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August

South Africa chooses its own way of reducing the financial reporting burden for micro entities

31 Aug 2012

In a move to reduce the financial reporting burden for micro entities, the South African Institute of Chartered Accountants (SAICA) has developed guidance for applying the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) to micro entities.

The guidance does not make any changes to the IFRS for SMEs and does also not cut out the sections of the standard that are not applicable to a typical micro entity. Instead, the new guide is in the form of an easy-to-use electronic toolkit that comprises a user checklist, an application guide with practical examples, illustrative financial statements, and a disclosure checklist.

South Africa was the first country in the world to adopt the Exposure Draft on the IFRS for SMEs for use by local companies, when it was issued by the IASB in 2007. The intention of the early adoption of the standard at the time was to provide immediate relief for small and medium sized entities. The new guide is now intended to further simplify and reduce the cost to prepare financial statements for micro entities.

Only recently, the IASB staff announced in a similar move that it will develop guidance suitable for micro-sized entities that are applying the IFRS for SMEs. The IASB staff will use the IFRS for SMEs to identify requirements that are necessary for most micro-sized entities. Guidance will then be developed based on those requirements and without changing the principles for recognising and measuring assets, liabilities, income, and expenses. This will then lead to a document in its own right (albeit with cross-references the to the IFRS for SMEs for matters not dealt with).

Reducing the financial reporting burden for micro entities is a world wide issue regardless of whether the application of the IFRS for SMEs is not allowed, permitted or mandatory. In December 2011, the European Parliament voted to reduce the financial reporting burden for micro entities by allowing Member States to radically simplify the way in which micro-entities prepare their accounts. In March 2012, accounting for small (or micro)-sized entities in different jurisdictions was a topic at the International Forum of Accounting Standards Setters (IFASS) in Kuala Lumpur where a report of a survey on the financial reporting framework for these entities prepared by the Korean Standard setter was discussed.

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FASB reverses decision on accounting for interests in other investment companies

30 Aug 2012

At its meeting yesterday, the United States Financial Accounting Standards Board (FASB) reversed its position on a joint decision made recently with the IASB on the measurement requirements for an investment company’s interest in another investment company.

The FASB decided that rather than requiring an investment company to account for its interest in another investment company at fair value, it would not provide guidance on the measurement of such interests and would instead allow investment companies to continue current industry practice. Although this decision diverges from its recent joint decision with the IASB, the Board highlighted that (1) users are not opposed to current industry practice and (2) its project on applying asset- or entity-based guidance to nonfinancial assets held in an entity may provide additional insight on how to address this issue. The FASB's decision is documented in the corresponding Action Alert (link to FASB website).

EFRAG publishes endorsement advice and effects study reports

29 Aug 2012

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letters and effects study reports on (1) 'Annual Improvements to IFRSs 2009–2011 Cycle' and (2) 'Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance' (Amendments to IFRS 10, IFRS 11 and IFRS 12).

In its evaluation of Annual Improvements to IFRSs 2009–2011 Cycle, EFRAG supports the Amendments made and recommends their adoption. EFRAG notes that the benefits of adopting the amendments outweigh the costs.

In a separate endorsement advice letter, EFRAG supports Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) for endorsement. In keeping with the fact that EFRAG recommended deferring the mandatory effective date of IFRS 10, IFRS 11, IFRS 12, IAS 27(2011) and IAS 28(2011) from 1 January 2013 to 1 January 2014, with early adoption permitted, EFRAG also recommends deferring the mandatory effective date of the amendaments to IFRS 10, IFRS 11 and IFRS 12 to 1 January 2014.

Click for:

  • EFRAG press release on Annual Improvements to IFRSs 2009–2011 Cycle (link to EFRAG website).
  • EFRAG press release on Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) (link to EFRAG website).

Links to the endorsement advice letters and effects study reports are provided in the respective press releases.

EFRAG draft comment letter on the comprehensive review of IFRS for SMEs

24 Aug 2012

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's 'Request for Information: Comprehensive Review of the IFRS for SMEs' that was published for public comment in June 2012. EFRAG suggested that a two-step approach to the review could have been useful: (1) a high-level review of the IFRS for SMEs' objectives, keeping entities in mind when considering the requirements of the standard, and exploring how it should relate to full IFRS, then (2) a more detailed exploration of how changes to full IFRS should be reflected in IFRS for SMEs. Because this approach was not used, EFRAG encountered many questions and is split on two fundamental issues.

Firstly, EFRAG was split on the weight that different factors (such as stability, changes in user’s needs and alignment with full IFRS) should have when amending the IFRS for SMEs.

  • View 1: IFRS for SMEs should only be amended when a problem has been identified through post-implementation reviews or there is other evidence that the standard does not work appropriately.
  • View 2: All available and relevant information should be considered when amending the IFRS for SMEs, such as identified problems and changes to full IFRS.
  • View 3: Most changes to full IFRS regarding measurement and recognition should also be reflected in the IFRS for SMEs as a result of the periodic reviews.

Secondly, EFRAG had differing views on including options in the IFRS for SMEs that would allow entities to apply accounting policies that would result in more similar outcomes to full IFRS.

  • View A: Options would increase the costs and complexity of the standard and the resulting financial statements would be less comparable.
  • View B: IFRSs for SMEs should include the same options for entities that are non-publicly accountable as for those that are, although they may be formulated in a simplified manner.

The draft comment letter also includes a 39-page appendix with questions for constituents related to the different views. Comments on EFRAG's draft comment letter are invited by 12 November 2012.

Click for:

  • EFRAG press release with link to the draft comment letter (link to EFRAG website).
  • Our previous story on the IASB's Request for Information: Comprehensive Review of the IFRS for SMEs.

US SEC finalises rules on disclosure of payments to governments

23 Aug 2012

The United States Securities and Exchange Commission (SEC) has adopted rules, mandated by the Dodd-Frank Act, requiring resource companies to disclose certain payments made to the U.S. government or foreign governments (including subnational governments). The rules require 'resource extraction issuers' to disclose payments that are made to further the commercial development of oil, natural gas, or minerals, and are generally consistent with the types of payments that the Extractive Industries Transparency Initiative (EITI) suggests should be disclosed.

Payments including the following are required to be disclosed where they are made to governments to further the commercial development of oil, natural gas, or minerals and exceed an 'de minimus' amount (US$100,000 by payment category per fiscal year):

  • Taxes
  • Royalties
  • Fees (including license fees)
  • Production entitlements
  • Bonuses
  • Dividends
  • Infrastructure improvements.

The following information about the payments must be provided to the SEC by filling in a new form and also providing the information in XBRL tagged electronic format:

  • Type and total amount of payments made for each 'project' (which is undefined to allow flexibility in applying the term to different business contexts)
  • Type and total amount of payments made to each government
  • Total amounts of the payments, by category
  • Currency used to make the payments
  • Financial period in which the payments were made
  • Business segment of the resource extraction issuer that made the payments
  • The government that received the payments, and the country in which the government is located
  • The project of the resource extraction issuer to which the payments relate.

One of the ideas behind the rule is that if United States registered 'resource extraction issuers' make the disclosures required, the governments that receive resource related payments will also, to that extent at least, be more accountable to the people they govern. Similar disclosures are also being considered by the European Union and were in the IASB's Discussion Paper on Extractive Industries, published in April 2010, which included the 'Publish What You Pay' (PWYP) proposals calling for country-by-country reporting.

In finalising the rules, the SEC responded to responses received on its initial proposals, including addressing concerns about compliance costs and considering the effects of the rule on efficiency, competition, and capital formation.  However, not all SEC Commissioners were in support of the proposed rules - for instance, Commissioner Daniel M. Gallagher noted constituent concerns about making competitively significant information available to competitors, the costs that may be incurred in collating the information, and the potential impacts on economic outcomes.

The new rules apply for fiscal years ending after 30 September 2013.  Click for press release (link to SEC website).

The SEC also concurrently issued new a new rule requiring companies to publicly disclose their use of 'conflict minerals' that originated in the Democratic Republic of the Congo (DRC) or an adjoining country.

IFRSs in your pocket 2012

22 Aug 2012

We have published the eleventh edition of our popular guide to IFRSs — 'IFRSs In Your Pocket 2012'. This publication provides an update of developments in IFRSs through the second quarter of 2012.

This 136-page guide includes information about:

  • The IASB organisation — its structure, membership, due process, contact information, and a chronology
  • Use of IFRSs around the world, including updates on Europe, United States, Canada and elsewhere in the Americas, and Asia-Pacific
  • Recent pronouncements — those which are effective and those which can be early adopted
  • Summaries of current Standards and related Interpretations, as well as the Conceptual Framework for Financial Reporting and the Preface to IFRSs
  • IASB agenda projects and active research topics
  • IFRS Interpretations Committee current agenda topics
  • Other useful IASB-related information

Please contact your local Deloitte practice office to request a printed copy.

Click to view IFRSs in your pocket 2012.

ESMA comment letter regarding the IFRS Interpretations Committee's agenda decision on GGBs

22 Aug 2012

The European Securities and Markets Authority (ESMA) has published to its website a comment letter to the IFRS Interpretations Committee regarding its tentative agenda decision on IAS 39 'Financial Instruments: Recognition and Measurement' and the accounting for different aspects of restructuring Greek government bonds (GGBs).

The comment letter is dated 26 July 2012, but was only made available by ESMA now.

In April 2012, ESMA had submitted a request to the IFRS Interpretations Committee asking to clarify the accounting of the exposure to Greek sovereign debt arguing that IAS 39 Financial Instruments: Recognition and Measurement does not offer enough guidance in this respect. ESMA wrote: "This results in difficulties to understand how the standard should be applied [...] and could raise enforcability issues."

After the Interpretations Committee tentatively decided not to add the issue to its agenda in May 2012, ESMA published the original submission, which also contained several suggested accounting treatments, in order to underline its point.

ESMA has now published its comment letter on the tentative agenda decision in which stresses its view once more:

European enforcers of IFRS note varying accounting practices for debt restructurings by lenders due to the lack of clear guidance which leads in turn to decreased comparability between financial statements

ESMA does not agree with the Committee’s conclusion not to add the subject to its active agenda nor to recommend the Board to perform further work. It now encourages the IASB to consider the concerns as part of its ongoing deliberations on IFRS 9 Financial Instruments.

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ESMA publishes summary of responses to its consultation on materiality in financial reporting

17 Aug 2012

The European Securities and Markets Authority (ESMA) has published a summary of the responses received on its consultation paper on materiality in financial reporting. One of the main results of the consultation was that there is a potential need for further guidance on the application of the concept of materiality but that this issue should be addressed by the IASB, rather than ESMA.

In November 2011, ESMA published a consultation paper in order to seek comments from interested parties on their understanding of various aspects of materiality in an effort to contribute to a consistent application of this important concept in financial reporting. ESMA made available all comments received on the consultation paper in April 2012 and has now consolidated these into a summary of responses.

The main findings are:

  • The majority of all respondents believe that the concept of materiality is generally well understood, however, they see diversity in application.
  • Diversity in application was attributed to management judgement, separate perspectives of different stakeholder groups, and general difficulties in applying the concept to certain issues.
  • Many respondents believe that the application of materiality concept to disclosures could help address the problem of too many disclosures obscuring the reporting about an entity’s financial position and performance.
  • The majority of respondents were of the opinion that the principles to be applied in assessing materiality in interim and annual financial reports should be the same.
  • Respondents clearly indicated that if there is a need for further guidance on the application of the concept of materiality this issue should be addressed by the IASB.

Please click for access to the full summary of responses (link to ESMA website).

ESMA has decided to organise a public roundtable on materiality in financial reporting where some of the issues raised in the consultation paper will be further discussed. The roundtable will be held on 1 October 2012 in Paris. Please click for further information (link to ESMA website).

GRI releases further elements of proposed next generation sustainability reporting guidelines

17 Aug 2012

The Global Reporting Initiative (GRI) has released two additional exposure drafts related to its next generation of its Sustainability Reporting Guidelines ('G4'). These exposure drafts seek to improve the way companies report on anti-corruption and greenhouse gas (GHG) emissions in their overall sustainability reporting.

The release of the two additional exposure drafts follows on from an earlier exposure draft outlining the G4 project development process and the proposed significant changes to the current 'G3' guidelines.  The two topics covered by the new exposure drafts were signalled in the original draft.

Proposed new guidance on anti-corruption is designed to enable companies to report information on their policy, their publicly stated commitment to zero tolerance of corruption, their training of employees, governance bodies and business partners on anti-corruption, and their collective action initiatives towards combating corruption.

The exposure draft on GHG proposes new content for the G4 guidelines that are designed to more closely align GRI’s guidance with the GHG Protocol set of standards, jointly released by the World Resources Institute and the World Business Council for Sustainable Development, and the ISO 14064 standard produced by the International Standards Organization for Standardization.

Comments on the two new exposure drafts close on 12 November 2012.  Click for press release (link to GRI website).

2012 IFRS 'Green Book' — Coming Soon

16 Aug 2012

The IFRS Foundation has announced that A Guide through IFRS 2012 will be available in September 2012.

This volume (nicknamed the "Green Book") will include the full text of the Standards and Interpretations and accompanying documents (such as the Basis for Conclusions) issued by the IASB as at 1 July 2012 with extensive cross-references and other annotations. This edition does not contain documents that are being replaced or superseded but remain applicable if a reporting entity chooses not to adopt the newer versions early.

The new requirements since 1 July 2011 include:

The Green Book will sell for £90 plus shipping for the two book set (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

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