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IFRS Foundation begins its review of the ASAF

07 Nov 2014

The IFRS Foundation (IFRSF) has published a questionnaire to assess the Accounting Standards Advisory Forum (ASAF). The questionnaire intends to gain views from those in the accounting standard-setting community that are not members of the ASAF.

As stated in the Terms of Reference, “[a]ll aspects of ASAF and its operations shall be reviewed by the IFRS Foundation two years after the establishment of the group (as from the date of signing the Memorandum of Understanding (MOU)).” The questionnaire is the first step in assessing how the ASAF has performed in relation to its Terms of Reference and Memorandum of Understanding.

The IFRSF expects to publish a feedback statement detailing the findings and actions from the review after the Trustees and IASB have had time to consider the findings. It is expected to be issued mid-2015. Participants are requested to complete the questionnaire by 9 January 2015.

For more information, see the press release on the IASB’s website.

ESMA sees room for improvement in EU endorsement process

07 Nov 2014

The European Securities and Markets Authority (ESMA) has responded to the European Commission's questionnaire seeking respondents' views on the impact of International Financial Reporting Standards (IFRS) in the European Union. ESMA believes that the responsibility for advising the European Commission on endorsement should be given further consideration and also supports new endorsement criteria to be included in the IAS Regulation.

In the response to the European Commission's questionnaire, ESMA agrees with most respondents that the adoption of IFRSs has made companies' financial statements in the EU significantly more transparent and comparable and was over all beneficial. ESMA states that continuous commitment to the use of IFRS is the most appropriate approach in the context of global markets and a growing use of IFRS around the world.

However, ESMA remains critical of the EFRAG reform and maintains that the responsibility for giving endorsement advice to the European Commission "can only be entrusted to a public body that has the duty to protect the public interest". The Maystadt report had originally recommended that the new EFRAG Board should consist of three pillars with one of them being European public institutions (ESMA, EBA, EIOPA and ECB). However, given that they believe that endorsement advice should entirely rest with public institutions, the European Supervisory Authorities and the ECB have declined full membership and will only be observers on the new Board.

ESMA also disagrees with many respondents in believing that two new endorsement criteria (that any accounting standards adopted should not jeopardise the EU's financial stability and that they must not hinder the EU's economic development) should be added to the IAS Regulation. Again, ESMA argues from a public interest and public good perspective. ESMA also adds that in pre-consultation with national enforcers, some proposed a specific consideration of transparency as part of the endorsement criteria.

Please click to download the full response (link to ESMA website). The endorsement mechanism and criteria are subject of questions 21 and 22.

Research report reviewing academic research into the effects of mandatory adoption of IFRS in the EU

06 Nov 2014

The Institute of Chartered Accountants in England and Wales (ICAEW) has responded to the European Commission's consultation on the impact of International Financial Reporting Standards (IFRSs) in the EU and has supplemented its response with a report reviewing 170 academic research papers that have looked at the impact of IFRS adoption both in the EU and in other countries.

In comparison with earlier surveys of research into the effects of IFRS adoption, the new report expressly addresses the objectives of the IAS Regulation, its scope is restricted, as far as possible, to evidence from the EU, and it excludes, as far as possible, the literature on the effects of voluntary IFRS adoption in the EU. It reviews the research for evidence in respect of transparency, comparability, the cost of capital, market liquidity, corporate investment efficiency, cross-border investment, other benefits, costs, and the financial crisis.

The report finds that there is evidence of benefits following IFRS adoption in relation to financial reporting transparency and comparability, the cost of capital, market liquidity, corporate investment efficiency and cross-border capital flows. However, the report also states that the evidence on some of these matters is disputed and it is unclear how far the benefits identified are attributable to the adoption of IFRS or to other concurrent institutional changes, particularly in enforcement. The report also notes that the benefits found are uneven, varying with the institutions and incentives that apply for different companies in different countries.

The report also identifies a number of challenges to IFRS. Among the challenges that apply to any set of financial reporting standards are the importance of surrounding institutions and preparers' incentives, the role of options in standards, the effects of principles-based standards, and the one-size-fits-all problem. Challenges that apply specifically to IFRS are identified as the role of fair value accounting and the priority given to the valuation role of accounting.

As the report was drawn up in response to the European Commission's consultation on the impact IFRSs in the EU, it also contains a conclusion for policy makers and the way forward:

For policy makers, the research findings summarised in this report will not end controversy on the effects of IFRS adoption in the EU, but they should help to form views on what has been achieved to date and what needs to be done in the future. Perhaps the most significant point to emerge from the research is the importance of institutions and incentives. The balance of evidence suggests that the objectives of Regulation 1606/2002 have been achieved to some extent. But differing institutions and incentives mean that its effects vary from firm to firm and from country to country. [...] If the EU wishes to achieve further progress in financial reporting and to reap the benefit of these improvements, it may make most sense to look at the incentives for those involved in the financial reporting process and at the institutions that surround it [...].

The report detailing the research results is available on the ICAEW website. It can be accessed in a seven page executive summary or in the 164 page full report.

FEE criticises lack of coordination in connection with non-GAAP measures

06 Nov 2014

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has responded to the International Organization of Securities Commissions (IOSCO) consultation on non-GAAP financial measures. FEE calls for the efforts around non-GAAP measures to be coordinated with the IASB.

In an opening statement before commenting directly on the IOSCO proposals, FEE expresses support for improvements in corporate reporting and stresses that non-GAAP measures play an important role as they can improve the communication between the entity and its stakeholders as long as they are reported in a transparent and unbiased manner. Nevertheless, FEE "identifies that there is a lack of coordination between market oversight bodies and regulators on one hand and the IASB on the other hand, which leads to a high degree of divergence in practice. FEE expressly references the ESMA consultation on alternative performance measures, but recently also the IFAC has issued guidance on supplementary financial measures. FEE states:

We believe that the International Accounting Standards Board (“IASB”) should also be involved in the reporting of Non-GAAP Measures in the context of financial reporting. Some IFRSs currently include guidance on how an entity can present Non-GAAP Measures within its financial statements. Therefore, [...] FEE suggests all the market oversight bodies and regulators (international, regional and national) to work with the IASB in order to develop a common comprehensive framework on Alternative Performance Measures/Non-GAAP measures.

The IASB has a disclosure initiative on its agenda that is split into several smaller projects. The project on principles of disclosure considers information that should be included in a complete set of financial statements and the presentation of non-IFRS information and comparative information. A discussion paper is currently expected in the second quarter of 2015. 

Please click for the FEE comment letter, which also contains detailed comments on the IOSCO proposals, on the FEE website.

Report on the October 2014 IFRS Advisory Council meeting

05 Nov 2014

A report on the IFRS Advisory Council meeting held in London on 13-14 October 2014 has been posted to the IASB's website. The meeting included discussions focused on the risks and opportunities regarding the IFRS Foundation (IFRSF); updates on the IASB’s projects on insurance, materiality, disclosure initiative, and conceptual framework; a review of the structure and effectiveness of the IFRSF; and developments of IFRS Content Services.

Highlights from the meeting include:

  • IFRSF risk/opportunities. Breakout sessions were held where members looked at what they considered to be biggest risk to the IFRSF and how these risks could present opportunities. The Council agreed to add an agenda item to its February meeting to further discuss this matter.  
  • IASB project updates. 
    • Insurance — Discussions were held to provide the Council with the progress, difficulties and complexities that are occurring with this project.
    • Disclosure initiative — Feedback from the Council was positive concerning this project. They noted that there are initiatives currently occurring to improve disclosure effectiveness and encouraged the IASB staff to research those initiatives in order to get a better understanding of why they are taking place. In addition, the Council advised careful consideration should be taken on the use of non-IFRS information and the scope of the project.
    • Materiality — The main outcome from the discussions held included (1) support for the IASB to consider how materiality can improve disclosures, (2) keeping the definition of materiality as a part of IFRS, (3) prevent obscuring relevant information by not disclosing unnecessary immaterial information, (4) the IASB plays a role in changing the way materiality is applied, and (5) IASB should provide educational support.
    • Conceptual framework — The Council noted that any guidance issued needs to be neutral and focus on transparency.
  • Investor liaison strategy. The Council provided feedback on steps the Council, IASB, and IFRSF could take to support the investor community.

The next meeting of the IFRS Advisory Council is scheduled for 23-24 February 2014 in London.

The full report on the IFRS Advisory Council meeting is available on the IASB website.

October 2014 IASB meeting notes — Part 4 (concluded)

05 Nov 2014

The International Accounting Standards Board (IASB) met at its offices in London on 22–24 October 2014. We have now posted the remaining Deloitte observer notes from Friday's session on the disclosure initiative (principles of disclosure project).

Click through for direct access to the notes:

Friday, 24 October 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Agenda for the November 2014 IFRS Interpretations Committee meeting

04 Nov 2014

The IFRS Interpretations Committee will meet at the IASB's offices in London on 11 November 2014. The agenda for the meeting is now available.

The Committee will:

  • continue discussion of issues arising on IFRS 11, IAS 19, IFRS 5, IAS 12 and IAS 2
  • consider finalising tentative agenda decisions on IFRS 12, IAS 16/IAS 2, IAS 16, IAS 21 and IAS 39
  • consider new issues on IFRS 10, IAS 32, IAS 21, IAS 12, IAS 28 and IAS 19.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

Deloitte Partner to become President of the German Standard-Setter

03 Nov 2014

The Accounting Standards Committee of Germany (ASCG) has announced that Professor Dr Andreas Barckow will become its next President. The Administrative Board of the ASCG unanimously supported his appointment last Friday. Professor Barckow will follow the long-standing and nationally and internationally highly regarded ASCG Chair Dr Elisabeth Knorr in this capacity.

Professor Barckow is currently Head of Deloitte's IFRS Centre of Excellence in Frankfurt and a member of the Global IFRS Leadership Team (GILT) of Deloitte. He is also member of the IFRS Technical Committee of the ASCG and of the Technical Experts Group (TEG) of the European Financial Reporting Advisory Group (EFRAG). Professor Barckow will step down from these committees on assuming his position as ASCG President; his term will begin on 1 March 2015.

“I would like to thank the Nominating Committee and the Administrative Board for the trust they are placing in me and look forward to tackling the new challenges together with Vice-President Peter Mißler and the ASCG's staff. At the same time, I would like to thank my current employer Deloitte for having given me the opportunity to develop my personal skills and professional competencies over the last fourteen years, which I will now bring to the activities of the ASCG in the interest of the German business community,” Professor Barckow declared on accepting the Administrative Board’s vote.

Please click for access to the full press release on the ASCG website.

October 2014 IASB meeting notes — Part 3

02 Nov 2014

The International Accounting Standards Board (IASB) met at its offices in London on 22–24 October 2014. We have now posted the Deloitte observer notes from Wednesday's sessions on leases and investment entities as well as Thursday's session on the conceptual framework. The remaining notes from the Friday session will posted in due course.

Click through for direct access to the notes:

Wednesday, 22 October 2014

Thursday, 23 October 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Related Topics

IPSASB issues finalised public sector conceptual framework

02 Nov 2014

The International Public Sector Accounting Standards Board (IPSASB) has issued its 'Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities' providing concepts that will underpin the development of International Public Sector Accounting Standards (IPSASs) and Recommended Practice Guidelines (RPGs) in the coming years.

The framework was developed in a multi-phase project after it was initiated in 2006. Phase 1 dealing with Role and Authority of the Conceptual Framework, Objectives and Users of General Purpose Financial Reporting, Qualitative Characteristics, and Reporting Entity was completed in January 2013. These chapters laid the groundwork completing the other three phases of the project, which saw exposure drafts on Elements in Financial Statements, Recognition in Financial Statements, and Measurement of Assets and Liabilities in Financial Statements in November 2012 and on The Presentation of Information in General Purpose Financial Reports in April 2013.

The exposure drafts have now been finalised and combined into the new framework together with the chapters already issued and a preface discussing the characteristics of public sector entities. The most marked change in comparison with the exposure drafts is that the definitions of elements have been brought closer to the definitions in the the IASB Conceptual Framework.

Especially noteworthy is the fact that 'deferred inflows' and 'deferred outflows' have been dropped from the definitions of the elements of financial statements. Nevertheless, the IPSASB continues to believe that there may be circumstances under which the six elements defined in the framework (assets, liabilities, revenue, expense, ownership contributions, and ownership distributions) may not provide all the information in the financial statements that is necessary to meet users' needs. The chapter on elements therefore states:

In some circumstances, to ensure that the financial statements provide information that is useful for a meaningful assessment of the financial performance and financial position of an entity, recognition of economic phenomena that are not captured by the elements as defined in this Chapter may be necessary. Consequently, the identification of the elements in this Chapter does not preclude IPSASs from requiring or allowing the recognition of resources or obligations that do not satisfy the definition of an element identified in this Chapter [...] when necessary to better achieve the objectives of financial reporting.

The finalised framework will enable the IPSASB to further improve the consistency of its standard-setting by strengthening the linkage between IPSASs and enhance the IPSASB's accountability through improved transparency of the concepts underpinning the development of IPSASs and RPGs.

The new framework can be accessed through the press release on the IPSASB website. The press release also states that the IPSASB will be making decisions on new projects in early 2015.

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