Details of the two new modules are:

• IFRS 9 Financial Instruments: Derecognition — covering the background, scope and principles relating to the derecognition of financial instruments under IFRS 9.
• IAS 32 Financial Instruments: Presentation — covering the key presentation requirements for financial instruments under IAS 32, as revised by the IASB in December 2011, to include additional guidance and disclosures as a result of the joint offsetting project with the FASB.

(Note: You may be asked to register to access each module - no personally identifying information is requested in the registration process.)

The release of these modules follows three new modules on IFRS 9, IFRS 10 and IFRS 11 released a number of weeks ago.  There are now 42 modules are available, tackling the key extant and new standards issues by the IASB. The IFRS e-learning modules are available free of charge and may be used and distributed freely, without alteration from the original form and subject to the terms of the Deloitte copyright over the material.

For details on the full range of e-learning modules go to Deloitte’s IFRS e-learning. A listing of available e-learning modules is also available on our IAS Plus IFRS e-learning page.

The two part paper, prepared by the MASB staff and which contains views that "do not necessarily represent the official views of the MASB", provides an overview of Islamic finance and its origins in the modern global economy before exploring various accounting issues.

The first part of the paper explains the background to many Islamic finance transactions, describing them as characterised by the use of trade contracts instead of loans, and that the subject of trade must usually be a tangible item or a permitted intangible.  Sharia'a law matters such as not charging interest on loans, prohibited items of trade and related considerations are also discussed.

The paper then goes on to compare and contrast the treatment of Islamic finance under standards produced by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and IFRS.  The paper observes that "historically, AAOIFI has been less welcoming to two key concepts in IFRS: substance over form and time value of money".

In relation to substance over form, the paper notes that "[a]lthough Islamic and conventional finance greatly differ in philosophy and in legal form, the former is often structured to provide the same economic effect as the latter" and provides examples of accounting for the same instrument under AAOIFI and IFRS.

The first part of the paper concludes on the issue of using IFRS as follows:

In MASB’s opinion, information on the economic effect is as valuable as, if not more than, information on the legal contractual form. Despite their contractual differences, many Islamic finance products are meant to replicate the economic effect of conventional products. Thus the MASB is more congenial to IFRS recognition and measurement bases which emphasise the economic substance of transactions. The MASB understands that the form of contract is also important from an Islamic perspective, and hence also encourages appropriate disclosures (which may include disclosures recommended by AAOIFI) to highlight adherence or departure from Shariah and to differentiate between Shariah-compliant and conventional contracts that are recognised and measured in a similar manner.

This reasoning, together with concerns about the AAOIFI standards being "designed for specific uses of limited types of contracts" and that "having separate Islamic standards could create undesirable opportunities for arbitrage and abuse", led the MASB to provide no exemption for Islamic financial institutions under MFRS.

The second part of the paper provides an analysis of some of the current topics in applying IFRS to Islamic transactions.  It covers:

• Islamic leasing (ijarah), both under IAS 17 Leases and the IASB's project on leases, noting the current approach of usually classifying such arrangements as 'operating leases' will rarely achieve off balance sheet treatment
• Islamic deposits (based on mudarabah and wakalah), which are commonly presented as a liabilities (effectively a deposit), but which the Malaysian central bank, Bank Negara Malaysia, is encouraging to be treated as an 'investment account', which may be treated off balance sheet, but may potentially be consolidated under IAS 27 or IFRS 10 in some cases
• Islamic insurance (takaful), where the issue arises of how to account for qard, an interest-free loan that a takaful operator extends to its participants’ funds, as to whether it should be accounted for under IAS 39, treated as akin to an investment in a subsidiary under IAS 27, or simply expensed.

The second part of the paper concludes that it is "cause for concern" that these issues are being dealt with within the Malaysian context with little IASB involvement and that "MASB staff believe it is high time that the IASB itself tackle Islamic financial reporting issues".

Click for (links to MASB website):

• A Word About Islamic Finance: Part I
• A Word About Islamic Finance: Part II

The IASB has published a transcript of a public lecture Mr Hoogervorst gave the London School of Economics on 6 November 2012.  The speech, entitled 'Accounting Harmonisation and Global Economic Consequences', covered a number of topics.  Many of these topics mirror discussion from a meeting of the European Parliament Committee on Economic and Monetary Affairs (ECON) held a day earlier on 5 November 2012, where Mr Hoogervorst participated in an exchange of views with the members of the committee.

Leases

In the lecture, Mr Hoogervorst focused on the challenges facing the leasing project in particular, where he stated that the "vast majority of lease contracts are not recorded on the balance sheet, even though they usually contain a heavy element of financing".    He went on to note that "companies tend to love off-balance sheet financing, as it masks the true extent of their leverage and many of those that make extensive use of leasing for this purpose are not happy", and outlined some of the lobbying efforts going on, including claims in the United States that "leases on balance sheet will lead to 190,000 jobs being lost in the US alone".

Noting such lobbying efforts should not be surprising, Mr Hoogervorst compared the current controversy around leases with past projects such as the expensing of share options under IFRS 2 Share-based Payment and the changes to pension accounting under IAS 19 Employee Benefits, outlining the "uphill battle" the IASB faced.  He concluded that the IASB needs "all of the help we can get, to ensure that we do not get lobbied off course" and "to counter what is a well-funded and well-resourced lobbying campaign".

The lecture echoed his comments to the ECON committee members where he warned committee members about being approached by the leasing industry as they want to "take the bite out of [the] upcoming leasing standard" and hoped he could "count on your sympathy" to support the leasing proposals.

Global adoption of IFRS

In the lecture, Mr Hoogervorst outlined how IFRS has been an important response to "globally interconnected nature of today’s financial markets" and emphasised how "repeated G20 communiqués have supported the work of the IASB and called for a rapid move towards global accounting standards".  He went on to outline his view that "momentum for IFRS becoming global standards has now become unstoppable" with so many countries adopting IFRS, reiterating his comments to the ECON committee that the "use of IFRS has reached critical mass" and he doesn't "think it can be stopped".

Turning to the specific issue of whether, and if so how, the United States will adopt IFRS, in the lecture Mr Hoogervorst stated "it is important that progress is made soon" and hoped for news in 2013.  In more candid comments to the ECON committee, he discussed Canada and Mexico's adoption of IFRS and the "country in between which is still hesitating".  He later went on to comment that it was like "waiting for Godot" and it was "really disappointing" that a U.S. decision had not yet been made, but that once "the presidential elections are out of the way" he hoped that the United States' 'big stake' in IFRS would continue.  Additionally, he stated that the "absence of a U.S. decision is not reason to stall" the IASB's work.

Accountability

In the ECON committee meeting, Mr Hoogervorst discussed how the IFRS Foundation was making efforts to be 'more inclusive and responsive to constituents'. He later commented that he'd "never before worked in an environment that is so transparent" as that at the IASB.

At a technical level, he noted that the bilateral arrangement between the IASB and FASB was effectively coming to an end, to be replaced with a new multi-lateral arrangement through the proposed Accounting Standards Advisory Forum (ASAF).  Lamenting that IASB-FASB convergence 'had not ended as hoped' and that it is difficult to reach agreement when there are two separate boards, Mr Hoogervorst wondered whether outcomes may have been different in key areas where "convergence was lost" such as financial instrument impairment and offsetting if the Boards were operating in an environment where the U.S. was committed to adopting IFRS.

Responding to committee questions about the IASB's independent status and the importance of standard setting, Mr Hoogervorst noted the 'true devotion' to the public interest embodied in the IASB, governance improvements implemented with initiatives such as the Monitoring Board,  and the endorsement mechanisms that most countries adopting IFRS use.  He reiterated the IASB's extensive due process, which can result in "five to ten years to get a standard done" and affirmed the need to "listen carefully to what constituents have to say", highlighting the important role the Accounting Standards Advisory Forum (ASAF) will have in this process.

Future directions

In both the lecture and committee meeting, Mr Hoogervorst outlined the future direction of the IASB's work plan, focusing on projects such as the restarted Conceptual Framework project, and addressing specific constituent concerns, while maintaining a 'period of calm'.

There was also much discussion at the committee meeting about the IASB's project on financial instrument impairment, including the suitability of the expected loss model and questions why an "unexpected loss" model is unsuitable.

Responding to committee questions about 'country-by-country reporting' for the resources industry, Mr Hoogervorst noted that constituents had not raised this as a priority issue in the Agenda Consultation process and that it was a matter better dealt with by regulation.

Several times during the committee meeting, Mr Hoogervorst raised the question of whether accounting for goodwill needs to be revisited. Contrasting the situation where leases were 'not enough' on the balance sheet, he commented that goodwill might be "too much on the balance sheet" and that this was something he was personally worried about, particularly in relation to banks and prudential reporting.  Whilst not calling for an immediate write off or an 'arbitrary' amortisation of goodwill, Mr Hoogervorst commented that he 'wondered whether standards are strict enough'.

Click for:

• Transcript of Mr Hoogervorst's public lecture to the London School of Economics (link to IASB website)
• IASB press release about the lecture (link to IASB website)
• European Parliament Committee on Economic and Monetary Affairs meeting information, including a recording of the meeting (link to European Parliament website).

The Blue Book will sell for £65 plus shipping (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

The Communiqué goes on to say:

We encourage the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to complete work promptly, and report to our next meeting.

The meeting also received a report from the Financial Stability Board (FSB), entitled Progress on Financial Regulatory Reforms, which includes a summary on accounting convergence.  The report discusses the progress made by the IASB and FASB, noting the recent moves towards closer alignment in the area of classification and measurement of financial instruments.  However, the report also laments the lack of convergence on financial instrument impairment.

The report further explains the FSB's concerns as follows:

Sound expected loss provisioning for financial institutions is critically important to financial stability.  Final IASB and FASB standards should result in improved provisioning practices that incorporate a broader range of available credit information than current practices, so as to recognise credit losses in loan portfolios at an earlier stage.  The FSB is concerned that the two boards have not developed a common model in this important area, and encourages them to renew their efforts to converge.

The FSB report also reiterates the importance of the overall IASB-FASB convergence process and requests a report from the boards by the end of June 2013.

Both the communiqué and FSB report cover many other topics related to improving the resilience of the financial system in response to the global financial crisis.  The communiqué also includes a commitment to "voluntarily self-report again in 2013 on our efforts to incorporate green growth and sustainable development policies into structural reform agendas, taking into account the outcome of the UN Conference on Sustainable Development (Rio+20)".

Click for:

• the full text of the Communiqué of Ministers of Finance and Central Bank Governors of the G20 (link to G20 website)
• FSB report to the G20 (link to FSB website).

ISAR was established in 1982 and is a forum dedicated to strengthening corporate reporting, especially in developing countries.  It meets annually to build on previous sessions and discuss topical issues.  This year's session saw over 300 attendees representing government authorities, regulators, standard-setters and academia.

The Deputy Secretary-General of UNCTAD, Petko Draganov, opened the meeting by noting that good reporting is a "key foundation of transparent markets and a healthy economy" and depends on "the wider infrastructure that supports, guides and facilitates" it.  The speech went on to comment on global developments: "one of the defining characteristics of the past two decades has been the proliferation of international standards and codes in accounting, auditing, professional training, and on the disclosure of environmental, social and governance information".

In response to the fact that "accounting infrastructure is a complex set of institutions and regulatory requirements",  Mr Draganov outlined the 'accounting development toolkit' as a practical response to the needs of member States.  The toolkit is designed to addresses the full range of accounting and reporting issues in a systematic way, and sets priorities for policy makers in strengthening and further developing their accounting infrastructure.

Nine countries have pilot-tested the toolkit: Brazil, China, Côte d’Ivoire, Croatia, Mexico, South Africa, the Netherlands, Russia and Vietnam, and feedback during the session was largely positive.  Feedback from the pilot programme will be use to further improve the toolkit for use by member states.

Mr Draganov also discussed the important role that accounting and reporting play in addressing many environmental, social and corporate governance issues, noting "[w]hat we measure affects what we do, and if our measurement is flawed, our decisions will be ill informed".  Mr Draganov called on member states and others to support the paragraph 47 of the outcome document from the Rio+20 United Nations Conference on Sustainable Development which encourages companies to integrate sustainability information into their reporting cycle.

Michael Prada, Chairman of the IFRS Foundation Trustees, gave a key note speech at the session, which outlined the importance of global accounting standards, provided a summary of some of the key achievements of the International Accounting Standards Board (IASB), and discussed the process of strengthening the institutional arrangements underpinning the IFRS Foundation.

Mr Prada went on to discuss the regulatory and institutional arrangements around the implementation of IFRS, noting the importance of global consistency in application to avoid "individual flavours" of IFRS but also stating that the "IASB does not have a mandate or the resources to enforce and monitor application of the standards that it creates". To his mind this is a role for governments and regulators in individual jurisdictions.

However, Mr Prada acknowledged his belief that IOSCO can "play a leading role in monitoring the implementation of global accounting standards".  He  believes this role has been enhanced through IOSCO's recent restructure, and discussed the recent moves by the IASB and IOSCO to co-operate more closely, which at a technical level may involve IOSCO's new policy committee on accounting, auditing and financial reporting.

Mr Prada also discussed the Emerging Economies Group (EEG), the objectives and use of the IFRS for SMEs, and the possible adoption of IFRS in the United States where he reiterated his comments that it was "clear from the analysis that there are no insurmountable issues that stand in the way of the US moving to IFRS".

Numerous other speakers from various organisations also participated in the conference.  The agenda, papers and other information from the conference are available on the UNCTAD website.

Click for press release (link to UNCTAD website).

The special edition of the Australian Accounting Review, a leading practitioner-focused journal, appears in two parts: in the September and December 2012 issues.

The first part of the forum includes a set of papers reflecting on the IASB's activities over the past 10 years, the relationship of the IASB with national standard setters, and two papers providing background and insights into the important question of if, and how, the United States may adopt IFRS.

We are grateful to the editor of this special issue, Professor Ann Tarca, for pointing it out to us. The second part of the forum, to be contained in the December issue, will complement the first by exploring the adoption of IFRS in a developing economy, IFRS educational issues and initiatives, and practitioners’ reflections on the impact of IFRS together with suggestions for future research.