November

UK report on going concern considers efficacy of IFRSs

03 Nov 2011

The Sharman Panel of Inquiry, established at the invitation of the United Kingdom Financial Reporting Council (UK FRC) to consider going concern and liquidity risks, has published its preliminary report and recommendations.

The aim of the Inquiry was to identify lessons for companies and auditors addressing going concern and liquidity risks and to recommend measures, if any, which are necessary to improve the existing reporting regime and related guidance for companies and auditors. The Panel recommends that for all businesses the going concern assessment should focus not only on short term liquidity risks but also on solvency risks that could threaten the company's survival over the business cycle or that could cause significant damage to the community and environment.

The terms of reference for the inquiry included consideration of whether the going concern and liquidity risk disclosures required by IFRS provided timely and relevant information for all stakeholders. The Panel's preliminary report makes a number of observations on IFRS related matters, including:

  • The Panel agrees and believes that the indicative minimum review periods set out in IFRS and UK GAAP are more relevant to considering the period over which detailed budgets and forecasts should be prepared than to the period over which other aspects of a going concern review should extend (particularly that 'stress tests' should be applied considering relevant economic outlook and business cycles)
  • Investors and quite a lot of others have raised questions about the suitability of IFRS accounts as a basis for assessing solvency - noting views such as in the finance sector the regulatory capital assessment rather than the IFRS accounts is the better starting point, that an IFRS balance sheet isn't that useful for assessing capital adequacy because it lacks prudence, or that the use of IFRS accounts requires adjustments for prudence to ensure that the measure of capital held is robust and able to withstand a reasonable range of stresses
  • Capital management is important to investors — they want to understand how this is done, through the eyes of management. The IAS 1 disclosures are not generally providing what they want, though they could in principle be used to do so
  • The going concern assessment is a forward looking process - whilst it builds on past data, it also includes looking at possible outcomes not yet experienced. This "does not sit well with the IFRS accounts which are essentially backwards looking"
  • The incurred loss model is widely accepted to have been inappropriate and is being addressed. A number of respondents and commentators suggested that "there was a sense that IFRS engendered a compliance mentality and that a more principles based approach was appropriate"
  • One area of concern to regulators is the inconsistency they observed in valuations of the same financial instruments using different models and there are "inherent issues with point estimates".

Click for:

 

FAF webcast on Private Company Standards Improvement Council

03 Nov 2011

On Friday, 18 November, the Financial Accounting Foundation (FAF) will host a free webcast on their recently-issued Request for Comment on the Plan to Establish the Private Company Standards Improvement Council (PCSIC).

The webcast will discuss (1) the financial reporting challenges of private companies, (2) the proposed standard-setting improvements, and (3) how stakeholders can provide input on the recommendations.

 

Full details of the webcast are provided below:

Please see our earlier story for more information on the FAF and PCSIC plan.

2012 IFRS Blue Book – Coming Soon

03 Nov 2011

The IFRS Foundation has announced that the 2012 IFRS Consolidated without early application will be published in December 2011. This volume (nicknamed the "Blue Book") will contain all official pronouncements that are mandatory on 1 January 2012. It does not include IFRSs with an effective date after 1 January 2012. For example, the Blue Book will not include IFRS 9 Financial Instruments because it has an effective date of 1 January 2013. The Blue Book differs from the traditional BV, which includes all pronouncements issued at the publication date, including those that do not become mandatory until a future date.

The IASB intends to publish the traditional BV (the "Red Book") in the first quarter of 2012. The Blue Book will sell for £60 plus shipping (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

CFA Institute study on user perspectives on IFRS 7 disclosures

02 Nov 2011

The CFA Institute, a global association of investment professionals, has published a report entitled User Perspectives on Financial Instrument Risk Disclosures under IFRS (Part 1), providing user insights and recommendations regarding risk disclosures under IFRS 7 'Financial Instruments: Disclosures'.

The CFA Institute undertook a study regarding the quality of existing financial instruments risk disclosures, addressing credit, liquidity, market and hedging activities risk disclosures under IFRS 7. The report proposes general and specific recommendations for improving these risk disclosures, including:

  • Executive summary. An 'Executive Summary' of risk disclosures should be provided outlining details of entity-wide risk exposure and effectiveness of risk management mechanisms across different risk types considered to be significant for specific business models
  • Differentiated market risk categories. The components of market risk should be differentiated into more specific categories (i.e. interest rate, foreign currency and commodity) and treated with the same level of distinctiveness for reporting purposes as is the case with credit and liquidity risk under IFRS 7
  • Improved alignment of qualitative and quantitative disclosures. Qualitative disclosures should better explain quantitative measurements
  • Standardisation and assurance of quantitative disclosures. Standardised and adequately audited quantitative disclosures are required to improve comparability
  • Improved and integrated presentation of disclosures. Integrated, centralised and tabular risk disclosures should be provided. For example, the report recommends disclosure of: a) the integration of risk exposure and risk management information; and b) interaction of different risk factors
  • Areas for improvement of specific risk disclosures. These include the need to provide: a) informative entity-specific qualitative disclosures; b) improved and more meaningful sensitivity analysis; c) sufficient disaggregation to inform on respective risk exposures; d) full disclosure of risks associated with counterparties; and e) risk information related to off-balance sheet exposures
  • Communication and not mere compliance. The report states "a principles-based definition of disclosure is not the antidote to fears about boilerplate and uninformative disclosures".

Part 2 of the report will be released at a later time and will provide a user perspective on the disclosures of derivatives and hedging activities.

Click for access to the report (link to CFA Institute website).

Notes from the special November IASB meeting

02 Nov 2011

The IASB held a supplemental meeting on 1 November 2011 in London with the FASB.

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

Tuesday, 1 November 2011

  • Leases (IASB-FASB)
    • Lessor accounting: Disclosures
    • Transition: Other considerations
    • Transition: Sale and leaseback

 

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting. The next IASB meeting is scheduled to occur on 7 November 2011.

Agenda for the Global Preparers Forum meeting

02 Nov 2011

The IASB has posted to its website the agenda for the 8 November meeting of IASB representatives with the Global Preparers Forum (10:00 - 16:30 London time).

The topics to be discussed are:

Click for:

Agenda for the 7 November special IASB meeting

02 Nov 2011

The IASB has posted to its website the agenda and the agenda papers for the 7 November special meeting (14:30 - 16:00 GMT).

The topic to be discussed is the Mandatory Effective Date of IFRS 9.

Canadian regulator decides against allowing early adoption of recent IFRSs by certain entities

01 Nov 2011

The Canadian Office of the Superintendent of Financial Institutions (OSFI), an independent agency of the Government of Canada that supervises and regulates Canadian banks, insurers, and federally registered private pension plans, has issued a letter in which it concludes entities which it regulates should not early adopt many standards recently issued by the IASB. .

The Canadian Office of the Superintendent of Financial Institutions (OSFI), an independent agency of the Government of Canada that supervises and regulates Canadian banks, insurers, and federally registered private pension plans, has issued a letter in which it concludes entities which it regulates should not early adopt many standards recently issued by the IASB.

In making its decision, the OSFI considered a number of factors such as industry consistency, OSFI policy positions on accounting and capital, operational capacity and resource constraints of Federally Regulated Entities (FREs), the ability to benefit from improved standards arising from the financial crisis and the notion of a level playing field with other Canadian and international financial institutions. OSFI concluded that FREs should not early adopt the following new or amended IFRSs, but instead should adhere to their mandatory effective dates:

Click for:

IFRS Foundation's translations update

01 Nov 2011

The IFRS Foundation has announced the publication of the following translations: French translation of the Exposure Draft ED/2011/4 Investment Entities the Exposure Draft ED/2011/5 Government Loans (Proposed amendments to IFRS 1); the exposure drafts can be accessed via the IASB's Comment on a proposal webpage.Slovak translation of the 2011 Briefing for Chief Executives, Audit Committees & Board of Directors; the Slovak translation is available in the subscriber area on eIFRS. .

The IFRS Foundation has announced the publication of the following translations:

IPSASB issues standards on service concessions, annual improvements

01 Nov 2011

The International Public Sector Accounting Standards Board (IPSASB) has released new standards on service concession arrangements and annual improvements. .

The International Public Sector Accounting Standards Board (IPSASB) has released new standards on service concession arrangements and annual improvements.

IPSAS 32 Service Concession Arrangements: Grantor seeks to address a lack of international guidance on how governments and other public sector entities should report their involvement in service concession arrangements, often used to build the infrastructure necessary to maintain and improve critical public services.

IPSAS 32 requires that service concession arrangement assets and their related financing are reported by the public sector entity, using an approach that is consistent with that used for the operator's accounting in Interpretation IFRIC 12 Service Concession Arrangements. IPSAS 32 uses the principles in IFRIC 12 for determining which entity (grantor or operator) should recognise an asset in a service concession arrangement, in order to ensure that the grantor recognises a service concession asset it controls.

The IPSASB has also published Improvements to IPSASs 2011. The IPSASB's improvements project is modeled on the IASB's annual improvements process. The improvements amend existing IPSASs to maintain alignment with International Financial Reporting Standards (IFRSs), as well as other general improvements.

IPSAS 32 applies to annual financial statements covering periods beginning on or after 1 January 2014, but may be applied earlier. The amendments made by Improvements to IPSASs 2011 are applied for annual financial statements covering periods beginning on or after 1 January 2013, but may be applied earlier.

Click for IPSASB press release (link to IFAC website).

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.