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June

FASB issues proposal for disclosing liquidity and interest rate risk

29 Jun 2012

On June 27, 2012, the U.S. accounting standard setter (FASB) issued proposed amendments relating to disclosures about liquidity risk and interest rate risk. The proposals would require a reporting entity to adopt new qualitative and quantitative disclosures about liquidity and interest rate risk. Under the proposals all entities must provide disclosures about liquidity risk, and “financial institutions” also would provide disclosures about interest rate risk.

Public entities would be required to provide the proposed disclosures for interim and annual periods; however, nonpublic entities would only be required to provide disclosures for annual periods. The FASB believes that the proposed amendments would address stakeholder concerns that certain inherent risks of financial instruments and their effect on an entity’s broader risk exposures would not be fully reflected in the measurement model for such instruments, and that the breadth of such risks could only be communicated through supplemental disclosure. The proposals do not specify an effective date; instead, the effective date of such requirements will be established during redeliberations. Comments on the proposal must be submitted to the FASB no later than September 25, 2012. The proposals, if finalized, would move the US GAAP requirements closer to the existing requirements under IFRS 7. However, differences would remain, including FASB proposals that would require disclosures about issuances of time deposits and available liquid funds that are not required under IFRS, as well as the following:

  • IFRS 7 requires that all entities (not just financial institutions) disclose a maturity analysis of their nonderivative and derivative financial liabilities that is segregated by time intervals and based on the earliest period in which a reporting entity could be required to pay the liability (not expected maturity).
  • IFRS 7 requires that an entity (not just a financial institution) disclose a sensitivity analysis for each type of market risk (e.g. interest rate risk) to which it is exposed at the end of a reporting period, and its impacts on net income and shareholders’ equity to changes.
  • Unlike IFRS 7, in which the amounts by which interest rates change in the analysis are based on an entity’s judgment, the FASB proposals would prescribe the amounts by which interest rates change when performing the sensitivity analysis.

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ESMA publishes IFRS enforcement report

29 Jun 2012

The European Securities and Markets Authority (ESMA) has published to its website an 'Activity Report on IFRS Enforcement in the European Economic Area in 2011'. In 2011, the Euro crisis was one of the major drivers of the various IFRS enforcement activities at EEA and Member State level.

ESMA discharges of the responsibility of monitoring of compliance of financial information with International Financial Reporting Standards (IFRS) and taking of appropriate enforcement action mainly through the European Enforcers Co-ordination Sessions (EECS) which co-ordinate the enforcement activities of Member States in order to increase convergence amongst European enforcer’s activities. The EECS also provide feedback to the International Accounting Standard Board (IASB) on issues related to the application of IFRSs identified as part of the enforcement process.

As a result of sovereign debt developments and the increased market interest in this area, ESMA focused its attention on the impact of those developments on the accounting practices of listed companies in Europe, and financial institutions in particular. ESMA issued two public Statements (in July 2011 and November 2011) stressing the importance of consistent application of recognition and measurement principles in IFRSs and the need for enhanced transparency in relation to issuers’ exposure to sovereign debt. ESMA intends to publish in 2012 a review of the accounting practices with respect to exposure to sovereign debt in the 2011 year-end IFRS financial statements.

Overall, European enforcers find that the quality of the IFRS financial statements improves every year reflecting an increased level of issuers’ capacity to apply IFRS principles to their business. However, they have also identified some areas in which additional efforts should be taken. Examples of such areas are: disclosures related to fair value hierarchy of financial instruments, disclosures of assumptions used as part of impairment tests, presentation of risk factors and uncertainties with an impact on going concern assumptions, various aspects related to consolidation of entities.

Please click for access to the report on the ESMA website.

IASB amends transition guidance for IFRS 10

28 Jun 2012

The IASB has published ‘Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance’ (Amendments to IFRS 10, IFRS 11 and IFRS 12). These amendments will help to alleviate concerns that the transitional requirements of IFRS 10 ‘Consolidated Financial Statements’ are more burdensome than had been intended. The line-by-line information required by IAS 8 paragraph 28(f) is limited to immediately preceding period.

The amendments are intended to provide additional transition relief in IFRS 10 , IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, by “limiting the requirement to provide adjusted comparative information to only the preceding comparative period”. Also, amendments were made to IFRS 11 and IFRS 12 to eliminate the requirement to provide comparative information for periods prior to the immediately preceding period.

The effective date of these amendments, annual periods beginning on or after 1 January 2013, is aligned with the effective dates of IFRS 10, IFRS 11 and IFRS 12.

Click for the press release (link to IASB website). A PDF of the amendments are available to subscribers through the IASB website.

GRI opens second comment period on its next generation sustainability reporting guidelines

28 Jun 2012

The Global Reporting Initiative (GRI) has released an exposure draft of the next generation of its Sustainability Reporting Guidelines ('G4'). This document outlines the G4 project development and the proposed significant changes to the current Guidelines.

This document calls for comments on five specific areas of revision on which GRI is seeking public feedback:

  • Application levels - it is proposed to discontinue the 'Application Levels', originally designed to assist organisations in communicating the degree of transparency of their sustainability reports against the Guidelines.  This is on the basis the levels are currently wrongly understood by some report users to be an opinion on the quality of the report, or even a reflection of the sustainability performance of the organisation
  • Boundary - Revisions are proposed to the process in the existing protocols to better direct organisations on how to define the content and boundaries of a sustainability report in one sequence of process steps, thus to answer the question of what to report
  • Disclosure on management approach - The ED outlines a generic approach for all topics and proposes that the 'Disclosures on Management Approach' (explaining how an entity is managing material economic, environmental, and social impacts) should be provided at the Aspect level to reflect management practices
  • Governance - The ED has proposed a number of changes to governance and remuneration disclosures to strengthen the link between governance and sustainability performance
  • Supply chain - New and amended disclosures on the supply chain are proposed, including new definitions and disclosure of the procurement practice, screening and assessment as well as remediation.

The Exposure Draft also outlines proposed amendments to improve the clarity and technical quality of the text as well as to facilitate the implementation of the guidelines.

The Exposure Draft does not deal with the following matters, which are expected to be dealt with in due course:

  • proposed updates to two or more of the following thematic topics: Anti-corruption, Biodiversity, Greenhouse Gas (GHG) Emissions and Occupational Health and Safety - a further comment document is expected in August 2012
  • how to link the sustainability reporting process to the preparation of an integrated report aligned with the guidance to be developed by the International Integrated Reporting Council (IIRC).

Comment on the exposure draft are open until 25 September 2012, with the GRI seeking to launch the new sustainability guidelines in 2013.

Click for GRI press release (link to GRI website).

New Zealand exposure drafts propose IPSAS adoption for certain public sector entities

28 Jun 2012

The New Zealand External Reporting Board (XRB) and the New Zealand Accounting Standards Board (NZASB) have issued for comment a set of over 40 Exposure Drafts that propose to operationalise the new Accounting Standards Framework as it applies to Tier 1 and Tier 2 'Public Sector Public Benefit Entities' (PS PBEs, essentially public sector entities without a profit motive). The new framework is based on International Public Sector Accounting Standards (IPSAS).

Following proposals for for-profit entities, the suite of exposure drafts represents the second stage of the overall new Accounting Standards Framework for New Zealand which is being gradually implemented for various categories of entities in New Zealand with the approval of the New Zealand Minister for Commerce.

This stage applies to public sector 'public benefit entities' (PBEs), which are defined as "reporting entities whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders."

The proposals are based on IPSAS issued by the International Public Sector Accounting Standards Board (IPSASB), but with some modifications made.  These modifications include such items as:

  • Reflecting New Zealand regulatory requirements
  • Requiring a statement of compliance with the New Zealand PBE standards, rather than with IPSAS (the latter being unlikely due to the amendments made)
  • Some measurement differences, e.g. certain inventories are required to be measured at cost, adjusted when applicable for any loss of service potential (rather than at the lower of cost and current replacement cost); certain heritage assets are required to be recognised as property, plant and equipment or intangible assets; removing the 'temporary control' exemption from consolidation (and similar changes to the scope for associates and joint ventures)
  • Integration of additional Standards and Interpretations, or guidance from other standards (mostly equivalent to IFRSs), on topics not covered in IPSAS, e.g. business combinations, income taxes, insurance contracts, interim financial reporting, interpretations on lease accounting, testing of goodwill and impairment
  • Specific proposals on how entities should transition to the new requirements
  • The inclusion of additional disclosures and guidance, and removal of some guidance not considered relevant in the New Zealand context.

The proposals have been developed primarily with public sector PBEs (as defined) in mind.  Another version of the PBE Standards (and associated 'Reduced Disclosure Requirements') that specifically addresses not-for-profit (NFP) PBE accounting issues will be issued as a separate ED in mid-2013 as part of 'Stage 3' of the proposals.

Submissions on the proposals are due by Friday 14 December 2012.  Click for more information (link to XRB website).

IFRS Foundation Chairman speaks at IFRS Foundation Conference in Frankfurt

27 Jun 2012

Michel Prada, Chairman of the IFRS Foundation Trustees, addressed the IFRS Foundation Conference in Frankfurt and spoke about the past, the present, and the future of international standard setting.

Michel Prada opened his speech with an overview of the history of standard setting. He traced the beginning of the international success of International Accounting Standards (IASs) to Europe's decision in 2002 to adopt them, from 2005, for the consolidated accounts of listed companies on regulated markets: "Overnight, this transformed the IASB from an interesting but somewhat obscure accounting think-tank into Europe’s accounting standard-setter." And Prada continued to illustrate the increasing demand for global accounting standards with many examples - among them the global financial crisis that showed "the pressing need for a single set of high quality global accounting standards".

For the present, Prada drew a very positive picture pointing at the many countries around the world that require or permit the use of IFRSs, the acceptance of IFRSs among the G20 members and the use of IFRSs by almost half of Global Fortune 500 companies. He also mentioned very encouraging experiences in China and Japan.

However, Prada claimed, the IASB is currently an international standard setter, not the global standard setter. The last part of his speech he devoted to the future of standard setting. According to him, the reviews conducted by the Monitoring Board and the Trustees showed three major areas for improvement and therefore for increased success of IFRSs:

  • Standard setting in co-operation with national and regional bodies with an interest in accounting standard setting will increase the effectiveness of the work of the IASB. This will also offer a better integration of the global perspective into the standard setting process and might reduce the risk of non-endorsement of a new standard.
  • A stronger focus on the implementation of the standards, in part in co-operation with IOSCO and other international organisations, will ensure that standards are endorsed and enforced on a globally consistent basis.
  • Enhancements to the IASB’s due process will enhance confidence in the standard setting process and will improve the robustness of the standards.

Prada closed on the note that international standard setting has made tremendous progress in the past, still does, and has a good chance of doing so in the future if the above aims are achieved.

Please click for the full text of the speech on the IASB website.

EFRAG Update with a summary of the June 2012 EFRAG meetings

27 Jun 2012

The European Financial Reporting Advisory Group (EFRAG) has released the June 2012 issue of its EFRAG Update newsletter.

The newsletter contains a summary from the EFRAG meetings held in June 2012. Highlights were the finalisation of the endorsement advice in relation to the amendments to IFRS 1 regarding government loans and the preparation of a draft endorsement advice regarding the Annual Improvements to IFRSs (2009 - 2011 Cycle). EFRAG supports endorsement in both cases (comment deadline for the draft endorsement advice is 25 July 2012).

Click for the EFRAG Update (link to EFRAG website).

IASB publishes 'Request for Information: Comprehensive Review of the IFRS for SMEs'

26 Jun 2012

The IASB, in cooperation with the SME Implementation Group (SMEIG), has developed and issued a Request for Information seeking comments on specific sections of the 'IFRS for SMEs', as well as soliciting general feedback from respondents on their experiences with it. Respondents are encouraged to discuss potential amendments they'd like to see made to the 'IFRS for SMEs', and raise any other issues they'd like to put forward. The document does not contain any preliminary views of the IASB or the SMEIG. Responses are due by 30 November 2012.

IFRS for SMEs was first issued in July 2009. At that time, the IASB announced that after two years, it would assess entities' experiences with implementing IFRS for SMEs. The IASB also said that, after an initial review, it would consider amendments to the IFRS for SMEs approximately once every three years.

The Request for Information is divided into two parts:

  • Part A contains specific questions on particular sections of the IFRS for SMEs for respondents. These issues have been frequently raised by interested parties. Respondents are also invited to raise any other specific issues they may have relating to possible changes to particular sections of the IFRS for SMEs.
  • Part B contains general questions about the IFRS for SMEs. Respondents are invited to raise any other general issues they may have relating to possible changes to the IFRS for SMEs.

A summary of the questions asked in each Part is set out in the table at the bottom of the article.

During the first half of 2013, the SMEIG is expected review comments on the Request for Information and make recommendations to the IASB on possible amendments. The IASB will convene to develop and approve an Exposure Draft of proposals. The IASB does not expect to publish final revisions to the IFRS for SMEs until the second half of 2013 or first half of 2014, with an estimated effective date of 2015.

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Summary of questions asked in the Request for Information

Part A - Specific issues.

S1. Use by publicly traded entities - Are the scope requirements of the IFRS for SMEs currently too restrictive for publicly traded entities?

S2. Use by financial institutions - Are the scope requirements of the IFRS for SMEs currently too restrictive for financial institutions and similar entities?

S3. Clarification of use by not-for-profit (NFP) entities - Should the IFRS for SMEs be revised to clarify whether an NFP entity is eligible to use it?

S4. Consideration of recent changes to the consolidation guidance in full IFRSs - Should the changes introduced by IFRS 10 Consolidated Financial Statements (including agency relationships, 'de facto control' and potential voting rights) be considered for incorporation into the IFRS for SMEs, but modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S5. Use of recognition and measurement provisions in full IFRSs for financial instruments - How should the current option to use IAS 39 Financial Instruments: Recognition and Measurement in the IFRS for SMEs be updated once IFRS 9 Financial Instruments has become effective?

S6. Guidance on fair value measurement for financial and non-financial items - Should the fair value guidance be expanded to reflect the principles in IFRS 13 Fair Value Measurement, modified as appropriate to reflect the needs of users of SME financial statements and the specific circumstances of SMEs (for example, it would take into account their often more limited access to markets, valuation expertise, and other cost-benefit considerations)?

S7. Positioning of fair value guidance in the Standard - Should the guidance be moved into a separate section?

S8. Consideration of recent changes to accounting for joint ventures in full IFRSs - Should the changes to joint venture accounting introduced by IFRS 11 Joint Arrangements be reflected in the IFRS for SMEs, modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S9. Revaluation of property, plant and equipment (PPE) - Should an option to use the revaluation model for PPE be added to the IFRS for SMEs?

S10. Capitalisation of development costs - Should the IFRS for SMEs be changed to require capitalisation of development costs meeting criteria for capitalisation (on the basis of the criteria in IAS 38 Intangible Assets)?

S11. Amortisation period for goodwill and other intangible assets - Should the amortisation requirements be modified to state where the entity is unable to make a reliable estimate of the useful life of an intangible asset, the life shall be presumed to be ten years unless a shorter period can be justified?

S12. Consideration of changes to accounting for business combinations in full IFRSs - Should the business combination accounting requirements be amended to incorporate changes introduced by IFRS 3 Business Combinations (2008) (including expensing of acquisition costs, measurement of contingent consideration at fair value, and determination of goodwill based on a remeasurement of previously held interests and non-controlling interests), modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S13. Presentation of share subscriptions receivable - Should the requirements be amended either to permit or require the presentation of the receivable as an asset?

S14. Capitalisation of borrowing costs on qualifying assets - Should the IFRS for SMEs be changed so that SMEs are required to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, with all other borrowing costs recognised as an expense when incurred?

S15. Presentation of actuarial gains or losses - Should the option to recognise actuarial gains and losses in profit or loss be removed, to be consistent with IAS 19 Employee Benefits (revised 2011)?

S16. Approach for accounting for deferred income taxes - Should SMEs recognise deferred income taxes and, if so, how should they be recognised?

S17. Consideration of IAS 12 exemptions from recognising deferred taxes and other differences under IAS 12 - Should the IFRS for SMEs be revised to conform it to IAS 12 Income Taxes, modified as appropriate to reflect the needs of the users of SME financial statements?

S18. Rebuttable presumption that investment property at fair value is recovered through sale - Should the IFRS for SMEs incorporate a exemption similar to that introduced into IAS 12 for investment property at fair value?

S19. Inclusion of additional topics in the IFRS for SMEs - Are there any topics that are not specifically addressed in the IFRS for SMEs that should be covered?

S20. Other specific issues - Are there any additional issues to bring to the IASB’s attention on specific requirements in the sections of the IFRS for SMEs?

Part B - General issues.

G1. Consideration of minor improvements to full IFRSs - How should the IASB deal with such minor improvements, where the IFRS for SMEs is based on old wording from full IFRSs?

G2. Further need for Q&As - Should the current, limited programme for developing Q&As should continue after this comprehensive review is completed?

G3. Treatment of existing Q&As - Should the Q&As be incorporated into the IFRS for SMEs?

G4. Training material - Any comments on the IFRS Foundation’s IFRS for SMEs training material?

G5. Any further general issues - Any additional issues to bring to the IASB’s attention relating to the IFRS for SMEs?

New resource on sustainability and integrated reporting

26 Jun 2012

A publication by Deloitte, the United Nations Environment Programme and the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School serves to provide an international perspective on integrated reporting, by articulating the views of internationally pre-eminent role players on topical issues associated with integrated reporting and integrated reports.

The publication, entitled Making investment grade — The future of corporate reporting, includes contributions from Ernst Ligteringen (Chief Executive, Global Reporting Initiative), Paul Druckman (Chief Executive, International Integrated Reporting Council), Mervin King (Chair, South African King Committee on Corporate Governance), together with representatives from academia, government, business and sustainability organisations, the accounting profession, and investors.

The publication provides a comprehensive look at sustainability and integrated reporting through the eyes of thought leaders, key industry players and others.  Structured as a series of short essays, the publication covers the following topics:

  • Context and challenges
  • Who drives reporting?
  • One report or multiple reports?
  • What are the material issues?
  • Who reads the report?
  • Who governs reporting?
  • Who regulates reporting?
  • What does the future hold?

We are pleased to host the publication on IAS Plus, with the kind permission of Deloitte (South Africa), the United Nations Environment Programme and the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School.

Click to download Making investment grade — The future of corporate reporting

IPSASB consults on public sector combinations

26 Jun 2012

The International Public Sector Accounting Standards Board (IPSASB) has released a Consultation Paper 'Public Sector Combinations'. The Consultation Paper is the result of the IPSASB's project on on accounting for public sector combinations and aims to present a principles-based approach to developing guidance for public sector entities accounting for such combinations. Some of the possible accounting approaches outlined in the paper are significantly different to those prescribed under IFRSs.

The Consultation Paper describes different types of public sector combinations, proposes a distinction between acquisitions and amalgamations and considers combinations of entities and operations that both are, and are not, under common control.  The paper makes it clear that it "considers the wide range of combinations that may occur in the public sector, and, consequently, this project is not an IFRS convergence project".

The Consultation Paper uses the term “public sector combinations” rather than “business combinations” (as used in IFRS 3 Business Combinations) on the basis of key differences between for-profit and public sector combinations identified.  These differences include public sector combinations lacking a profit motive, often being conducted by non-exchange transactions, and the frequent involuntary imposition of such combinations by law or other authority.

These differences also lead to some possible accounting approaches that are fundamentally different to the 'acquisition method' contained in IFRS 3 for for-profit entities.  In particular, the paper explores a possible approach for acquisitions where no or nominal consideration is transferred that would result in the recipient recognising acquired assets and liabilities at their carrying amounts in the acquired operation’s financial statements (after adjustment for any different accounting policies).  Similar approaches are also proposed for combinations under common control and amalgamations.

The paper also explores whether the amount of any consideration transferred in excess of net assets acquired should be recognised as goodwill, expensed, or for combinations under common control, as a distribution to or contribution by owners.

The Consultation Paper is open for comment until 31 October 2012.  Click for IPSASB press release (link to IFAC website).

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