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IFAC proposes new governance structure

03 Nov 2005

The International Federation of Accountants (IFAC) has invited comments on proposed revisions to its Constitution intended to strengthen IFAC's governance arrangements both to enhance its operations and to conform with current best practices.

The invitation to comment Proposed Revision of the International Federation of Accountants' Constitution (PDF 453k) was developed over the past year by a special Constitutional Working Group. IFAC is proposing a three-tiered governance document structure:
  • IFAC Constitution. The Constitution will remain the primary governance and foundation document of IFAC, and the process for its amendment by the IFAC Council would remain unchanged.
  • IFAC Bylaws. The Bylaws, a new document currently being developed, would incorporate existing items from within the Constitution that provide greater detail in support of items addressed and include new provisions to further support the Constitution. The IFAC Board would have authority to amend the Bylaws with immediate effect until the next Council meeting, at which time the Council would need to approve the amendment for it to become permanent.
  • IFAC Policies and Procedures Manual. The manual, also a new document currently being developed, would contain policies and procedures determined by the IFAC Board and management to support the Constitution and Bylaws.
IFAC requests comments by 1 February 2006. Subsequently, the Constitutional Working Group will consider the comments received and prepare a revised Constitution for approval by the IFAC Council in November 2006. Click for Press Release (PDF 57k).
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Conference on Danish GAAP and IFRSs

02 Nov 2005

On 1 December 2005 Deloitte in Denmark is again hosting the yearly Deloitte Accounting Conference on Danish GAAP and IFRS.

The first part will focus on news about Danish GAAP relevant to the annual financial statements for 2005 and on changes to the Danish Financial Statements Act, which are expected during the fourth quarter of 2005. The second part will cover the latest news about IFRSs, which all listed companies in Denmark must follow from 2005 for their consolidated financial statements. This year's current topic for discussion is the IASB Proposal to significantly modify the standards dealing with business combinations and provisions. Finally an update on the latest developments on European accounting scene will be provided.
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Four 'new style' IAASB exposure drafts

02 Nov 2005

The International Auditing and Assurance Standards Board (IAASB) has issued exposure drafts of four proposed International Standards on Auditing (ISAs) in a new drafting style.

The release of these documents marks the beginning of the IAASB's ambitious 18-month program to redraft its standards and to develop new standards using the new style. Key elements of the new drafting style include:

  • basing the standards on objectives, as opposed to procedural considerations;
  • use of the word 'shall' to identify requirements that must be followed;
  • eliminating the present tense to describe actions by the professional accountant, which some had regarded as ambiguous in terms of obligation; and
  • structural improvements to enhance the overall readability and understandability of the standards.
These are the four new EDs drafted in the new style:
  • ISA 240 (Redrafted) The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements.
  • ISA 300 (Redrafted) Planning an Audit of Financial Statements.
  • ISA 315 (Redrafted) Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement.
  • ISA 330 (Redrafted) The Auditor's Procedures in Response to Assessed Risks.
Comment deadline is 28 February 2006. The EDs may downloaded from IAASB's Website.
Click for IAASB Press Release (PDF 58k).


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FASB fair value standard nears completion

02 Nov 2005

Responding to the growing emphasis on fair value in financial statements, in June 2004 the US FASB issued an Exposure Draft on Fair Value Measurements.

The ED would establish a framework for measuring fair values of both financial instruments and non-financial items. As a framework, the final standard will not expand current requirements for the use of fair value measurements in financial statements. Such changes would be considered in future standards. The FASB has recently posted on its Website a revised version it calls a Working Draft. A final standard is expected in late 2005. Here are a few highlights of the Working Draft and of major changes from the 2004 Exposure Draft, excerpted from the newsletter:

  • The definition of fair value now includes the notion of a reference market. The transaction price is presumed to be fair value, but in certain instances (when the transaction did not take place in the reference market and the entity would trade in a more advantageous market for the item), the actual transaction price may be rebutted.
  • The fair value of a liability must incorporate the entity's own credit standing.
  • The Working Draft increases to five the number of levels in the fair value hierarchy. The levels are based on the nature of the inputs used to establish estimated fair value and descend in reliability from Level 1, constituting market inputs that reflect quoted prices for identical assets or liabilities, to Level 5, representing values that are significantly based on entity inputs that are extrapolated or interpolated but that are not corroborated by other market data.
  • The Working Draft prohibits the use of blockage adjustments in estimating the fair value of large blocks of financial instruments.
The IASB has on its research agenda a project on Measurement Objectives. A discussion paper is expected before the end of 2005.
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New Technical Corrections page

01 Nov 2005

We have created a new Technical Corrections Page.

Technical Corrections are IASB's fast-track process to deal with issues for which it is clear that the words in a standard do not properly convey the IASB's intention, even when considered with the basis for conclusions and any related guidance. There are links to this page on our Standards and Agenda pages, and on our Sitemap.
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We comment on Draft Technical Correction 1

01 Nov 2005

We have posted Proposed Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation (PDF 30k). .

We have posted Proposed Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation (PDF 30k).

We concur with the proposed amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates (IAS 21) on the basis that the accounting treatment in the consolidated financial statements should not depend either on the currency in which the monetary item is denominated or on which entity within the group transacts with the foreign operation. We express some concern about requiring that the Technical Correction be applied retrospectively.

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We comment on Basel IAS 39 FVO proposals

01 Nov 2005

In July 2005, the Basel Committee on Banking Supervision issued a consultative document Supervisory Guidance on the Use of the Fair Value Option by Banks under IFRSs (PDF 83k) that discusses supervisory expectations for banks' use of the IAS 39 Fair Value Option.

Deloitte has submitted a (PDF 24k). We express concern that the proposed guidance could have the effect of modifying the fair value option provisions of IAS 39. Our overall view:

We believe that the guidance proposed by the Basel Committee on Banking Supervision will be perceived as an additional set of accounting rules applying to the banking industry in order to limit the use of the fair value option. We recognise that on page 1 of the Consultative Document it is stated that the Committee does not consider this proposal to be a set of additional accounting requirements, but we believe that this will be the effect, in practice. We are strongly of the view that the objective of the International Accounting Standards Board (IASB) is to set high quality accounting standards that entities across all industries have an equal opportunity to apply. We believe Banking Supervision has an important but separate and different objective and we support the Committee's work in promoting Prudential Supervision. We are concerned therefore that the proposals in the Consultative Document go beyond addressing the regulatory objective and will hinder the ability of a specific industry to apply an explicit option in the IASB's accounting standards.

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Analysts' group favours full fair value reporting

31 Oct 2005

The CFA Centre for Financial Market Integrity – a part of the CFA Institute – has published a new financial reporting model that, they believe, would greatly enhance the ability of financial analysts and investors to evaluate companies in making investment decisions.

The Comprehensive Business Reporting Model proposes 12 principles to ensure that financial statements are relevant, clear, accurate, understandable, and comprehensive (see below). Click to Download the Comprehensive Business Reporting Model from the CFA Institute website. Click here for Press Release (PDF 26k).

CFA Institute Centre for Financial Market Integrity Comprehensive Business Reporting Model – Principles

  • 1. The company must be viewed from the perspective of a current investor in the company's common equity.
  • 2. Fair value information is the only information relevant for financial decision making.
  • 3. Recognition and disclosure must be determined by the relevance of the information to investment decision making and not based upon measurement reliability alone.
  • 4. All economic transactions and events should be completely and accurately recognized as they occur in the financial statements.
  • 5. Investors' wealth assessments must determine the materiality threshold.
  • 6. Financial reporting must be neutral.
  • 7. All changes in net assets must be recorded in a single financial statement, the Statement of Changes in Net Assets Available to Common Shareowners.
  • 8. The Statement of Changes in Net Assets Available to Common Shareowners should include timely recognition of all changes in fair values of assets and liabilities.
  • 9. The Cash Flow Statement provides information essential to the analysis of a company and should be prepared using the direct method only.
  • 10. Changes affecting each of the financial statements must be reported and explained on a disaggregated basis.
  • 11. Individual line items should be reported based upon the nature of the items rather than the function for which they are used.
  • 12. Disclosures must provide all the additional information investors require to understand the items recognized in the financial statements, their measurement properties, and risk exposures.
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Deloitte comments on IAS 19 proposals

29 Oct 2005

On 30 June 2005, the IASB proposed certain amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets and complementary limited amendments to IAS 19 Employee Benefits.

We have posted the Deloitte (PDF 33k). Yesterday, we posted our comments on the IAS 37 amendments (see story of 28 October 2005). The main points of our IAS 19 comments:

We question the need for piecemeal changes to IAS 19 Employee Benefits, a Standard that the IASB acknowledges requires significant revision. We acknowledge the existence of the IASB's Short-term Convergence project, however we believe constituents would be better served in this particular instance by having to deal with these amendments as part of a broader proposal addressing IAS 19 as a whole.

We question the relevance of the distinction between voluntary and involuntary termination benefits and disagree with the proposed change in the point of liability recognition. If, at the time that an entity offers benefits, the entity has committed itself (either legally or constructively) and raised a valid expectation on the part of the employee that it will fulfil its responsibility should the employee accept the offer, a liability has been created. The key issue is whether an employee is required to provide future services in return for the termination benefits (whether voluntary or involuntary), in which case those benefits should be recognised as the services are provided. We agree with the immediate recognition of termination benefits where these are not offered to employees in exchange for the employees' future service.

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Agenda project pages updated

29 Oct 2005

We have updated the following agenda project pages to reflect discussions at the joint IASB-FASB meeting on 24-25 October 2005 in Norwalk, CT, USA: Conceptual Framework Financial Instruments Performance Reporting Revenue Recognition Short-term Convergence - IAS 12 Income Taxes .

We have updated the following agenda project pages to reflect discussions at the joint IASB-FASB meeting on 24-25 October 2005 in Norwalk, CT, USA:

Correction list for hyphenation

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