This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

News

SEC may propose a new approach to IFRS in the United States

04 Dec 2014

At a recent conference on the future of financial reporting hosted by the United States Chamber of Commerce, Mr Jim Schnurr, Chief Accountant at the Securities and Exchange Commission (SEC), provided some insights into the possible way forward for International Financial Reporting Standards (IFRSs) in the United States, suggesting that another approach to IFRSs in the United States may be forthcoming in the near future. He also gave some views on the revenue recognition and leases convergence projects.

SEC plans for IFRS

In his opening comments regarding where he was spending his time, Mr Schnurr noted "the first thing" he has been working on is IFRSs. He reflected on comments earlier in 2014 from Mary Jo White, SEC Chair, about moving forward on the consideration of the use of IFRSs by United States companies before moving onto his personal observations around what the possible next steps might be.

In a theme that was often repeated during the course of the discussion, Mr Schnurr noted that "first and foremost... any counsel or recommendations I give would need to be in the best interests of U.S. investors." Having said that, he went on to put forward his belief that the United States is "still committed to one set of global standards", but that this commitment had to be considered in the context of the needs of U.S. investors.

Recalling the move by the SEC in 2007 to allow foreign companies to submit IFRS financial statements without a reconciliation to U.S. GAAP, Mr Schnurr noted "very significant changes in the landscape" since that time, including many standards being more closely aligned in many respects between the IASB and FASB, whilst others are more diverged. However, he went on to say:

There does not appear to be what I call a significant demand... that the U.S. investor is looking for a significant increase in the use of IFRS by U.S. registrants

Mr Schnurr then went out to outline three previous alternatives regarding the use of IFRS in the United States, including:

  • The outright adoption of IFRSs, termed "turning the keys over to the IASB"
  • Providing U.S. registrants with the option to file IFRS financial statements
  • The so-called "condorsement" approach suggested by Paul A. Beswick (SEC Deputy Chief Accountant)

Mr Schnurr noted that each of these alternatives has legal, statutory and practical implications that would need to be considered. He then went on to say that after spending the past eight weeks since commencing the SEC Chief Accountant role looking into alternatives and discussing them with SEC Commissioners, that he hoped "in the not too distant future, we might be able to go public with another possible option that we could get feedback on".

Revenue recognition

The discussion then moved onto the converged revenue standards recently issued by the IASB and FASB, and the number of implementation issues that were arising. Mr Schnurr noted there were many issues arising from U.S. preparers, which he saw broadly fell into three 'buckets':

  1. Issues that may require amendments to the standards. These included some areas where Mr Schnurr believes the IASB and FASB may need 'to have another shot at the clarity we are trying to achieve', specifically singling out upfront versus over time recognition of revenue associated with licences
  2. Issues arising from an 'over technical' reading of the standards. These types of issues arose where people were incorrectly inferring the IASB and FASB were trying to introduce a different model to ordinary revenue transactions (such as splitting the sale and delivery of a good into multiple performance obligations). A process was needed to deal with these types of questions to eliminate diversity
  3. Issues falling between the first two 'buckets'. These are the issues that may require some interpretative guidance.

From the perspective of the number of issues arising specifically in the U.S. context, Mr Schnurr expressed some concern about the volume of issues, and noted the importance of consistency in outcomes for identical transactions, which he saw as an underlying strength of the U.S. markets. He noted he had no issues with entities applying reasoned judgements in developing accounting policies for revenue recognition, but that if diversity in practice arose, that this may indicate that the standard was not "sufficiently articulated".

Returning to early comments about the importance of U.S. investors, Mr Schnurr noted that the FASB and SEC would want to eliminate this sort of diversity, and that it may be that the FASB diverged from the converged standard in this context. Turning to the global perspective later in the session, Mr Schnurr put forward his view that if the revenue recognition project resulted in diversity within industries and across industries on a global basis, that this would be considered 'a failure'.

Leases project

In answering an audience question regarding the leases project, Mr Schnurr responded to concerns regarding the lack of convergence between the FASB and IASB in this area. He noted that in his view, U.S. investors were happy for leases to be on balance sheets, but that they considered straight line expensing from the income statement perspective as preferable. Accordingly, the FASB is responding to these needs in its proposals and the best interests of U.S. investors "trumps convergence" in his mind.

 

A webcast of the session is available on the U.S. Chamber of Commerce website (Mr Schnurr's session begins at approximately 2:07:00).  Mr Schnurr is scheduled to speak at the 2014 AICPA Conference on Current SEC and PCAOB Developments being held on 8-10 December 2014 in Washington D.C..

Report from recent IFASS meeting released

04 Dec 2014

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in London on 30 September and 1 October 2014.

Highlights from the meeting included:

IASB research programme

Participants discussed the role of research in the standard‐setting process, the role of national standard setters and the priority and longer‐term projects on the IASB's research programme. Projects discussed were:

  • Dynamic risk management,
  • Business combinations under common control,
  • Discount rates,
  • Equity method of accounting,
  • Financial instruments with characteristics of equity,
  • Foreign currency translation,
  • Income taxes,
  • Liabilities – amendments to IAS 37,
  • Performance reporting,
  • Rate‐regulated activities,
  • Post‐employment benefits, and
  • Extractive activities / Intangible assets / R&D activities.

The Chairman also asked participants to advise the IASB of potential research topics not on the list yet.

IPSASB matters

Participants discussed the IPSASB's Conceptual Framework project as the IPSASB's main strategic project at present and other current projects. It was stated stated that guidance on social benefits is a big gap in IPSASB's literature. In connection with the question of IPSASB governance it was mentioned that it is likely that IPSASB will remain under the aegis of IFAC with a separate oversight board.

Administrative matters

The next IFASS meeting's location was moved from Jordan to Dubai; the timing (23-24 March 2015) was not changed.

Report back on IFASS member projects

Participants discussed four projects run by IFASS members: 'Goodwill impairment and amortisation' (OCI, EFRAG, ASBJ), 'The equity method' (EFRAG), 'Cash flow statement issues' (FRC), and 'Separate Financial Statements' (EFRAG, ICAC, OIC, RJ).

Economic consequences of IFRS adoption in Korea

The Chairman of the Korea Accounting Standards Board explained that the adoption of IFRSs in Korea was proceeding well. He provided details of the IFRS adoption process in Korea, compared Korean GAAP with IFRSs and gave details of a relevant literature review.

Changes to the Interpretations Committee processes

The IASB representative explained that the IASB is seeking better evidence of diversity in practice and asked participants to share examples of such diversity with the IASB staff. He also mentioned that the IASB is seeking to get a local perspective on how jurisdictions gather feedback and asked asked to be advised if there is an overlap as to whom the IASB asks for feedback as the IASB relies on feedback from many sources. Participants discussed NIFRICs (negative IFRIC agenda decisions) at length, which are seen by some as being equivalent to authoritative literature. The IASB representative explained that in some instances, NIFRICs could be regarded as educational material in nature. Participants felt that the discussion was in danger of undermining the concept of principle‐based standards as it was important to be sure what is authoritative and what is educational. The IFASS Chairman commented that the Interpretations Committee could indicate in the NIFRICs that the Committee's comments should be viewed as being educational in nature but are not authoritative.

Topical Issues

Participants then discussed several topical issues:

  • Retirement benefit plans,
  • Presentation of reversals of acquisition step‐ups,
  • Income recognition during the construction phase in the case of service concession
    arrangements, and
  • EU Expert Group on the evaluation of the IAS Regulation.

New IFASS member projects

Participants discussed three new projects taken up by IFASS members: 'The Financial Reporting Lab' (FRC) including information on the Lab's purpose, structure and current projects; 'Not‐for‐profit reporting in the private and public sectors' (AcSB), which was supplemented by participants with information about the reporting regimes in various jurisdictions; and 'Classification of claims' (EFRAG), which was greeted by participants as "very helpful in dealing with an age‐old problem".

Please click for the full report (link to the website of the Malaysian Accounting Standards Board).

Responses to the European Commission consultation on the impact of IFRSs in the EU

03 Dec 2014

The European Commission has made available the responses received to the public consultation on the impact of IFRSs in the EU.

The consultation had been launched in August 2014 to examine whether the adoption of IFRS improved the efficiency of EU capital markets by increasing the transparency and comparability of financial statements.

Access to the responses received is available here. The European Commission is expecting to publish a summary results of the consultation soon.

Leading investment firms join a new IASB feedback programme

02 Dec 2014

The International Accounting Standards Board (IASB) has announced the launch of a new 'Investors in Financial Reporting' programme designed to foster greater investor participation in the development of International Financial Reporting Standards (IFRS).

At the heart of the programme is statement of shared beliefs, signed by all participants, that:

  • highlights the importance of high quality, transparent reporting for building trust in the capital markets and for making investment decisions;
  • publicly reaffirms the IASB's commitment to continue to seek and consider investor views in the development of new accounting standards; and
  • documents the investors community's commitment to the development of high quality financial reporting standards by working with the IASB to ensure that the investor perspective is articulated clearly and is considered in the standard-setting process.

As part of the programme, the investment firms commit to an ongoing dialogue, executive level support of the programme and access to analysts and portfolio managers. In return, the IASB has committed to providing an improved channel through which to influence standard development, developing investor-tailored webcasts, providing investor-friendly articles on proposed changes, providing access to IASB members and staff, and providing investor-focused education sessions.

Please click for more information on the new programme on the IASB's website.

Hans Hoogervorst discusses the impending European evaluation of IFRS

01 Dec 2014

IASB Chairman, Hans Hoogervorst gave a speech today at the European Parliament Committee for Economic and Monetary Affairs in Brussels titled 'Building a credible Capital Markets Union'. He welcomed Europe's ambition, noted the importance of proper regulation, and emphasised the importance of IFRS in attracting capital from around the world. Mr Hoogervorst also discussed the European Commission's impending evaluation of IFRS in the EU.

Mr Hoogervorst stated:

As you know, the Commission is currently evaluating the impact of IFRS in the EU. We do not expect this evaluation to say that IFRS is perfect, because we know it is not. Still, we feel pretty confident that the verdict will be that, overall, IFRS has had a positive impact on the European economy.

The IASB Chairman also discussed some potential 'critical remarks' that the Commission's report may contain and noted that the IASB will take the feedback constructively:

We acknowledge financial statements may have become too long. We are reviewing our disclosure requirements to reduce the overload of boilerplate disclosures. We understand the concerns of investors who fear unwarranted profit taking on the basis of flimsy valuations. In our new Conceptual Framework for Financial Reporting, we will make clear that prudence should be exercised to prevent overstatement of assets and profits. We are also against understatement of liabilities, which is why lease commitments need to brought to the balance sheet.

Please click for access to the full text of Mr Hoogervorst's speech on the IASB's website.

Introductory conference call of the IASB's ITG

01 Dec 2014

The Transition Resource Group for Impairment of Financial Instruments (ITG) will hold an introductory conference call on 3 December 2014.

The ITG was created to keep the IASB informed on issues occurring during implementation of the new impairment requirements in IFRS 9 Financial Instruments, to assist in determining what action may be needed to resolve diversity in practice and to provide a public forum for stakeholders to learn about the new impairment requirements from others involved with implementation. The first face-to-face meeting of the group was planned for the last quarter in 2014. However, the agenda papers for the conference call state: "We have yet to receive many substantive technical implementation issues on the impairment requirements of IFRS 9 that meet the submission criteria." Therefore, the first physical meeting will be replaced by a conference call to discuss operating procedures and the status of implementation. Please click for access to a detailed agenda and the agenda papers for the call on the IASB website.

Report of the Effects Analysis Consultative Group published

28 Nov 2014

The Effects Analysis Consultative Group - an independent group of experts that was established by the IFRS Foundation Trustees as a result of its strategy review in 2012 - presented its final report to the Trustees who welcomed the conclusions of the report on topics such as fieldwork and the reporting of likely effects.

The Effects Analysis Consultative Group (EACG) was established in 2013 to provide independent advice to the IASB on how it should consider the effects of changes it develops to its financial reporting requirements (IFRS). Membership of the EACG includes representatives from a geographically and professionally diverse group of stakeholders.

The report that has now been presented to the Trustees and that is also publicly available is intended to support the IASB in further embedding effects analyses within its due process, with the objective of strengthening the standard-setting process.

The EACG’s report identified a series of recommendations among which are the following:

The IASB should assess and explain how general purpose financial reports are likely to change because of new requirements, and why those changes will improve the quality of general purpose financial reports. Furthermore, the IASB should explain why it considers those changes to be justifiable, demonstrating how it assessed the likely effects on the direct costs to preparers of meeting the new requirements and the related costs to users.

The IASB should work co-operatively with local standard-setters so that it can plan its fieldwork and outreach to see whether there are opportunities to organise fieldwork in ways that are mutually beneficial for the IASB and those local jurisdictions.

The IASB should plan its fieldwork so that it is proportionate to the changes in financial reporting being proposed. A more pervasive or significant potential change would normally warrant a more comprehensive assessment programme. The type, and depth, of fieldwork undertaken should also reflect the stage of development of the project.

The IASB should aim to undertake consultation that is geographically broad-based so that its Standards are written with principles that can be applied globally. Other accounting standard-setters can help by providing the IASB with analysis and information about factors and possible effects that might be unique to their jurisdiction.

The IASB should make available information about the nature of fieldwork and outreach that it has undertaken. This information should be made available throughout the development of the project.

The format of the analysis of the likely effects of a proposed change in financial reporting should reflect the stage of the proposals. When a new Standard is issued, the IASB should generally prepare a separate Effects Analysis Report.

 

The full EACG report as well as the press release are available on the IASB's website.

IFRS Advisory Council membership update

28 Nov 2014

The Trustees of the IFRS Foundation have announced the appointments of 15 new members to the IFRS Advisory Council.

The Advisory Council is the formal advisory body to the Trustees and the IASB. It advises the IFRS Foundation on its strategic direction, technical work plan and priorities.

The new Advisory Council members are:

    1. Areewan Aimdilokwong - International Organization of Securities Commissions
    2. Vania Borgerth - BNDES Brazilian Development Bank
    3. Prasan Chuaphanich - Federation of Accounting Professions, Thailand
    4. Pascale Déprez - Association for the participation of French companies in international accounting harmonisation (ACTEO)
    5. Garth Coppin - Financial Reporting Standards Council of South Africa
    6. Roxana Damianov - European Securities and Markets Authority
    7. Holger Daske - The International Association for Accounting Education and Research
    8. Paul Fitzsimon - PricewaterhouseCoopers
    9. Hidetake Ishihara - Nippon Keidanren, Japan
    10. Ann Jorissen - European Accounting Association
    11. Jürgen Kirchhof - European Central Bank
    12. Robert Koethner - European Round Table of Industrialists and European Issuers
    13. Ton Meershoek - International Organization of Securities Commissions
    14. Pam O’Connell - World Bank
    15. Uğur Yaylaönü - Capital Markets Board of Turkey

The new members will replace retiring members Valeska Barros, Roger Best, Michael Bradbury, Thomas Blöink, Laurent Degabriel, Begoña Giner, John Hitchins, Christoph Hütten, Charles Macek, Bruce Mackenzie, Fumio Muraoka, Patrick Parent, Panagiotis Strouzas and Zinga Venner as of 1 January 2015.

The following members of the Advisory Council have been reappointed: Rudolf A Bless, Wang Haoyu, Shizhong Huang, Anne Molyneux, Vincent Papa, Rajagopal Sankaraiah, Gregory Smith and Min Yang.

The press release announcing the new appointments can be found on the IASB's website.

November 2014 IASB meeting notes — Part 3

27 Nov 2014

The International Accounting Standards Board (IASB) met at its offices in London on 19-20 November 2014. We have now posted the Deloitte observer notes from Wednesday's session on the Conceptual Framework. Additional notes will be posted in due course.

Click through for direct access to the notes:

Wednesday, 19 November 2014

  • Conceptual Framework
    • Sweep issues
    • Update on the conceptual framework projects of the FASB and IPSASB
    • Measurement – transaction costs.

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

IESBA proposes update to ethics code for professional accountants in business

26 Nov 2014

The International Ethics Standards Board for Accountants (IESBA) has issued an exposure draft of proposed changes to the 'Code of Ethics for Professional Accountants' (the Code). The proposals focus on the requirements of professional accountants in business involved in the presentation of financial and non-financial information, and also provide guidance on dealing with pressure from superiors and other to engage in unethical or illegal acts.

The exposure draft, Proposed Changes to Part C of the Code Addressing Presentation of Information and Pressure to Breach the Fundamental Principles, is focused on accountants who work on their own or in organisations other than public accounting practices, such as in commerce, industry, education, and the public and not-for-profit sectors. The exposure draft addresses key priorities for such accountants contained in Part C of the Code, which were identified through a consultation process involving working groups, the International Federation of Accountants (IFAC) Professional Accountants in Business Committee (PAIB), IFAC member bodies and the IESBA Consultative Advisory Group (CAG).

The key proposals include:

  • Widening the scope of the existing requirements around the preparation and reporting of information to reduce the emphasis on external financial information, and instead focus on both financial and non-financial information for both internal and external purposes. This would mean that the requirements of the Code for information to be prepared "fairly and honestly" would apply consistently to all information produced by a PAIB. Examples provided in the exposure draft of information captured include operating and performance reports, budged and forecasts, information provided to internal and external auditors, risk analyses, general and special purpose financial statements, tax returns and regulatory reports
  • Providing additional guidance around the "fair and honest" principle when preparing financial and non-financial information, including:
    • Preparing or presenting information in a manner that is intended neither to mislead nor influence contractual or regulatory outcomes inappropriately
    • Not omitting information with the intention of rendering the information misleading
    • Presenting the information in accordance with a relevant reporting framework where applicable (this is currently a separate requirement of the Code, but is proposed to be repurposed as guidance on applying the "fair and honest" principle)
  • In relation to the "fair and honest" preparation and presentation of financial information, to introduce additional guidance that a PAIB should not exercise judgements and discretion available under the applicable financial reporting framework in a manner that is intended to mislead, including when determining estimates, selecting a particular accounting method among two or more alternatives, determining the structuring of transactions and determining disclosures
  • Proposing a new section of the Code to provide more robust and practical guidance on how a PAIB should respond when facing pressure from a superior or others that may result in a breach of the fundamental principles of the Code. The new section would introduce a explicit requirements for a PAIB not to allow pressure to result in a breach of the fundamental principles, and to prohibit a PAIB from placing pressure on others that would result in such a breach.

The exposure draft is open for comment until 15 April 2015. Click for IESBA press release (link to IFAC website).

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.