believe that accounting standards do contribute to financial stability by providing clear principles on how to account for complex transactions, such as financial instruments, and by favouring transparency: transparency being key for good market functioning and good market functioning being an essential component of financial stability."

On investor protection

"[F]inancial reporting was developed out of the necessity to provide investors with adequate information on the financial performance and position on the company they are investing in. High quality financial statements are important for the good functioning of financial markets. It is therefore important that their views are heard and that they are involved in the IASB's standard-setting process. I am really supportive of the many initiatives the IASB has taken to reach out to investors and I believe the IASB should continue or even strengthen its efforts.

[...]

I acknowledge that the IASB has made significant steps in developing its outreach program. However, I also believe that we have now arrived at a point in time where having a comprehensive look at the different steps of the IASB's standard-setting process would have significant merit. This would include looking at how the various steps of the due process link together in the cycle as well as looking at better defining when the Board should re-expose. A full and transparent due process giving due consideration to market participant’s comments is the best guarantee for a smooth adoption of IFRSs.

[...]

Post 2011 the IASB should strive for a period of calm in accounting standards. The winding-down of the IASB-FASB convergence program, combined with a more rigorous agenda-setting activity could help achieving this. This should enhance stability and comparability across time of the financial information produced on the basis of IFRS, which should benefit all users of this information – investors, preparers and regulators."

Recommendations on Australian moves towards integrated and sustainability reporting

06 Jul 2011

CPA Australia, one of the professional accounting organisations in Australia, has released a report entitled The Social Responsibility of Corporations – Recent trends and future developments in the promotion of responsible business practices.

The report contains a number of recommendations in response to The social responsibility of corporations report by the Corporations and Markets Advisory Committee (CAMAC, a body constituted under the Australian Securities and Investments Commission Act 2001). The CPA Australia report provides views in light of developments since the issue of the CAMAC report in December 2006, and suggests a number of actions that should be considered in the areas of disclosure and promotion of responsible business practices.

Many of the recommendations relate to integrated and sustainability reporting, including that the Australian Government should actively pursue developments in integrated reporting and that appropriate funding be provided to the Australian Accounting Standards Board (AASB) to pursue this major development in the national interest.

More details on the recommendations are available on our Sustainability page.

The Australian Financial Reporting Council (FRC) has recently formed a taskforce on integrated reporting and the matter is also expected to be discussed at the July 2011 AASB meeting. Click for access to the CPA Australia report (link to CPA Australia website).

Canada releases basis of conclusions on move to IFRSs

05 Jul 2011

With many Canadian companies currently in their first year of reporting under IFRSs, the Canadian Accounting Standards Board (AcSB) has recently released a publication setting out its rationale and process for adopting IFRSs, rather than alternative frameworks such as United States Generally Accepted Accounting Practices (US GAAP), or retaining a separate domestic Canadian GAAP.

Whilst much of the rationale included in the document is not new or unexpected, it does reveal the AcSB's rationale and is instructive on the issues facing countries when considering their own financial reporting frameworks.

An extract from the document dealing with the decision to adopt IFRSs over US GAAP follows:

The AcSB observed that more Canadian than US publicly accountable enterprises have a small market capitalization... and were less willing to accept the expense and effort of applying detailed and extensive US GAAP. They preferred broad principles within which a company could determine how best to present its financial position and results of operations in a way that meets the needs of its shareholders and lenders...

The AcSB also noted the different nature and purpose of IFRSs compared with US GAAP. The IASB has a global mandate and its structure, due process and composition have been designed with a global perspective. However, US GAAP is not just the standards of the FASB. It is also whatever the US Securities and Exchange Commission (SEC) requires, including a number of rules that are set directly by that organization, and can be costly to monitor and satisfy...

Further, concerns about the extent of rules-based requirements in US GAAP brought about by recent financial scandals had resulted in changes to the US system. These changes increased the active role of the SEC and the potential for regulatory interference in standard setting...

... It was likely that significant differences between US GAAP and other sets of standards would persist for some time while the FASB dealt with its large body of legacy issues. The AcSB concluded that selecting US GAAP would be a more difficult and indirect path to the ultimate goal of global convergence than direct adoption of IFRSs. More importantly, in light of recent developments, it made little sense for entities not already familiar with US GAAP to incur the considerable costs necessary to learn and apply it in its entirety.

Click for access to the full document (link to the AcSB website).

New Zealand financial reporting surveys reveal disclosure increase, widespread use of additional profit measures

05 Jul 2011

Deloitte (New Zealand) has released two new publications in its Financial Reporting Survey series.

Financial statements

Issue 5 in the series, Into the detail... Surveying financial statements in annual reports – 2010 (PDF 3,519k), is focused on the 2010 annual reports of a sample of 100 New Zealand companies complying with NZ IFRS and IFRS, with a separate sample of 30 companies taking advantage of New Zealand's differential reporting concessions.

Some of the highlights of the survey include:

  • Financial statements are on average 42 pages long, up from 39 pages in 2009
  • Accounting policies take up on average 14% of the financial statements (many of these policies repeat the requirements of accounting standards)
  • The most commonly used market price sensitivity variations used is 100 basis points (1%) for interest rate exposures and 10% for foreign exchange exposures
  • 326 major sources of estimation uncertainty were disclosed by 99 companies, although only 18% of the uncertainties disclosed included the impact of reasonably possible changes in assumptions
  • The introduction of the new segment reporting standard, which requires disclosure on the same basis as internal management reporting, led to 18 companies changing their segments in 2010.

The report discusses the difficulties of keeping track of the increasing volume of disclosures and notes the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) project to review IFRS in order to determine where disclosures could be reduced (see our earlier story) and the 'Cutting clutter' report issued by the United Kingdom Accounting Standards Board (ASB) (see our earlier story). The report from the ICAS/NZICA project is expected to be discussed at the July IASB meeting (see the meeting agenda).

Underlying profit

Issue 6 in the series, Underlying profit revisited (PDF 1,080k), considers the practice of reporting underlying profit based on a sample of one hundred 2010 annual reports (finding 87 of which provided alternative earnings or profit measures), makes reference to guidance released in this area and considers what entities should think about when using underlying profit measures. The disclosure of alternate profit measures is contentious and is gaining increasing regulator interest in both New Zealand and Australia.

Earlier editions of the Financial Reporting Survey are available Deloitte (New Zealand) website.

 

UK Government will complete switch to IFRS in 2013

05 Jul 2011

The UK Government has announced that the application of IAS 27 will be extended to all National Health Service (NHS) organisations from 1 April 2013. This application had been deferred since the adoption of International Financial Reporting Standards across central government on 1 April 2009.

The decision was reached following an advice of the UK Financial Reporting Advisory Board (FRAB). The FRAB had expressed concerns about a further delay to the application of the accounting standard, while the Government considered that more time is necessary to apply this standard consistently and correctly in a resource efficient manner.

Please click for the FRAB press release (link to UK Treasury website).

Questionnaire on accounting for Islamic finance transactions

05 Jul 2011

The Islamic Finance Working Group of the Asian-Oceanian Standard Setters Group (AOSSG) is conducting a survey to collate information and receive feedback regarding the standards that would apply to the financial reporting of Islamic financial transactions in the standard-setting jurisdictions of Asia-Oceania.

Some entities involved in Islamic finance apply IFRS and some apply different standards, such as those issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or national standards which may or may not be based on AAOIFI standards. The requirements of these other standards could either complement or contradict the IFRS. Given that many jurisdictions in Asia-Oceania have committed to converging with or adopting IFRS, as well as the rapid growth of Islamic finance, the study aims at establishing how Islamic financial transactions would be reported by constituents in the region.

Please click for access to the questionnaire (link to Malaysian Accounting Standards Board website). The questionnaire takes about 10 to 15 minutes to complete; the deadline is 31 July 2011.

Agenda for the regular July IASB meeting

05 Jul 2011

The IASB's regular monthly meeting is scheduled for 20-22 July 2011 in London, much of it a joint meeting with the FASB.

You can access the agenda on our July 2011 IASB meeting page.  We will also post Deloitte observer notes on this page as they are available.

Updated agenda for July 2011 IFRS Interpretations Committee meeting

04 Jul 2011

The agenda for the IFRS Interpretations Committee in London on Thursday and Friday 7 and 8 July 2011 has been revised.

A number of agenda items have been reordered and the length of the meeting on the second day extended to add a new administrative session topic. The updated agenda is reproduced in full below.
Agenda for the Interpretations Committee Meeting
Thursday and Friday, 7 and 8 July 2011
Thursday 7 July (10:00h-17:30h)
  • Introduction
  • Active Committee Project: IAS 16 – Accounting for production phase stripping costs in the mining industry
  • Items for continuing consideration [moved]
    • IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment – Use of IFRIC 6 by analogy
  • Review of tentative agenda decisions from the May meeting [moved]
    • IAS 16 Property, Plant and Equipment – Cost of testing asset - element of cost
    • IAS 19 Employee Benefits – Defined contribution plans with vesting conditions
  • New items for initial consideration
    • IFRS 3 Business Combinations – Business combinations involving newly formed entities: factors affecting identification of the acquirer
    • IFRS 3 Business Combinations – Common control transactions
    • IAS 27 Consolidated and Separate Financial Statements – Group reorganisations in separate financial statements
    • IFRS 3 Business Combinations – Definitions of a business

Friday 8 July (09:00h-11:30h)
  • New items for initial consideration (continued) [order of discussion changed]
    • IFRS 11 Joint Arrangements – Acquisition of an interest in a joint operation
    • IFRS 8 Operating Segments – Aggregation of operating segments and identification of the chief operating decision maker
  • Administrative session
    • Committee work in progress
    • Review of statistics of the Committee's activity [new]

 

Welcome message from the new IASB chairman

04 Jul 2011

The IASB has posted to its website a welcome message from the new IASB chairman, Hans Hoogervorst.

He speaks about the "substantial legacy" Sir David has left the IASB with and his own "passion for transparency and investor protection". He sees "an opportunity for global reform" and discusses the IASB's priorities for the future. Please click for the welcome message on the IASB's website.

Hans Hoogervorst became the new IASB chairman on 1 July 2011. To mark the changing of the guard at the IASB, IAS Plus has brought its readers an exclusive and extensive interview with Hans Hoogervorst, the new IASB Chairman, while Robert Bruce, regular resident columnist for IAS Plus, provided an assessment of the prospects for change.

Business Accounting Council of Japan discusses IFRS

02 Jul 2011

Following on from remarks made by the Minister for Financial Services of Japan in June, the Business Accounting Council of Japan (BAC) has resumed discussions on the possible adoption of IFRSs in Japan.

In a two-hour meeting held on 30 June 2011, neither a clear consensus or a definite future plan were established.

In his opening remarks, the Minister mentioned the following points, supplementing what he stated previously on 21 June:

  • The importance of internationalisation of accounting standards should not be denied. The Japanese Financial Services Agency (FSA) continues maximum effort toward harmonising accounting standards internationally
  • On the other hand, such harmonisation is not necessarily the only goal and should not slow down the economy. International requirements and activating the economy are both important.

He also repeated his earlier statements, including confirming: 1) a five to seven year transition period will be provided if mandatory adoption of IFRSs is decided, and 2) the existing statutory limit on the use of U.S. GAAP (currently March 2016) will be removed.

The Minister also touched on a future process and matters to be considered by the BAC:

  • It is necessary to develop and execute a comprehensive work plan as well as roundtable sessions on the subject
  • The interim report issued by the BAC in June 2009 (see our previous story) is to be reconsidered fully in light of recent developments in and outside of Japan, in particular:
    • matters listed up as "Issues Concerning the Application of IFRS" in the report
    • the direction of convergence, which is being discussed at the BAC, rather than by the Accounting Standards Board of Japan (ASBJ)
    • the relationship between consolidated financial statements and separate financial statements
    • institutional matters, including a vision with regard to a variety of capital markets and the abolition of separate financial statements from Japan's disclosure system.

After the remarks, newly expanded members of the BAC, consisted of approximately 40 people, expressed their views, in the presence of the Minister. Fairly diverse views were presented on many different subjects such as IFRS itself and its use in Japan, due process to be followed in deliberation/decision, a necessary period of conversion, and perception of this process by other countries and constituents of the IASB.

The next session of the BAC and the agenda is yet to be scheduled. Click for a transcript of the opening remarks by the Minister (link to the FSA site, in Japanese only).

Click for our earlier story on remarks by the Minister for Financial Services of Japan.

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