2012

10 years of IFRS: Reflections and expectations

02 Nov 2012

The 'Australian Accounting Review' has recently published a special edition that marks the 10th anniversary of the International Accounting Standards Board (IASB) with research papers exploring the impact of IFRS on standard setting, financial reporting practice and accounting education from the perspectives of standard setters, practitioners and academics. Among the articles are contributions by Warren McGregor, IASB Board member for ten years, Kevin Stevenson, AASB Chairman, and Paul Pacter, IASB Board member and former IAS Plus webmaster.

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.

 

Warren McGregor, IASB Board member for the first ten years of the IASB's existence, describes how the IASB evolved from "a type of accounting 'think tank' with a mandate to develop high-quality accounting standards that could be adopted on a voluntary basis by countries around the world" into a body that had to learn to deal "with the politics and other pressures that accompany attempts to change accounting practices in highly controversial areas".

Kevin M. Stevenson, AASB Chairman and former member of the IASB staff, analyses the changing relationship between the AASB and other national standard setters and the IASB. He critically looks at the attempts that are made to establish more formal links with domestic and regional groupings of standard setters as evidenced by the IFRS Foundation's proposals for the creation of the Accounting Standards Advisory Forum (ASAF) published on 1. November 2012.

Mr Stevensons article is balanced with a contribution by Jessica Lion, an IASB staff member, presents the IASB's perspective in the debate around the relationship between the IASB and the national standard setters. In her article she looks at the benefits and challenges of a "complex but vital relationship to both the global and the domestic standard setter" and how the benefits can be maximised.

Paul Pacter, IASB Board member, regrets that "[i]n 2011, the International Accounting Standards Board (IASB) was so engrossed in progressing some major projects toward completion, along with a change of board leadership, that an important milestone passed by without much celebration – our 10th anniversary". His contribution lists and honours the IASB's achievements over the past 10 years.

The forum concludes with two papers focusing on the role of the US in developing global standards over the last 10 years. Holger Erchinger outlines recent developments at the US Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) in relation to the possible adoption of IFRS and shows how the SEC's 2010 IFRS Work Plan led via the SEC staff paper exploring the 'condorsement' approach for IFRS adoption in the US to the SEC final staff report published in July 2012.

Donna L. Street complements Mr Erchinger's paper by delving more deeply into forces shaping US decisions about IFRS and the implications of possible adoption models. Her strong conclusion is that "[t]he SEC leadership has repeatedly voiced support for one set of globally accepted accounting standards. Since the rest of the world will not adopt US GAAP, IFRS is realistically the only visible road to global standards".

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.

Australian standard setter concerned about investment entities amendments

02 Nov 2012

The Australian Accounting Standards Board (AASB) has tentatively decided to delay adoption in Australia of the IASB's recently issued investment entities amendments until after due process is undertaken for additional note disclosures 'in response to concerns about the loss of consolidation information that would result from the IFRS amendments'.

The tentative decision was made at a meeting of the AASB held on 31 October and 1 November 2012.  The AASB Action Alert (link to AASB website) issued summarising the meeting outlines the concerns about the investment entity amendments and outlines a tentative decision that a forthcoming Australian-specific exposure draft "should propose disclosure of the three primary financial statements that would be produced under full consolidation".

The AASB staff paper (link to AASB website) discussed at the meeting canvasses a number of options that the AASB could have taken in relation to investment entities amendments.  The paper includes the possibility of not adopting the investment entity amendments at all, which would undermine the ability of Australian investment entities to claim compliance with IFRS.

In the paper, the staff note that, no matter which approach the AASB adopts in relation to investment entities, the AASB will need to compromise one or other of its policies.  The paper notes that the IFRS amendments are inconsistent with the AASB's stated policy of 'transaction neutrality' which states that the AASB "considers that the fundamental nature of the elements of financial statements (assets, liabilities, income and expenses) and their qualitative characteristics are generally unaffected by different business models".

The paper also notes that an approach other than making the amendments in line with the IFRS amendments would compromise the AASB's policy of only modifying IFRS for not-for-profit entities.  The AASB has progressively removed Australia-specific requirements from its standards in relation to for-profit entities in implementing this policy.

In relation to the option of requiring additional disclosures tentatively chosen by the AASB, the paper notes that it "signals the significant concern of the AASB that the amendments are contrary to the core accounting principle of control".  Concerns about structuring opportunities are also noted.

In response to these and other concerns, the Basis for Conclusions introduced into IFRS 10 Consolidated Financial Statements by the investment entities amendments notes the following:

 

The Board acknowledges these arguments, but notes that the exception to consolidation has been introduced in response to comments from users that the most useful information for an investment entity is the fair value of its investments. Users also commented that consolidated financial statements of an investment entity may hinder users’ ability to assess an investment entity’s financial position and results, because it emphasises the financial position, operations and cash flows of the investee, rather than those of the investment entity.


The investment entities consolidation exemption has been contentious in the Australian context for some time.  In October 2011, the AASB Chairman, Kevin Stevenson, took the unusual step of issuing a press release highlighting the IASB's (then)  investment entity proposals may "depart from the concept of control and lead to unjustified changes in requirements".

The AASB is expecting to issue an exposure draft on its proposed additional disclosures before the end of 2012.  Click for access to the AASB Action Alert (link to AASB website).

IFRS Foundation issues proposal to establish an Accounting Standards Advisory Forum

01 Nov 2012

The IFRS Foundation has issued for public comment proposals for the creation of the Accounting Standards Advisory Forum (ASAF), which was recommended by the Trustees' strategy review to provide technical advice and feedback to the IASB from the standard-setting community.

The role of the ASAF is create a more streamlined and formal representation of national and regional issues to be incorporated into the due process of a standard-setting workflow. The IFRS Foundation would like participating national standard setters to formally commit to:

  1. supporting the IFRS Foundation in the development of a single set of high quality globally accepted accounting standards,
  2. encouraging input from jurisdictions/regions during the consultation process,
  3. supporting consistent application of IFRSs by jurisdiction and in the region,
  4. adopting the use of IFRSs as issued by the IASB,
  5. having the resources and capabilities to have an active role in the work of the ASAF.

A Memorandum of Understanding is to be signed by the members of the ASAF and the IASB to formalise these commitments.

The ASAF will be comprised of 12 members, whom will have a term of two years. Composition of the members will be based on achieving geographical balance:

  • Africa: 1 seat
  • Americas: 3 seats
  • Asia-Oceania: 3 seats
  • Europe (including non-EU): 3 seats
  • World at large: 2 seats

The ASAF will meet four times a year with the representatives of the IASB to discuss relevant issues, with one of the meetings being combined with the annual conference for WSS.

The IFRS Foundation believes some of the advantages of the creation of the ASAF are:

  • The IASB has a single contact instead of many bilateral relationships.
  • The ASAF has a larger forum than the current bilateral relations, which will provide the IASB a wider access to information from jurisdictions and further improve the quality of the final standards.
  • One of the key demands of the strategy review by the trustee is satisfied.
  • The IASB standards are supported by an even larger group of users, promoting their further adoption and uniform application.
  • The establishment of the ASAF requires no changes to the structure of the IFRS Foundation.
  • The ASAF could be a useful complement to the International Forum of the standard setter in the field of accounting (International Forum of Accounting Standard Setters, IFASS).
  • The ASAF would encourage multilateral discussions.

The risk of the creation of the ASAF are:

  • The standard-setting process could drag on.
  • It would be difficult to find a composition of the ASAF, which will satisfy all interested parties. This could mean that national standard setters, which are not represented in the ASAF develop, no sense of belonging to the body.
  • There is a risk that the group becomes too large and immobile.
  • It might need for additional staff and resources arise.
  • It might be difficult to control the discussion and to reach agreement.

Comments are due by 17 December 2012.

Click for (links to IASB website):

New IFRS for SMEs training modules in Arabic

01 Nov 2012

Arabic-language translations of Module 27 'Impairment of Assets' and Module 31 'Hyperinflation' of the IFRS for SMEs training material are now available.

In total, 30 Arabic-language modules are available for download from the IFRS Foundation website and they can be accessed here.

The IFRS Foundation is developing 35 stand-alone training modules - one for each section of the IFRS for SMEs. The modules are free-to-download. Currently, training modules are available in English, Arabic, Russian, Spanish, and Turkish.

November IASB education sessions cancelled

01 Nov 2012

The education sessions originally scheduled to be held on Thursday 15 and Friday 16 November have been removed from the IASB meetings diary.

The content of the education sessions will now be incorporated into the IASB meeting sessions scheduled for the week beginning 19 November 2012.

IASB issues investment entities amendments

31 Oct 2012

The IASB has published 'Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)', providing an exemption from consolidation of subsidiaries under IFRS 10 'Consolidated Financial Statements' for entities which meet the definition of an 'investment entity', such as certain investment funds. Instead, such entities would measure their investment in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 'Financial Instruments' or IAS 39 'Financial Instruments: Recognition and Measurement'.

The amendments define an 'investment entity' as an entity that:

  • obtains funds from one or more investor for the purpose of providing those investor(s) with investment management services
  • commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both, and
  • measures and evaluates the performance of substantially all of its investments on a fair value basis.

An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design.  The amendments provide that an investment entity should have the following typical characteristics:

  • more than one investment
  • more than one investor
  • investors that are not related to the entity or other members of the group containing the entity
  • ownership interests, typically in the form of equity or similar interests (e.g. partnership interests), to which proportionate shares of the net assets of the investment entity are attributed.

If an entity does not meet one or more of these typical characteristics, it is required to justify and disclose how its activities continue to be consistent with that of an investment entity. Additional guidance is provided on detailed specifics in determining whether an entity is an investment entity, such as the impacts of being involved in the day-to-day management of an investee or providing investment-related services to third parties, the nature of the entity, and how the entity measures and manages its financial liabilities.

The types of entities which may meet the definition of an investment entity may include private equity organisations, venture capital organisations, pension funds, sovereign wealth funds and other investment funds.

Where an entity meets the definition of an investment entity, it is not permitted to consolidate its subsidiaries and is required to measure its investments in those subsidiaries at fair value through profit or loss.   However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides services that relate to the investment entity’s investment activities.

The amendments also:

  • introduce new disclosure requirements related to investment entities in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements
  • provide an scope exemption for investment entities from IFRS 3 Business Combinations (meaning such entities do not need to apply business combination accounting to the acquisition of subsidiaries)
  • include various consequential amendments to numerous standards.

The amendments do not introduce any new accounting requirements for investments in associates or joint ventures.  IAS 28 Investments in Associates and Joint Ventures already permits a venture capital organisation, mutual funds, unit trusts and similar entities including investment-linked insurance funds to elect to measure investments in associates and joint ventures at fair value through profit or loss in accordance with IFRS 9 or IAS 39, and the IASB expects that investment entities would apply these requirements.

The new requirements are applicable, on a modified retrospective basis, to annual periods beginning on or after 1 January 2014, a year later than IFRS 10 which is applicable to annual periods beginning on or after 1 January 2013. The amendments can be applied early, and accordingly entities can elect to apply them from when they first apply IFRS 10, avoiding the need for investment entities to consolidate subsidiaries only in the first year of applying IFRS 10.

Click for:

Live web update on Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

30 Oct 2012

On 6 November 2012 IASB staff will give a live web presentation on Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) including a question and answer session. The amendments that will form the basis for the presentation are expected to be published tomorrow.

The presentation will be delivered by Patricia McConnell, Member of the IASB, and Sarah Geisman, Technical Manager at the IASB. The presentation and the question and answer sessions will be recorded and made available on the project website.

For the convenience of participants in different time zones two slots have been scheduled:

  • 09.00 (London time),
  • 15.00 (London time).

Registration for the different slots is available through the IASB's website.

Communiqué from latest China-Japan-Korea meeting

30 Oct 2012

A Communiqué has been issued from a meeting of the standard setters from China, Japan and the Republic of Korea held in Seoul, Korea on 10 October 2012.

Representatives were present from the China Accounting Standard Committee (CASC), Accounting Standards Board of Japan (ASBJ), Korea Accounting Standards Board (KASB), and the International Accounting Standards Board (IASB), together with guests from Hong Kong and Macau and a number of other delegates.

The meeting saw discussion on the IASB Emerging Economies Group (EEG), accounting standards for small and medium sized companies, and the IFRS Foundation Asia-Oceania liaison office that was opened in Tokyo in October 2012.  An in-depth discussion on business combinations under common control was also held, and updates received on various IASB projects.

The delegates at this meeting reached consensus to cooperate with each other to:

  1. promote the advancement of International Financial Reporting Standards (IFRSs) by improving mutual understanding through sharing domestic issues relating to IFRSs and discussing ways to resolve those issues in a coordinated manner
  2. share views on the current projects of the IASB in a manner that contributes to more constructive development and amendment of IFRSs
  3. provide full support for the successful operation of the IFRS Foundation Asia-Oceania liaison office that was opened in Tokyo in October 2012.

The next meeting will be held in Japan in 2013.

Click for the full Communiqué (link to KASB website).

Enhancing the risk disclosure of banks

30 Oct 2012

The Enhanced Disclosure Task Force (EDTF) has presented a report to the Financial Stability Board (FSB) recommending key enhancements to the risk disclosures made by banks. The report identifies seven fundamental principles for enhancing risk disclosure which underpin the recommendations made and are considered to provide a framework for future work on risk disclosures and a benchmark by which banks can judge the quality of their current and future disclosures.

The EDTF was formed in May 2012 at the initiative of the FSB and had wide geographic representation with participants from asset management firms, investors and analysts, global banks, credit rating agencies and external auditors.  The task force also liaised with regulators and standard setters in undertaking its work.

The task force established six work streams reflecting banks’ primary risk areas, being: risk governance and risk management strategies/business model, capital adequacy and risk-weighted assets, liquidity and funding, market risk,  credit risk, and other risks.  Each work stream analysed current disclosures in its risk area by reviewing a sample of banks’ recent annual and interim reports, 'Pillar 3' reports (under Basel) and other publicly available information,  such as media releases and presentations to investors, and developed recommendations for enhancing disclosures for that risk area.  The recommendations from each work stream were then analysed by the task force as a whole and discussed with various international and other bodies.

The seven fundamental principles for enhanced risk disclosures identified in the report are:

  1. Disclosures should be clear, balanced and understandable
  2. Disclosures should be comprehensive and include all of the bank’s key activities and risks.
  3. Disclosures should present relevant information
  4. Disclosures should reflect how the bank manages its risks
  5. Disclosures should be consistent over time
  6. Disclosures should be comparable among banks
  7. Disclosures should be provided on a timely basis.

Each of the principles is further elucidated through the use of guidelines and examples of how it should be met.  The report then outlines 32 specific recommendations for enhancing risk disclosures based on the application of the principles, providing general recommendations and those for each of the work streams. These recommendations include both broad objectives, such as presenting all risk information in one place and providing narrative discussion about the nature of risks, and detailed specific requirements such as flow statements of each tier of regulatory capital and risk-weighted assets and a tabulated summary of credit risk in the banking book.

The report is agnostic on where the disclosures should be made, noting "banks should retain flexibility in what  they choose to disclose in their annual reports and other filings".  Reference is made to existing requirements, which in the case of IFRS, include IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement.

The report notes that the EDTF believes that many of the recommendations can be adopted in 2012 or 2013, particularly where existing disclosure simply needs to be presented differently or where information is already available.  Other recommendations may require system changes or require regulatory change and may take longer to implement.

Click for press release (link to FSB website).  Deloitte participated in the EDTF and has endorsed the recommendations in the report.

On 2 November 2012, the IASB published a press release welcoming the report saying that it "complements our own efforts to enhance transparency and the usefulness and comparability of financial statements". The IASB has also announced that it will consider the EDTF recommendations as it develops new financial reporting disclosure principles in the conceptual framework project. Click for access to the press release on the IASB website.

EFRAG endorsement status report 29 October 2012

29 Oct 2012

The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments.

The updated report reflects that the Accounting Regulatory Committee (ARC) has voted in favour of the adoption of the Annual Improvements to IFRSs 2009–2011 Cycle.

Click to download the Endorsement Status Report as of 29 October 2012.

You can find all past endorsement status reports here.

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