In the comment letter, we express our agreement with most of the proposed amendments in the 2010–2012 cycle of annual improvements, but also note that there are more effective ways in which the issues could be resolved. Examples include:

Please click for full summary and access to our comment letter.

In the comment letter, we agree with much of the content of the proposed Due Process Handbook. However, we disagree with incorporating into the Due Process Handbook amendments that have not been incorporated into the IFRS Foundation’s Constitution or the IASB’s Conceptual Framework, we disagree with reducing the time period for re-exposure of proposed IFRSs or Interpretations, and we are concerned that the Due Process Handbook is not entirely clear in relation to the roles, the responsibilities and the competences of the Trustees’ Due Process Oversight Committee and the IASB staff.

Please click for full summary and access to our comment letter.

FMA guidance on non-GAAP financial information

The FMA issued its guidance note Disclosing non-GAAP financial information on 3 September 2012.    The guidance note is available on the FMA website.  The FMA has announced they will assess non-GAAP financial information disclosures against the guidance from 1 January 2013.

The finalised guidance note is largely consistent with the FMA's May 2012 proposals and mirrors similar guidance issued by the Australian regulator, the Australian Securities and Investments Commission (ASIC).

The guidance note sets out principles for presenting non-GAAP financial information in investor communications (other than in financial statements and transaction documents), including:

• outline why the information is useful
• consider prominence
• ensure an appropriate label is used
• explain the calculation
• provide a reconciliation of non-GAAP financial information to GAAP financial information
• apply a consistent approach period to period
• ensure adjustments are consistent with comparatives
• ensure the measure is unbiased
• take care referring to 'one-off' items
• explain if the information is audited or reviewed.

The most recent annual survey of 100 listed and other large companies with publicly available information by Deloitte (New Zealand) showed 89 referred to alternative profit measures in addition to “bottom line” statutory profit in their 2011 annual reports, and that many of these entities will need to change the way they disclose this information in the future to comply with the FMA guidance.

The FMA issued a separate response to constituent feedback, outlining its views on the more controversial elements of its original proposals.  In particular, the FMA provided an analysis of the proposal for the reconciliation of non-GAAP financial information to GAAP financial information to be included in every document where non-GAAP financial information is disclosed.  Many constituents felt that the reconciliation should not necessarily be provided in the document, but could be made available on an entity's web site.

FMA’s view is that reconciliations should be included in every document where non-GAAP financial information is disclosed.  The feedback statement notes:

In FMA’s opinion reconciliations should not generally be overly complex. If they are quite complex, it would suggest an even greater need for them to be readily available. Readily available information will increase the transparency between users and providers of financial information. Media will become more informed about GAAP measures vs. non-GAAP measures and this will flow through into their communications.

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

Changes to New Zealand financial reporting framework

The Financial Reporting Bill (link to New Zealand parliament website) was introduced into New Zealand Parliament in August 2012, proposing significant changes to New Zealand’s financial reporting framework.  The Bill currently proposes commencement by 1 April 2015.

The proposals are largely consistent with the New Zealand Government’s previous announcements, such as the removal of financial statement preparation requirements for most small and medium companies, and the clarification of reporting requirements for registered charities. However there are a number of other changes which will affect a wide range of entities such as the removal of the requirement to prepare parent financial statements when group financial statements are already provided, and alignment of the penalties regime.

Deloitte (New Zealand) has published an September 2012 edition of its Accounting alert series exploring both of these developments in more detail.

The FRC agrees that the interpretation is a technically correct analysis of how IAS 37 Provisions, Contingent Liabilities and Contingent Assets should be applied to levies. However, the FRC argues, it does not always result in the substance of the transaction being reported. (The example presented in the comment letter is the UK bank levy.) The lack of faithful representation of the effects of transactions, other events and conditions is a contradiction to IAS 1 Presentation of Financial Statements which requires that financial statements should always present the position and performance of an entity fairly.

The fact that a technically correct interpretation leads to conclusions that do not reflect the substance of the underlying transaction prompts the FRC to suggest that the underlying principle in IAS 37 is wrong or in conflict with IAS 1 and should be revisited. The FRC concludes in its comment letter:

We are concerned that accounting and reporting that diverges so significantly from the underlying substance of the transaction has the potential for bringing accounting into disrepute. As a result, we would recommend that rather than issuing this IFRIC in final form the underlying principle in IAS 37 should be referred to the IASB for review.

In issuing this comment letter, the FRC also contradicts the preliminary EFRAG view that the consensus in the draft IFRIC Interpretation will lead to decision useful information for users of financial statements.

Please click for (both links to FRC website):

• FRC comment letter to the IASB
• FRC letter to EFRAG

The five standards, FRS 110 Consolidated Financial Statements (equivalent to IFRS 10), FRS 111 Joint Arrangements(equivalent to IFRS 11), FRS 112 Disclosure of Interests in Other Entities (equivalent to IFRS 12), FRS 27 Separate Financial Statements (equivalent to IAS 27)and FRS 28 Investments in Associates and Joint Ventures (equivalent to IAS 28) (which the ASC refers to as the 'Relevant Standards') were originally scheduled to be applied to annual periods beginning on or after 1 January 2013.

In outlining its decision to defer the mandatory date, the ASC noted:

In its ensuing engagement with stakeholders after the Relevant Standards were issued, the ASC has been apprised that the challenges faced by stakeholders in implementing the Relevant Standards were more significant than the stakeholders had anticipated and accordingly, more time would be required to effect the implementation plans that they had put together for the Relevant Standards...  Taking into consideration this development, the ASC concluded that it is in the best interest of stakeholders to allow more time for the implementation of the Relevant Standards.

There have been other calls for deferral of these standards at a global level, including earlier calls by the European Financial Reporting Advisory Group (EFRAG).

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

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.

Please click for:

• SAICA Press release (link to SAICA website)
• Our earlier IAS Plus stories:
  • IASB staff to develop guidance for micro-sized entities applying the IFRS for SMEs
  • Accounting rules for European micro entities eased
  • Report from recent IFASS meeting released

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).

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.

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.

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.