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FRC brings micro-entities and small entities under New UK GAAP

16 Jul 2015

When the United Kingdom replaced local GAAP with a new standard based on the IFRS for SMEs in 2013, the Financial Reporting Standard for Smaller Entities (FRSSE) was retained. Today, the Financial Reporting Council (FRC) has issued a suite of changes that update and, in many cases simplify, UK and Ireland accounting standards and include new requirements for micro-entities and small entities and the withdrawal of the FRSSE. The changes are largely in response to the implementation of the new EU Accounting Directive.

The changes consist of:

  • a new standard, FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime;
  • a new Section 1A Small Entities of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and
  • other changes necessary for continued compliance with company law.

Please click for more information and access to all revised documents in the press release on the FRC website.

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EFRAG says longer comment period is needed on the Conceptual Framework ED

16 Jul 2015

As announced when publishing its consultation document on the proposed new Conceptual Framework for Financial Reporting, the European Financial Reporting Advisory Group (EFRAG) has requested the IASB to extend the comment period related to the Exposure Draft (ED) by two months.

EFRAG cites the following reasons:

  • The Conceptual Framework project is very important and will have a profound and overarching effect on the outcomes of future standard-setting processes. It is essential that the IASB's constituents have sufficient time to study the proposals in the ED.
  • The IASB argued that a 150-day comment period would suffice as constituents would already be familiar with the content of the ED as it is based on the July 2013 Discussion Paper. However, EFRAG argues that there have been significant changes since then.
  • In EFRAG’s view, the ED does not provide sufficient principle based guidance on important issues such as the selection of measurement bases and what should be reported in OCI. EFRAG expects that constituents might want to develop and provide suggestions on how to deal with these issues, which would take additional time.
  • In some jurisdictions, the period available for debating the ED would be shortened by the time it takes to translate the proposals.
  • The time available could also be reduced by the need to react to other documents issued by the IFRS Foundation for comment (the forthcoming Agenda Consultation and the IFRS Foundation Review on structure and effectiveness).

Please click for additional information and access to the letter sent to the IASB in the press release on the EFRAG website. More information on EFRAG's consultation document on the Conceptual Framework ED is available here.

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EFRAG issues 'Short Discussion Series' paper on the cash flow statements

15 Jul 2015

The European Financial Reporting Group (EFRAG) has issued a 'Short Discussion Series' paper that discusses the usefulness of the statement of cash flows for financial institutions and possible alternatives.

The EFRAG's 'Short Discussion Series' are designed to address topical and problematic issues with the aim of stimulating debate among European constituents and of helping the IASB to address cross-cutting dilemmas in financial reporting.

In the paper, the EFRAG discusses the following topics:

  • Summary of requirements and intended benefits of IAS 7.
  • Requirements in IAS 7 specifically relevant to financial institutions, including views on the usefulness to financial institutions.
  • Dis­cus­sion of al­ter­na­tives related to:
    • Information on liquidity.
    • Information on changes in assets and liabilities.
    • Specific aspects relevant to insurance companies.
    • Narrower amendments.

Comments are due by 31 March 2016. For more information, see the press release and the dis­cus­sion paper on the EFRAG website.

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ICAEW and IFRS Foundation Financial Institutions IFRS Conference announced

15 Jul 2015

The IFRS Foundation, along with the Institute of Chartered Accountants in England and Wales (ICAEW), will be hosting a IFRS conference for financial institutions in London on 15 September 2015 to discuss key standards and current IASB projects.

Speakers at the conference in include Hans Hoogervorst, Chairman of the IASB, other IASB members, and other IFRS experts.

The programme for the conference features a panel discussion and several presentations:

Financial Institutions IFRS Conference, London, 15 September 2015


Keynote address

Panel discussion: Transparency and prudential requirements; the impact of the expected loss model

Presentation: Experience of an advanced adoption planner

Presentation: Strategic decisions in applying the expected credit loss model

Presentation: Integrating risk and finance: practical issues and tips

Presentation: Auditing expected losses under IFRS 9: the challenges ahead

Panel discussion: Practical insights and issues for successful implementation

More information on the conference is available on the ICAEW website.

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Panel discussion with Hans Hoogervorst on the future of international accounting

15 Jul 2015

On 2 July 2015, the Accounting Standards Committee of Germany (ASCG) honored its former long-standing secretary general and president, Dr. h.c. Liesel Knorr, with a festive ceremony with guests from Germany and abroad. Part of the event was a panel discussion "Quo vadis international accounting?".

The panelists - Liesel Knorr herself, IASB Chairman Hans Hoogervorst, Prof. Dr. Joachim Gassen of Humboldt University in Berlin, former Vice-Chairman of the IFRS Advisory Council Dr. Christoph Hütten, and Heiner Kompenhans (Assurance leader of Deloitte Germany) - discussed adoption of IFRSs around the world, non-GAAP measures, the question of how many standard-setters we need, the agenda consultation, fair value measurement, judgement in accounting, the role of academia in accounting, and other topics.

The recording of the panel discussion is available as "DRSC-Festveranstaltung zur Verabschiedung von Liesel Knorr - Teil 2" on this ASCG page. The panel discussion starts at about 6 minutes 45 seconds and is (with exception of four minutes) in English.

The ASCG has also released an English language press release summarising the event.

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The Bruce Column — Europe transformed: The long-term effect of IFRS

15 Jul 2015

The European Commission has underlined the transformation of financial reporting brought about since the historic 2002 decision to make IFRS mandatory in Europe. Our regular, resident columnist, Robert Bruce explains the significance of the decision and looks at how the world is changing.

Back in 2002 the EU was the first major group of nations to adopt IFRS, and its aim was straightforward. The objective of the adoption was: ‘to harmonise the financial reporting of listed companies by ensuring a high degree of transparency and comparability of their financial statements in order to enhance the efficient functioning of EU capital markets and of the internal market’. And now an extensive process of assessing whether IFRS has indeed done what Europe had hoped it would do back in 2002 has resulted in a comprehensive thumbs-up. The gamble has paid off. This decision, as one insider to the process remarked, was ‘a game-changer for IFRS around the world’. Michel Prada, the chairman of the IFRS Foundation Trustees, speaking at a Paris conference just a few days after the EC decision said that: ‘Europe’s leadership in international finance reporting has been fully vindicated’.

And at another conference following on from the publication of the report Valérie Ledure, EC acting head of the financial reporting unit, DGFISMA, reported in Riga that the use of IFRS had brought greater transparency, had been successful at creating a common accounting language, had improved accounting quality and disclosure and had led to greater comparability between financial statements. Her conclusion was that: ‘By and large the experience of IFRS has been a positive one for Europe’.

The report itself emphasised the linkage between the use of IFRSs and other initiatives, including the Transparency Directive and better enforcement, the long-term effects of the IFRS regime, and the resulting change. It found that the regulation adopted back in 2002 ‘has increased the transparency of financial statements through improved accounting quality and disclosure and greater value-relevance of reporting, leading to more accurate market expectations including analysts’ forecasts’. It said that: ‘It also led to greater comparability between financial statements’. There were ‘improved capital market outcomes’, including ‘higher liquidity, lower costs of capital, increased cross-border transactions, easier access to capital at EU and global level, improved investor protection and maintenance of investor confidence’.

But the report, while drawing attention to the long-term value and the effect of IFRS across Europe has highlighted that US is yet to join with Europe and much of the rest of the world in global harmony. The original goal of achieving a level playing field with the US has not happened, although much convergence has been achieved. The “equivalence” arrangement whereby the US Securities and Exchange Commission accepts without reconciliation to US GAAP financial statements prepared under IFRS for foreign companies is seen as ‘an important benefit for around 90 large EU issuers with US listings’. The EC report recalls that the European initiative in 2002 to make IFRS mandatory across Europe ‘envisaged IFRS becoming global standards which would benefit EU companies’. And Valérie Ledure made it very clear in Riga that they ‘continue to urge the US SEC to adopt IFRS for use by its domestic companies.’

James Schnurr, the SEC’s chief accountant, recently stressed that ‘there is continued support for the objectives of a single set of high-quality, globally accepted accounting standards’, but it is clear there is no appetite amongst ordinary domestic US companies for IFRS.

Realistically, as the EC report and other developments around the world show, the SEC’s position is less central to the work of the IASB than it once was. It was the rest of the world that Michel Prada chose to focus on in his Paris speech. ‘India has recently decided to adopt standards that are very close to IFRS and is on the right track’, he said, ‘while in Japan we have seen an ever-increasing number of Japanese companies choose to adopt IFRS’. In fact over 100 have chosen to do so, encouraged, as he pointed out, ‘by Japanese authorities’. Chinese accounting standards, he said, ‘are substantially converged with IFRS, while Hong Kong has been fully IFRS-compliant for as long as Europe has been’. The fact that the IFRS Foundation trustees are meeting in Beijing this autumn is expected to maintain the momentum.

But, as Prada said: ‘The situation in the US is more complex, and somewhat unique to the US’. By this he meant that although there was little sign of practical progress the theory was all in place. ‘It is easy to forget that the US Securities and Exchange Commission has been a long-time supporter of our work’, he said, ‘and today oversees the IFRS-compliant financial statements of almost 500 Foreign Private Issuers, foreign companies listed in the US, making it one of the largest IFRS overseers in the world’.

His conclusion was that the US would eventually join up. ‘In the meantime’, he said, we will keep the door open and continue to work with the relevant stakeholders in the US’. With so much rapid progress to deal with around the globe that is a sensible strategy. Europe and the rest of the world are making the running. And the European Commission report makes the foundations firmer. No wonder that Michel Prada was singing its praises in Paris. ‘This is a very important report’, he said, ‘because it makes clear, without ambiguity and in an evidence-based manner, that IFRS has been a good thing for Europe, for European companies and for European investors’.

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Summary of the June 2015 ITCG meeting

14 Jul 2015

The IASB's IFRS Taxonomy Consultative Group (ITCG) held its meeting on 17 June 2015. The IASB has now published on its website meeting notes from that meeting.

Topics discussed include:

  • ITCG taxonomy review: IFRS for SMEs — The ITCG was updated on recent developments involving the review of the IFRS for SMEs and was provided a description of the main data modelling decisions related to investment property.
  • Regulator’s Guide to using the IFRS Taxonomy — The ITCG was notified that the guide is now publicly available and will be updated whenever new best practices emerge. In addition, the ITCG expressed concern for modifications to the IFRS Taxonomy by regulators and plan to prohibit modification in the future revised Terms and Conditions.
  • IFRS Taxonomy Due Process: Analysis of comments — The ITCG received an update on the current status and outlook of planned ac­tiv­i­ties. It anticipates formal recommendations and the Invitation to Comment on the IFRS Taxonomy due process to occur in October 2015.

Please click for access to the meeting notes on the IASB website.

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EFRAG issues conceptual framework bulletin on profit or loss versus OCI

14 Jul 2015

The European Financial Reporting Advisory Group (EFRAG) has published the latest issue of their publication series on the IASB's Conceptual Framework project. This bulletin explores what additional guidance should be included when reporting for profit or loss and other comprehensive income (OCI).

The bulletin includes discussions on:

  • Various business models.
  • How income and expenses are reported in profit or loss or OCI based on the business model.
  • Potential effects to current IFRS if EFRAG’s suggestions were to be applied.

Con­stituents wishing to comment on the views in the bulletins are invited to do so by 26 October 2015.

Please click to access the conceptual framework bulletin on profit or loss versus OCI.

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UK study reveals investment professionals see further scope for improvement in annual reports

14 Jul 2015

The CFA Society of the UK (CFA UK), part of the worldwide network of member societies of CFA Institute, has released the results of a recent survey of more than 290 investment professionals seeking member views on the importance of the annual report and other forms of company reporting, as well as perspectives on adjustments to IFRS numbers and issues with IFRS accounts.

On general results the survey revealed:

  • Most respondents (60%) believe that financial reports contain too much irrelevant information.
  • However, many (55%) state that at the same time financial reports omit important information.
  • A third of the respondents (36%) said that the statutory accounts were their main source of financial information for analysing companies.
  • Half (47%) of the respondents state that the area of the annual report that shows greatest need for improvement is the disclosure of principal risks and uncertainties.
  • Over all, most respondents (71%) agreed that the quality of financial reporting has improved over the last 10 years.

The questions on non-GAAP reporting showed that this remains a contentious issue:

  • Over half (61%) of respondents said they use IFRS adjusted numbers in their analysis.
  • However, only a third (33%) say that they prefer non-IFRS measures over IFRS, with over half (56%) trusting the IFRS numbers more.
  • When asked to consider which items should be excluded from IFRS figures to arrive at a measure of underlying earnings, the majority of respondents (65%) were against exclusion of any of the items suggested.
  • Two-thirds of respondents favour looking at both IFRS and adjusted numbers as the combination of the two offers greater insights into the company and its management.

The biggest concerns that respondents raised with regard to financial reporting related to the abuse of non-GAAP/IFRS adjusted earnings measures; excessive and redundant information in financial reporting; fair value movements obscuring underlying earnings measures; excessive focus on the income statement and not good enough disclosure of cash flows; and poor disclosure of off-balance sheet exposures.

CFA UK has also published a position paper on non-IFRS earnings and alternative performance measures, which includes findings from the survey.

Please click to access the following documents on the CFA UK website:

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July 2015 IASB meeting agenda posted

10 Jul 2015

The agenda has been posted for the IASB’s next meeting, which will be held at its offices in London on 20 and 22–23 July 2015. The IASB will discuss insurance contracts, the IFRS taxonomy, IFRS implementation issues, rate-regulated activities, dynamic risk management, revenue, provisions and contingent liabilities, fair value measurement, financial instruments with characteristics of equity, and the agenda consultation.

The full agenda for the meeting can be found here. We will post any updates to the agenda, as well as our De­loitte ob­server notes from the meeting, on this page as they become avail­able.

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