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2011

Final notes from the December IASB meeting

19 Dec 2011

The IASB's regular monthly meeting was held on 13-16 December 2011 in London, part of it a joint meeting with the FASB. We have posted additional Deloitte observer notes from the remaining sessions held on Thursday and Friday.

Click through for direct access to the notes:

Thursday, 15 December 2011

Friday, 16 December 2011

  • Insurance contracts (IASB-FASB)
    • Discounting of insurance liabilities for incurred claims
    • Unit of account
    • Onerous contracts

Click here to go to the preliminary and unofficial notes taken by deloitte observers for the entire meeting.

Malaysian Accounting Standards Board releases discussion papers on Islamic finance transactions

19 Dec 2011

The Malaysian Accounting Standards Board (MASB) has published three discussion papers exploring the accounting treatment of a number of Islamic financial transactions.

The three papers are:

  • DP i-1 Takaful. In many material respects, takaful can be likened to conventional insurance, but has a number of distinct features and the paper notes "little has been written about accounting for takaful under International Financial Reporting Standards (IFRS)". The paper explores issues such as:
    • whether takaful meets the definition of an insurance contract in IFRS 4 Insurance Contracts
    • whether a takaful operator should prepare consolidated financial statements
    • accounting for any qard, an interest-free loan extended to a participant's fund that is in deficit
    • retakaful, participating contracts, revenue recognition, and additional disclosures
  • DP i-2 Sukuk. Sukuk is commonplace in the Malaysian capital market and can be compared to a conventional bond. Issues discussed include the classification of sukuk by the issuer and investor in the statement of financial position, fair value measurement, impairment, derivatives, guarantees and related party disclosures.
  • DP i-3 Shariah Compliant Profit-sharing Contracts. These contracts are similar to conventional profit-sharing or partnership contracts but raise questions of the classification of items in the statement of financial position, accounting implications of smoothing techniques to stabilise returns on capital, and consolidation, joint ventures and investments in associates.

The discussion papers do not seek to provide prescriptions for the accounting questions raised but instead put forward the MASB's understanding of the issues and alternate solutions to solicit public views on preferred solutions.

The MASB has requested comments on the discussion papers by 16 March 2012. Click for press release (link to MASB website).

IAASB issues guidance on auditing financial instruments

19 Dec 2011

The International Auditing and Assurance Standards Board (IAASB) has released International Auditing Practice Note (IAPN) 1000, 'Special Considerations in Auditing Financial Instruments', to provide practical assistance to auditors when addressing valuation and other considerations pertaining to financial instruments.

IAPNs are non-authoritative documents that do not impose additional requirements on auditors beyond those included in the International Standards on Auditing (ISAs) and so are effectively immediately available for use. IAPN 1000 provides background information about financial instruments and discusses audit considerations such as planning, assessing and responding to audit risks, the valuation of financial instruments and appropriate internal controls related to financial instruments.

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

EFRAG asks for more time to consider IASB proposals

19 Dec 2011

The European Financial Reporting Advisory Group (EFRAG) has written to the IASB to request that the comment period on the Exposure Draft 'Revenue from Contracts with Customers' be extended by 60 days and that the comment period on the Review Draft on General Hedge Accounting is set such that constituents have three months, outside their year-end closing period, to respond and participate in field-testing activities.

The request follows an earlier EFRAG request for the IASB to consider a deferral of the effective date of the 'suite of standards' on consolidation, joint arrangement and disclosures (see our earlier story).

Click for access to the EFRAG letter (link to EFRAG website).

IASB podcast on insurance contracts

19 Dec 2011

The IASB has made a podcast on the current state of debate in the IASB/FASB joint project on insurance contracts available.

Stephen Cooper, IASB member and Andrea Pryde, Senior Technical Manager, report on developments in the project following the joint IASB/FASB meeting on 13-16 December. To listen to the podcast, please click here (link to IASB website).

Agenda for January IFRS Foundation Trustees meeting

18 Dec 2011

A tentative agenda has been released for the IFRS Foundation Trustees meeting to be held in Singapore on Thursday, 12 January 2012.

The tentative agenda is shown below. Agenda papers for the meeting will be made available on the IASB website.

 

Agenda for the IFRS Foundation meeting — Thursday, 12 January 2012

Thursday 12 January (13:45-16:00)

  • Report of the IASB Chair
  • Report of the Due Process Oversight Committee
  • Report of the Education and Content Services Committee
  • Public update on the Strategy Review

IASB, FASB and CFA Institute webcast on revenue recognition

18 Dec 2011

On 12 January 2012 at 15:00 GMT, the IASB, FASB and the CFA Institute will present a webcast about the proposals on revenue recognition.

More information is available on on the CFA Institute's website.

IFRS Foundation translation update

18 Dec 2011

The IFRS Foundation has announced the publication of a Japanese translation of the IFRS for SMEs, and a Spanish translation of an additional module if the IFRS for SMEs training materials.

The translations are:

  • Japanese translation of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) 2009. The Japanese translation is available on the IASB's Access the IFRS for SMEs page (registration required).
  • Spanish translation of Module 7 'Statement of Cash Flows' of the IFRS for SMEs training materials. These are available on the IASB's Spanish language training materials webpage (freely accessible).

Deloitte IFRS Podcast on offsetting of financial assets and financial liabilities

16 Dec 2011

A new Deloitte IFRS Podcast has been issued discussing the IASB amendments to IAS 32 'Financial Instruments: Presentation' that provide clarifications on the application of the offsetting rules, and the amendments to the disclosure requirements in IFRS 7 'Financial Instruments: Disclosure' requiring information about all recognised financial instruments that are set off.

In the podcast, Randall Sogoloff, Leader for Communications in the Deloitte IFRS Global Office, and Andrew Spooner, leader of Deloitte's global IFRS financial instruments team, discuss the effects of those amendments relating to offsetting of financial assets and financial liabilities.

The podcast is available for download here (26 mins 11.5 mbs) or via iTunes; it is one of a series that will be posted to IAS Plus.

The Bruce Column – 2011: A year of growing optimism over IFRS

16 Dec 2011

Robert Bruce, our regular, resident columnist, takes a look at a global survey which shows that acceptance of IFRS is bringing stability and lower costs. The year could be coming to an end on a note of optimism.

Amidst all the debate over technical arguments in the world of IFRS one larger point is often missed. Draw back from the cut and thrust over the minutiae of standard-setting and you can see a growing and very important trend. In the words of Helen Brand, chief executive of the global accounting body, ACCA: 'As countries have gained experience in using global accounting standards, their support has tended to increase'.

She made this point in her introduction to a recent ACCA report called 'Toward Greater Convergence: Assessing CFO and Investor Perspectives on Global Reporting Standards'. And she went on to say that she hoped that SEC would take this into account as it approaches its decision over US adoption of IFRS because adoption would, she said: 'give a tremendous boost to the cause of financial reporting and, more importantly, the world economy'.

It is this economic argument which tends to get lost in the technical detail. 'As more and more countries use IFRS', says Ian Welch, Head of Policy at ACCA, 'companies have got to grips with it and are now getting the benefits. Both users and preparers are seeing the benefits which flow through in terms of reducing the cost of capital and it is encouraging that they are seeing such practical value'.

All this is the result of time and experience. And oddly the process has been helped by the financial crisis of the past few years. That has demonstrated the nature of global integration and the need for global regulation. And you can't have that without global standards.

The ACCA survey covered 163 senior executives, mostly CFOs and investors, and in-depth interviews with nine further senior people from around the world. And the findings show IFRS as having well and truly come of age. 'About two-thirds of investors and more than half of CFOs say they view IFRS more positively in the wake of the crisis', says the survey. And Russell Picot, chief accounting officer at HSBC, made a more specific point. 'One major effect of the global financial crisis is that the US moved to a basis of consolidation which is much closer to IFRS', he said. 'US accounting practice previously permitted more structures to be held off balance sheet than IFRS and during the crisis this caused users some confusion. European banks were on one basis and US banks were on a fundamentally different basis'.

And the survey also shows that the financial crisis really brought home to people the costs of not being on IFRS and how the implementation costs were worth the effort in terms of the benefits derived. 'We are all very good at being able to identify costs and put a price tag on conversion', said Anne Simpson, head of corporate governance at CalPERS, the giant US investor vehicle that is the California Public Employees Retirement System. 'But should we be visited by horrors like the financial crisis and realise we've not invested sufficiently in quality accounting and auditing, then the cost runs to billions. Billions were wiped from the CalPERS portfolio. These are the sort of numbers we should be looking at when people complain about costs'.

And the hidden costs of not using IFRS are huge. Russell Picot of HSBC said that 'a significant cost reduction' would arrive from operational streaming when IFRS and US GAAP eventually become properly harmonised. 'In the US they run the operation with IFRS numbers', he said of HSBC. 'But they have an unusual technical issue in that they present their business segments using IFRS numbers and then reconcile to US GAAP'.

The survey also underlined the advantages that accrue to mature users of IFRS. James Singh, CFO of Swiss food giant Nestle, pointed out that: 'Where the benefit comes is in using a single standard for performance measurement both inside and outside the company. From a regulatory standpoint it's an efficient way of preparing accounts'.

And it is all about consistency. 'As a multinational company', said Singh, 'we can't afford to have different accounting standards in different locations'. 'One of the great benefits,' said Picot, 'has been a single set of numbers by which the group is run. It's done away with the Tower of Babel of different reporting and accounting languages that we had before'. It is also all about simple but useful disclosure. 'We don't have much sympathy for those that say disclosure is too much like hard work', said Anne Simpson of CalPERS. 'This is all information that management should have and it should be available at the touch of a button'.

The possibility of integrated reporting also entering the mix looks, from the survey, as though it is being investor-led. 'Investors', the survey found, 'are twice as likely to believe that this would encourage better decision-making'. On the other hand CFOs reckoned it provides a clearer picture of overall performance. 'Investors and the analyst community are more inclined and influenced on a cash-flow basis, whereas companies like ourselves are influenced by cash flow and by performance measurement that sooner or later ends up in the balance sheet', said Singh of Nestles. 'We have to have the right kind of focus to drive sustainable performance in the business. If you're only cash-flow focused, you are more short-term oriented'. And some CFOs, like Anders Pehrsson of Swedish engineering giant, Atlas Copco, simply recognise and provide what the market wants. 'We've taken the initiative and are issuing reports instead of being chased by investors for information', he said.

There is a growing feeling that a no-nonsense, grown-up, approach is what is required all round. 'We are seeing high quality accounting and auditing as a market fundamental, something that has a systemic benefit', said Anne Simpson of CalPERS.

This year has been an uncertain year. But IFRS has come through as a mature system. A length of familiarity with IFRS reduces the arguments about difficulty. Companies, particularly those in Europe, have largely settled into a growing knowledge of its usage and the extended benefits which flow from that. There is an optimistic feel to the markets moving forward, as people as diverse as Anders Pehrsson in Sweden and Anne Simpson in California show.

Robert Bruce
December 2011

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