June

IASB releases two new standards to complete two agenda projects

16 Jun 2011

The IASB has amended two standards which are key planks in achieving its work plan, introducing new requirements on the presentation of comprehensive income and the accounting for employee benefits.

The changes had their genesis in more extensive objectives under wider projects. The changes to the presentation of other comprehensive income (OCI) were 'spun out' of the wider project on Performance Reporting, which promised a major overhaul of the way the primary financial statements were presented. The OCI ED had originally itself proposed the mandatory presentation of other comprehensive income in one financial statement, but constituent comment proved the change to be too controversial to be included in the final amendments. Instead, the amendments to IAS 1 Presentation of Financial Statements retain the 'one or two statement' approach at the option of the entity and only revise the way other comprehensive income is presented: requiring separate subtotals for those elements which may be 'recycled' (e.g. cash-flow hedging, foreign currency translation), and those elements that will not (e.g. fair value through OCI items under IFRS 9). In addition, the FASB has issued corresponding guidance with the issuance of ASU 2011-05. While the boards' new guidance essentially converges the requirements for presenting OCI, there are still differences between U.S. GAAP and IFRSs concerning (1) what items are included in comprehensive income and (2) reclassification requirements.

The amendments to employee benefits are somewhat more substantial, but might be considered a pragmatic subset of what the IASB had hoped to achieve when the overall project was included in the earlier stages of the convergence programme. Accounting for employee benefits, particularly pensions and other post-retirement benefits, has long been a complex and difficult area and initial plans for a full review of pension accounting had to be deferred in light of competing priorities, ultimately leaving the IASB to proceed alone on improving specific aspects of the existing requirements of IAS 19 Employee Benefits. Prior to the amendment, IAS 19 permitted choices on how to account for actuarial gains and losses on pensions and similar items, including the so-called 'corridor approach' which resulted the deferral of gains and losses. The Exposure Draft proposed eliminating the use of the 'corridor' approach and instead mandating all remeasurement impacts be recognised in OCI (with the remainder in profit or loss) – and in fact had proposed extending these requirements to all long-term employee benefits (e.g. certain long service leave schemes). The final amendments make the OCI presentation changes in respect of pensions (and similar items) only, but all other long term benefits are required to be measured in the same way even though changes in the recognised amount are fully reflected in profit or loss.

Also changed in IAS 19 is the treatment for termination benefits, specifically the point in time when an entity would recognise a liability for termination benefits. The final amendments do not adopt the equivalent US-GAAP requirements verbatim (which requires individual employees to be notified), but the recognition timeframe may be extended in some cases.

Finally, various other amendments to IAS 19 may have impacts in particular areas. For instance, employee benefits not settled wholly before twelve months after the end of the annual reporting period would be captured as an 'other long term benefit' rather than a 'short term benefit', and whilst presented as a current item in the statement of financial position, would be measured differently under the amendments.

Summary of the amendments

Amendments to IAS 1 Presentation of Financial Statements

  • Preserve the amendments made to IAS 1 in 2007 to require profit or loss and OCI to be presented together, i.e. either as a single 'statement of profit or loss and comprehensive income', or a separate 'statement of profit or loss' and a 'statement of comprehensive income' – rather than requiring a single continuous statement as was proposed in the exposure draft
  • Require entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently. i.e. those that might be reclassified and those that will not be reclassified
  • Require tax associated with items presented before tax to be shown separately for each of the two groups of OCI items (without changing the option to present items of OCI either before tax or net of tax)
  • Applicable to annual periods beginning on or after 1 July 2012, with early adoption permitted.

Amended IAS 19 Employee Benefits

  • Require recognition of changes in the net defined benefit liability (asset) including immediate recognition of defined benefit cost, disaggregation of defined benefit cost into components, recognition of remeasurements in other comprehensive income, plan amendments, curtailments and settlements
  • Introduce enhanced disclosures about defined benefit plans
  • Modify accounting for termination benefits, including distinguishing benefits provided in exchange for service and benefits provided in exchange for the termination of employment and affect the recognition and measurement of termination benefits
  • Clarification of miscellaneous issues, including the classification of employee benefits, current estimates of mortality rates, tax and administration costs and risk-sharing and conditional indexation features
  • Incorporate other matters submitted to the IFRS Interpretations Committee
  • Applicable on a modified retrospective basis to annual periods beginning on or after 1 January 2013, with early adoption permitted.
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Joint press release on IASB-EFRAG Meeting

16 Jun 2011

The IASB and EFRAG have issued a press release on their joint meeting held on 14 June 2011 to discuss the completion of the IASB's work plan and the future agenda of the IASB.

These meetings take place on a regular basis and are used to discuss European ideas and input into projects on the IASB's agenda. In addition to representatives from EFRAG, four European standard-setters were represented: France, Germany, Italy and the UK. The topics discussed were:

  • Revenue recognition
  • Leases
  • Insurance contracts
  • Financial instruments
  • New standards on consolidation, joint arrangements and disclosures
  • Timeline for completion of major projects

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IIRC calls for participants in its Integrated Reporting Pilot Programme

16 Jun 2011

The International Integrated Reporting Committee (IIRC) has called for expressions of interest from companies interested in participating in its Integrated Reporting Pilot Programme.

The Pilot Programme is designed to assist the IIRC in the development of the Integrated Reporting framework over coming years. The IIRC hopes to test the principles and practicalities of Integrated Reporting through the Pilot Programme, with a view to creating a new global standard in Integrated Reporting in due course. The IIRC is intending to issue a Discussion Paper on Integrated Reporting in the third quarter of 2011.

The Pilot Programme is being conducted in three phases. The deadline for lodgement of expressions of interest by companies willing to participate in all phases of the Pilot Programme is 30 June 2011, with expressions of interest for those wishing to join later stages of the programme closing on 29 July 2011.

Click for more information (link to IIRC website).

Further notes from the June IASB meeting

16 Jun 2011

The IASB's regular monthly meeting was held on 13-15 June 2011 in London, much of it a joint meeting with the FASB.

We've posted Deloitte further observer notes from the meeting (click through for direct access to the notes):

Wednesday, 15 June 2011

The next meeting of the IASB is scheduled for 18-22 July 2011. The tentative meeting originally scheduled for 1 July 2011 has been removed from the IASB's calendar.

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

Deloitte comment letter on SME Implementation Group draft Q&As

16 Jun 2011

Deloitte's IFRS Global Office has submitted a letter of comment on the following SME Implementation Group draft Q&As:

  • Draft Q&A 2011/02: IFRS for SMEs Section 1, Issue 2 Captive insurance subsidiaries
  • Draft Q&A 2011/03: Interpretation of 'traded in a public market'
  • Draft Q&A 2011/04: Investment funds with only a few participants

The comment letter expresses Deloitte's views on the above three draft Q&As on the interpretation of 'public accountability' in the context of the scope of the IFRS for SMEs, and addresses wider issues on the Q&A setting process. The following is an excerpt from the letter:

In general, we question the appropriateness of these draft Q&As for the following reasons:

  • as noted in paragraph BC75 of the IFRS for SMEs, local bodies, such as legislators and regulators, are best placed to judge how the concept of public accountability is viewed in their jurisdictions; and
  • in determining the scope of the IFRS for SMEs, the Board decided upon a conceptual criterion. These draft Q&As could be read as adding rules to the concept.

We also question whether the level of SME Implementation Group's due process applied to the Q&As is appropriate and consistent with other similar activities at the IFRS Foundation and IASB. The Group's Terms of Reference and Operating Procedures were not subject to public comment, a regrettable deficiency that may impact the legitimacy of the product of the Group's deliberations. As the Q&As are considered IFRS related documents and are associated with the IASB, we believe that the due process steps followed in the development of an IFRIC Interpretation which include discussion and voting in a public meeting, public consultation on agenda items and positive approval of an Interpretation by the Board should be followed for these and any future Q&As.

In addition, we note that Draft Q&A 2011/03 seeks to interpret a term ('traded in a public market') which exists in full IFRSs (IFRS 8, IAS 27 and IAS 33). We do not consider it appropriate for a Q&A on the IFRS for SMEs to address an issue which applies to other IFRSs as such guidance will, whether it is intended to or not, be interpreted as being applicable to those IFRSs. ...

Click to Download our Comment Letter on SME Implementation Group draft Q&As (PDF 71k).

Further notes from the June IASB meeting

15 Jun 2011

The IASB's regular monthly meeting was held on 13-15 June 2011 in London, much of it a joint meeting with the FASB.

We've posted Deloitte further observer notes from the meeting (click through for direct access to the notes):

Monday, 13 June 2011 (other sessions)

  • Insurance Contracts (IASB-FASB)
    • Whether to unlock the residual margin
    • How to unlock the residual margin
    • Allocation of the residual margin
    • Acquisition costs revisited

Tuesday, 14 June 2011 (other sessions)

  • Meeting with EFRAG (IASB)
    • Revenue recognition
    • Leases
    • Insurance contracts
    • Financial instruments
    • New standards on consolidation, joint arrangements and disclosures
    • Timeline for completion of major projects

Wednesday, 15 June 2011

Notes from the additional session on insurance contracts held on Wednesday will be posted soon.

The next meeting of the IASB is scheduled for 18-22 July 2011. The tentative meeting originally scheduled for 1 July 2011 has been removed from the IASB's calendar.

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

Notes from the June IASB meeting

15 Jun 2011

The IASB's regular monthly meeting is being held on 13-15 June 2011 in London, much of it a joint meeting with the FASB.

We've posted Deloitte observer notes from parts of days 1 and 2 of the meeting (click through for direct access to the notes):

Monday, 13 June 2011 (IASB-FASB)

  • Investment Property
    • Education session on FASB project
  • Leases — Lessor accounting
    • Initial measurement of the residual asset
    • Initial profit recognition
    • Subsequent measurement of the residual asset
    • Lease of a portion of the underlying asset

Tuesday, 14 June 2011 (IASB-FASB)

Notes from the additional sessions on insurance (Monday and Tuesday) and asset and liability offsetting (Tuesday) will be posted soon.

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

Revenue Recognition ED to be re-exposed

15 Jun 2011

The IASB and FASB have decided to re-expose the Revenue Recognition ED.

Although both Boards agreed that according to the criteria for the consultation process a re-exposure is not necessary, they supported a re-exposure since (a) a large number of changes were made and (b) revenues are the top line in the comprehensive income statement and everything else evolves from there. Also, the Boards feared that the publication of a staff paper would not receive the same attention. The document will only contain a few questions on the technical changes (mainly the questions from agenda paper 4C, paragraph 17 (all agenda papers are available here)). Other than that, the document will pose questions on clarity and consistency with Board decisions. The document will have a 120-day comment period. So far, no dissenting opinions have been indicated.

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5th IFRS policy forum for the Asia-Oceania region

15 Jun 2011

On 23 and 24 May 2011 the 5th IFRS International Forum took place in Kuta, Bali.

Chairman of IASB Sir David Tweedie as well as other IASB Members, Warren McGregor and Tatsumi Yamada attended this event.

Many jurisdictions in the Asia-Oceania region will be converging with the International Financial Reporting Standards (IFRS) over coming years. Some jurisdictions have already adopted the IFRS since 2005, while others such as Malaysia, Indonesia and Singapore have set the year 2012 as the target year for the full adoption/convergence of IFRS. The 2011 year is the crucial year for these jurisdictions moving to IFRS. The IFRS Regional Policy Forum was intended to bring together policy makers, regulators and national standards setters from jurisdictions in different stages of their IFRS adoption roadmap to share and learn from one another's experiences in adopting the global standards, both the challenges faced and in taking advantage of opportunities offered.

The IASB has posted to its website a communiqué released after the Forum. It lists the following conclusions:

  • Participants reaffirmed their commitment to the goal of ultimate adoption of IFRS and to achieve one global set of high quality accounting standard.
  • Participants agreed that this goal may need to be facilitated through a process of convergence.
  • Participants agreed that the accounting standard setters in Asia-Oceania region need to work together more closely to increase the regional voice and concerns.
  • Participants agreed that local standard setter bodies will play a more important role as partner of IASB by proactively providing advice to the IASB of local issues and concerns.
  • Participants agreed that the voice of Asia Oceania region should be increasingly important in shaping the future of IFRS.
  • Participants share the similar concern that IFRS adoption is not just an accounting issue. To implement IFRS successfully, the support of the Government and other regulatory and policy bodies is critical.
  • Participants shared the similar concern of the increasing awareness among investors demanding IFRS based financial statement.
  • All participants agreed that it is very important that Taxation Law takes account of IFRS.

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Translations of IASB Publications and Technical Summaries

14 Jun 2011

The IFRS Foundation has announced new and forthcoming translations of IASB publications.

In the latest IFRS Translations Update (link to IASB website), the IFRS Foundation announced the following new and upcoming translations:

  • Now available:
    • German and Brazilian Portuguese translations of the 2010 Red Book of IFRSs
    • Russian translation of both the 2011 IFRS Requirements and the IFRS for SMEs Requirements
    • Spanish and Turkish translations of all 23 issued IFRS for SMEs training modules
  • Coming soon:
    • Romanian translation of the 2011 Red Book of IFRSs
    • Georgian translation of the 2010 Red Book of IFRSs
    • Serbian, Polish, Khmer and Mongolian translations of the IFRS for SMEs

These translations can be accessed from the IASB's Available Translations page on the IASB website. In addition, the IFRS Technical Summaries in Japanese (link to IASB website) are also available.

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