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FASB adopts a US GAAP hierarchy

12 May 2008

The US Financial Accounting Standards Board has issued FASB Statement No. 162 'The Hierarchy of Generally Accepted Accounting Principles'.

FAS 162 sets out the framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP. Up to now, the US GAAP hierarchy has been defined in the US auditing literature. Because of the interrelationship with the auditing literature, FAS 162 will be effective 60 days following the SEC's approval of the PCAOB's amendments to their auditing standards. Statement 162 may be downloaded without charge from www.fasb.org. Click for FASB News Release (PDF 14k).

 

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IFRSs – What Should US Companies Do?

11 May 2008

The latest edition of the Audit Committee Brief from Deloitte & Touche LLP (USA) includes an overview of what companies should do with respect to International Financial Reporting Standards.

This graphic from the newsletter illustrates some potential impacts to think about:

 

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This issue of Audit Committee Brief also includes:

  • A summary of the Public Company Accounting Oversight Board's (PCAOB's) Proposed Auditing Standard No. 7, Engagement Quality Review
  • A summary of the Securities and Exchange Commission (SEC) Advisory Committee's progress report
  • Highlights from the Center for Audit Quality's Audit Committee Survey Results
  • An outline of what an eXtensible Business Reporting Language (XBRL) mandate means to you
  • An overview of pension plan assets

Click to view Audit Committee Brief (PDF 706k).

 

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Disclosure of expected changes in accounting policies

11 May 2008

The Canadian Securities Administrators (CSA) have just released a staff notice addressing IFRS pre-adoption disclosure requirements for Canadian reporting issuers.

CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to IFRSs marks another significant step in Canada's transition to IFRSs. This will help companies assess the expected impact on their next interim and annual Management's Discussion and Analysis. Deloitte (Canada) will provide a more comprehensive analysis of these disclosure requirements in the next edition of the Countdown newsletter. Full details of the proposed timing, nature and extent of the disclosures can be found in the press release issued by the CSA:
SEC (US Securities and Exchange Commission) (dark gray) Image

Reports from SEC advisory committee on improvements to financial reporting

10 May 2008

In June 2007, the US SEC formed an advisory committee to study the causes of complexity of the US financial reporting system and to recommend "how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting".

In February 2008, the advisory committee published a Preliminary Report with 12 Proposals including reducing accounting policy options, changes to FASB's governance and due process, and guidance on materiality and error corrections. The advisory committee held its sixth meeting on Friday, 2 May 2008, at which time four subcommittees presented their interim reports:

The standards-setting subcommittee said, in its report, that it is deliberating whether to recommend that the full advisory committee consider:

  • expressing high-level support for moving to a single set of high quality accounting standards in the US,
  • supporting the SEC's efforts to develop an international convergence roadmap, and
  • encouraging all participants in the financial reporting community to increase coordination to foster consistency in global interpretations and avoid jurisdictional variants of IFRSs.
Click for Information on the Advisory Committee on the SEC Website.

 

IFRIC (International Financial Reporting Interpretations Committee) (blue) Image

Notes from the May 2008 IFRIC meeting

09 May 2008

The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 8 May 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.

At the meeting, the IFRIC approved two final Interpretations, subject to drafting and IASB written ballot:
  • Agreements for the Construction of Real Estate (effective for annual financial statements for periods beginning on or after 1 January 2009)
  • Hedges of a Net Investment in a Foreign Operation (effective for annual financial statements for periods beginning on or after 1 October 2008)

Notes from the IFRIC Meeting
8 May 2008

gpeg.gif D21 Real Estate Sales

The session was devoted to final re-deliberations and approval of a final Interpretation.

Consideration of outstanding issues

(a) Clarification of scope

As part of the clarification of the scope of the Interpretation, the IFRIC agreed that the title of the Interpretation should be changed to something like 'Agreements for the Construction of Real Estate'. This reflects the change in emphasis away from real estate sales and the determination of whether an agreement involving real estate construction activities is within the scope of IAS 11 or IAS 18.

The IFRIC concurred with staff suggestions that the Interpretation be clarified to identify only two parties: 'the entity' and 'the buyer'. It is the entity that contracts with the buyer. The entity may also be the person performing the construction services but may only perform services directly related to a construction contract. The IFRIC agreed that the Interpretation should address the following agreements involving the construction of real estate:

  • Construction contracts (IAS 11 contracts)
  • Contracts for the rendering of services directly related to construction contracts (IAS 18)
  • Contracts for the sale of goods (that is, contracts failing the definition of construction contracts in IAS 11 but still involving the construction of real estate (IAS 18)).

 

The IFRIC asked for clarification whether IAS 18 IE 9 would be deleted as was intended originally. The Chairman suggested that this be referred to the Board for resolution when it considers the Interpretation prior to issue. It seemed that the IFRIC favoured the deletion of the IE 9, but this was not stated explicitly.

(b) Application of IAS 18

The IFRIC discussed the notion of a 'continuous transfer' by the seller to the buyer of 'control and the significant risks and rewards of ownership of the work in progress in its current state as construction progresses'.

The IFRIC discussed various aspects of this principle, but eventually agreed that it was an appropriate interpretation of IAS 18.14. However, the Interpretation, Basis for Conclusions and Illustrative Examples needed to be explicit that all the conditions in that paragraph must be satisfied before the seller would be able to recognise revenue. In particular, IFRIC members noted that the condition in IAS 18.14(b), 'the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold', would rarely be met in a typical real estate construction agreement.

The IFRIC noted that there was a tension between the percentage of completion method in IAS 11 and the method required in IAS 18. In particular, the two methods produce different revenue recognition patterns. The IFRIC agreed that it was trying to say that contracts involving the construction of real estate may not be IAS 11 contracts, but facts and circumstances might result in the conditions in IAS 18.14 being met at several points during the life of the contract, which would result in a revenue recognition pattern similar to IAS 11. Thus, in a single agreement for the delivery of multiple goods (for instance, residential units in a development), it would be likely that the entity would recognise revenue on each unit as the conditions in IAS 18.14 were met with respect to that unit.

IFRIC members expressed concern that some of the material accompanying the Interpretation (especially the Illustrative Examples) muddied the principle in the Interpretation. In particular, meeting the conditions in IAS 18.14 required proper consideration of the substance of the agreement as well as legal or jurisdictional factors. The staff undertook to review the material in the Basis for Conclusions and the Illustrative Examples related to this principle and circulate it to IFRIC members out of session.

The IFRIC agreed that, since the Interpretation (and in particular the notion of 'continuous transfer') was based explicitly on principles in IAS 18, there was no reason to restrict application of the Interpretation by analogy. IFRIC members suggested that, given the rigorous conditions in IAS 18.14, it was unlikely that 'continuous transfer' could occur outside real estate contracts.

(c) Identification of a component for the sale of land

The IFRIC agreed that the identification of a separate component for the sale of land must be undertaken when analysing any potential separate components. In some cases, a sale of land would be identified clearly at an early stage of analysing a transaction. In other cases, it would be clear that no separate component for the sale of land can be identified, in other words, the right to the constructed elements and the underlying land are not separate assets.

(d) Disclosure

The IFRIC agreed that the disclosures required by IAS 11.39-45 contained the information most likely to be of use to users of the financial statements. However, they were reluctant to require such disclosure explicitly in the Interpretation.

However, the IFRIC agreed to draw attention to the requirements in IAS 1.117, .122, and .125 regarding the application of accounting policies; the significant judgements involved in applying those policies; and any sources of estimation uncertainty involved. In addition, the Interpretation will observe that the disclosures in IAS 11 provide users the most appropriate information in the circumstances addressed in the Interpretation.

Flowchart and Illustrative Examples

The IFRIC agreed that a flowchart developed by the staff analysing a single agreement including the construction of real estate should be included in the material accompanying the Interpretation. In addition, subject to amendments to address IFRIC members' comments, the Illustrative Examples should also be issued as non-authoritative guidance accompanying the Interpretation.

Scope: should the scope be extended explicitly beyond contracts involving real estate?

The IFRIC agreed that the scope should not be extended explicitly beyond contracts involving the construction of real estate. The IFRIC had already agreed that the Interpretation could be applied by analogy. Any explicit extension of scope would trigger re-exposure.

Re-exposure

The IFRIC reviewed the triggers in the Due Process Handbook for the IFRIC that would require re-exposure and agreed that the changes made to the Interpretation since exposure did not trigger re-exposure.

Effective date

The IFRIC agreed to recommend to the IASB that the Interpretation be effective for annual financial statements for periods beginning on or after 1 January 2009. Transition would be in accordance with IAS 8.

Approval of the Interpretation

The Chairman asked whether any IFRIC member would dissent from issuing the Interpretation. No members indicated that they would dissent. The Interpretation was approved unanimously.

Next steps

The IFRIC will complete its review of the final text in time for the Interpretation to be sent to the Board for approval by written ballot at the June IASB meeting. If approved, the Interpretation would be issued before the end of June 2008.

gpeg.gif D22 Hedges of a Net Investment in a Foreign Operation

The IFRIC discussed a revised draft of the Interpretation reflecting the decisions made at previous meetings.

Consideration of outstanding issues

The main changes made to D22 since it was exposed for comment are as follows:

  • Clarification that the carrying amount of the net assets of a foreign operation that may be hedged in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has hedged all or part of the net assets of that foreign operation.
  • Clarification that the assessment of hedge effectiveness is not affected by the method of consolidation (direct or step-by-step).
  • Additional guidance on what amounts should be reclassified from equity to profit or loss as reclassification adjustments on disposal of the foreign operation. The revised draft clarifies that the consolidation method (direct or step-by-step) may affect the amount included in the foreign currency translation reserve (FCTR) in respect of the individual foreign operations, in particular, "(w)hen the hedging instrument is not held by the parent entity hedging its net investment, the use of the step-by-step method of consolidation may result in the reclassification to profit or loss of an amount different from that used to determine hedge effectiveness". In this case an entity may (but is not required to) eliminate this difference "by retrospectively determining the amount relating to that foreign operation using the direct method of consolidation".
  • Inclusion of Application Guidance that replaces all Illustrative Examples in D22.
  • Additional transitional provisions stating that any existing hedge relationships that do not meet the conditions for hedge accounting in the Interpretation should be discontinued prospectively in accordance with the requirements of IAS 39.

 

One IFRIC member questioned whether some language in the draft Interpretation may undermine the IFRIC consensus that the method of consolidation has no impact on hedge effectiveness and where the hedge instrument can be held. The IFRIC decided to remove this language; in particular to delete the last sentence of paragraph 12 of the draft Interpretation stating "(h)owever, different methods of consolidation may affect the foreign currency risk that can be hedged merely due to the mechanics of the consolidation methods (see Appendix AG4)".

The IFRIC also decided to clarify the application guidance relating to paragraphs 11 and 13 of the draft Interpretation. Among other things paragraphs 11 and 13 state that "the carrying amounts of the net assets of a foreign operation that may be designed as the hedged item in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has applied hedge accounting for all or part of the net assets of that foreign operation" and that "(a)n exposure to foreign currency risk arising from a net investment in a foreign operation may qualify for hedge accounting only once in the consolidated financial statements". Some IFRIC members noted that the application guidance in AG7 (third bullet) and AG9 relating to is difficult to understand and may be misleading. The staff was asked to clarify the application guidance to better reflect the consensus.

Some IFRIC members thought the question which amount is to be reclassified from equity to profit or loss as a reclassification adjustment on disposal of the foreign operation is an important practical issue and suggested that an example be included. One IFRIC member offered to provide such an example to the staff. The IFRIC decided that this example should be examined by the staff and included as an illustrative example if it is considered helpful.

Re-exposure

The IFRIC reviewed the triggers in the Due Process Handbook for the IFRIC that would require re-exposure and agreed that the changes made to the Interpretation since exposure did not trigger re-exposure.

Effective date

The IFRIC agreed to recommend to the IASB that the Interpretation be effective for annual financial statements for periods beginning on or after 1 October 2008. The Interpretation should be applied prospectively with retrospective application in accordance with IAS 8 being permitted.

Approval of the Interpretation

The Chairman asked whether any IFRIC member would dissent from issuing the Interpretation. No members indicated that they would dissent. The Interpretation was approved unanimously.

Next steps

The IFRIC will complete its review of the final text in time for the Interpretation to be sent to the Board for approval by written ballot at the June IASB meeting. If approved, the Interpretation would be issued before the end of June 2008.

gpeg.gif Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11 IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis

The IFRIC discussed comments received on the IASB's exposure draft of proposed amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2–Group and Treasury Share Transactions – Group Cash-settled Share-based Payment Transactions (the ED).

The staff noted that this ED was being discussed with the IFRIC because the IASB's ED was triggered by a reference from the IFRIC to the IASB.

The staff noted that respondents expressed general agreement with the proposals regarding scope and measurement for group arrangements between parent and subsidiary but that severe concerns were raised regarding the application of the proposals to arrangements other than those between parent and subsidiary.

Scope and classification

The main concerns raised by constituents were:

  • A contribution in equity from parent should not be recorded for arrangements other than those between parent and subsidiary.
  • There are inconsistencies between the scope of IFRS 2 and IFRIC 11 as proposed and, therefore, the scope and terminology should be aligned among these IFRSs.
  • The ED extends the scope of IFRS 2 on a case-by-case basis. Instead the definitions of 'equity-settled share-based payments' and 'cash-settled share-based payments' in Appendix A of IFRS 2 should be amended.

 

Alternatively, a more comprehensive project could be undertaken to amend IFRS 2 and in this context the main principles of IFRIC 11 and IFRIC 8 could be incorporated in IFRS 2.

Classification and measurement

The main concerns raised by constituents were:

  • A classification as cash-settled share-based payments in the financial statements of the subsidiary would be inappropriate since the subsidiary has no liability in either of the arrangements described in the ED.
  • The ED has not articulated the IFRS principle for the 'push-down accounting' of the parent's liability in the financial statements of the subsidiary.
  • Remeasurement: The changes in the fair value of the parent's liability should not be recorded in the subsidiary's profit or loss since these changes would be changes in the parent's liability.

 

The IFRIC had a very preliminary discussion of some of these issues and made suggestions to the staff, but no decisions were requested or made. Project plan/ way forward The IFRIC agreed to participate in assisting the IASB to redeliberate issues in the ED in light of respondents' comments. Specifically, it will address issues related to scope and classification in July 2008 and issues related to measurement at its September 2008 meeting. The IASB will discuss the IFRIC's conclusions at the October 2008 IASB meeting. If no further Board discussion is required, the amendments to IFRS 2 and IFRIC 11 should be issued in December 2008.

gpeg.gif Review of Tentative Agenda Decisions published in March 2008 IFRIC Update

The IFRIC confirmed its decisions not to take the following items to the Agenda:

  • IAS 19 Employee Benefits – Settlements
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets-Deposits on returnable containers

 

The Agenda Decision on IAS 19 was agreed as issued in the March 2008 issue of IFRIC Update, without amendment.

The IFRIC agreed to amend the third paragraph of the Agenda Decision on IAS 37 included in the March 2008 issue of IFRIC Update as follows:

 

In circumstances in which the containers are derecognised as part of the sale transaction, either completely at the time of the first sale or partially by depreciation over a number of sales, the obligation is an exchange of cash (the deposit) for the containers (non-financial assets). Whether that exchange transaction occurs is at the option of the customer. Because the transaction involves the exchange of a non-financial item, it does not meet the definition of a financial instrument in accordance with IAS 32 and is therefore is not within the scope of IAS 39.

 

The Agenda Decisions will be published in the May 2008 IFRIC Update.

gpeg.gif Staff Recommendations for Tentative Agenda Decision

IAS 39 Financial Instruments: Recognition and Measurement – Applying the effective interest rate method

The IFRIC considered a request for guidance on the application of the effective interest rate method (EIRM) to a debt instrument with future cash flows (principal and interest) linked to changes in an inflation index. The request was limited to 'inflation-linked instruments' that are not classified at fair value through profit or loss and in which the embedded derivative (the inflation linked mechanism) is determined to be closely related to the host contract.

The following views were discussed:

View A: Apply AG 7 of IAS 39

AG7 of IAS 39 applies to floating rate financial instruments and states that re-estimations of cash flows alter the effective interest. AG7 of IAS 39 assumes that "(i)f a floating rate financial asset or floating rate financial liability is recognised initially at an amount equal to the principal receivable or payable on maturity, re-estimating the future interest payments normally has no significant effect on the carrying amount of the asset or liability".

Supporters of View A argue that an inflation-linked instrument is analogous to a floating rate instrument because varying interest amounts are a contractual term of the instrument. Consequently, changes in the inflation index result in changes to the instrument's effective yield and it would be inappropriate to determine a single effective interest rate for the life of the instrument.

View B: Apply AG 8 of IAS 39

According to AG8 of IAS 39 re-estimations of cash flows alter the carrying amount of the financial instrument since the carrying amount is to be recalculated using the original effective interest rate.

Supporters of View B argue that an inflation-linked instrument is not within the scope of paragraph AG7 because the changes in estimated future cash flows do not reflect movements in market interest rates. In their view paragraph AG8 applies to changes in estimated future cash flows other than those that are explicitly addressed in paragraph AG7.

View C: Analogise to the requirements of IAS 29 Financial Reporting in Hyperinflationary Economies

The IFRIC agreed with a staff analysis that it would be inappropriate for entities in non-hyperinflationary economies to analogise to IAS 29.

An IASB Observer noted that this issue might be resolved by applying paragraph AG6 of IAS 39; that is, if the link to an inflation index represents a repricing to market rates, no adjustments may need to be made.

The IFRIC unanimously decided not to add this item to its agenda as any guidance would be more in the nature of application guidance.

The staff was asked to redraft the proposed agenda decision by referring to AG6 rather than AG7 and AG8 and to submit the redrafted version to the IFRIC as soon as possible. The IFRIC will then examine whether the inclusion of AG6 requires further research. If yes, the issue will be discussed again at the July meeting. Otherwise a tentative agenda decision will be published in the IFRIC Update for this meeting.

gpeg.gif Staff Recommendations for New Agenda Item

The staff presented a project plan for an agenda request on rate regulated liabilities.

In January 2008 the IFRIC received a request on whether regulated entities should be permitted or required to recognise a liability (or an asset) as a result of price regulation by regulator bodies or governments, that is, to defer excess profits (costs) that will be returned through future price decreases (or increases).

The IFRIC agreed with a staff analysis that the issue is widespread and has practical relevance. In addition, some IFRIC members noted that divergent interpretations exist in practice mainly because national GAAPs allow a variety of accounting treatments.

The IFRIC agreed with the staff that the question whether a consensus can be reached on a timely basis mainly depends on the definition of the scope.

The IFRIC asked the staff to prepare a paper on the scope of the potential agenda item for discussion at the July meeting.

gpeg.gif Administrative Session – IFRIC Work in Progress

The IFRIC Co-ordinator updated the IFRIC on the current working plan of the IFRIC. The IFRIC Co-ordinator noted that the staff plans to prepare a paper on 'accounting for trailing commissions' for consideration as an agenda item and that several other requests were received recently.

Main topics of the July IFRIC meeting will be the comment letter analyses of D23 Distributions of Non-cash Assets to Owners and D24 Customer Contributions, the redeliberation of amendments to IFRS 2 and IFRIC 11 and the discussion of several tentative agenda decisions.

The IFRIC Co-ordinator also noted that a separate session on preliminary discussion of potential new agenda items may be required.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

 

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AICPA proposes to add IFRS testing to US CPA exam

09 May 2008

The American Institute of Certified Public Accountants has invited comment on a proposed update of the content of the CPA examination used throughout the United States.

Among other things, the AICPA is proposing to include IFRSs on the exam for the first time. Initially, the IFRS conceptual framework would be tested. IFRS testing would expand if IFRSs become generally accepted in the US. "The CPA Examination tests the knowledge and skills that are relevant for entry-level CPAs. In doing so, the public is protected," said Craig Mills, executive director of examinations for the AICPA. "That's why the AICPA Board of Examiners, which oversees the exam, is already assessing strategies to incorporate IFRSs into the exam." Comments on the proposal are due by 31 July 2008. Click for: An excerpt from the proposal:

Currently the Financial Accounting and Reporting (FAR) section tests knowledge and understanding of accounting principles generally accepted in the United States of America (US GAAP) for business enterprises, not-for-profit organizations, and governmental entities. Growing acceptance of IFRS in the financial reporting community, as well as recent actions of the Securities and Exchange Commission (SEC) are indicators that IFRS could become a body of accounting principles generally accepted in the United States of America.

The proposed Content Specification Outlines for FAR include within Area I topics related to the conceptual framework, standard-setting processes and regulatory filing requirements for financial statements. Included within these topics will be questions related to International Financial Reporting Standards (IFRS). If IFRS becomes generally accepted in the United States of America, it would become eligible for expanded testing within Area I of the FAR section, as well as testing in Area II (Financial Statement Accounts) and Area III (Unique Transactions, Events & Disclosures) within the FAR section.

 

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Agenda for May 2008 IASB meeting

09 May 2008

The International Accounting Standards Board will hold its May 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 20-23 May 2008. The meeting is open to public observation and will be webcast.

The tentative agenda is shown below.

20-23 May 2008, London

Tuesday 20 May 2008 (Afternoon only)

Wednesday 21 May 2008

Thursday 22 May 2008 (Afternoon only)

Friday 23 May 2008 (Morning only)

 

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International Banking Federation report on accounting for financial instruments

08 May 2008

The International Banking Federation (IBFed) has published Accounting for Financial Instruments: A Conceptual Paper.

IBFed is a consortium of banking associations in Australia, Canada, Europe, Japan, and the United States. The paper sets out the position of the IBFed on "the extent to which the fair value measurement meets the needs of the user community and the objectives of financial reporting". The overall conclusions:
  • Fair value measurement provides an appropriate accounting base for financial instruments held for trading purposes or otherwise managed on a fair value basis. However, full fair value measurement of financial instruments would overstate the extent to which instruments are held for trading or managed on a fair value basis within the business and the extent to which deep and liquid markets exist. These are highly significant factors in determining the relevance of fair value in financial reporting.
  • A mixed measurement model provides investors with better information for evaluating financial institutions. It requires fair value measurement for assets and liabilities managed on a fair value basis and recognizes that not all financial instruments – let alone non-financial assets and liabilities – are managed on a fair value basis or are even capable of reliable fair value measurement. Where an entity does not manage instruments on a fair value basis, amortised cost is the more appropriate way to estimate future cash flows. Fair value information is already disclosed in footnotes, which are an integral part of financial statements and is a more suitable format for providing the information to investors.
  • Reality is more complex than can be communicated in a fair value model. Relevant performance reporting will never be achieved if the framework for financial reporting sticks rigidly to either an amortised cost model or a fair value model. A mixed measurement model represents a principles-based approach to measurement by acknowledging the fact that different entities may follow different business models. Instead of the IASB determining that one approach offers a superior model to that of others, the aim should be for the accounting standards to accommodate the various business models and circumstances in which financial instruments are used. As widely recognized at the IASB Roundtables on measurement, a mixed model is more likely to result in useful reporting.

Click to view Accounting for Financial Instruments: A Conceptual Paper (PDF 327k).

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EC report on IFRSs to European Council and Parliament

08 May 2008

The European Commission has submitted to the European Council and European Parliament a Report on the Operation of Europe's IAS Regulation.

That regulation, adopted in 2002, (a) required IFRSs in the consolidated financial statements of all companies listed on regulated European securities markets starting in 2005 and (b) gave member states the option to require or permit IFRSs in separate company (legal entity) statements and in the consolidated or separate statements of unlisted companies. The report contains an updated table of member states' uses of these options. The Commission analysed the consistency of application of the endorsed standards/interpretations in the EU for 2005 and reached a number of conclusions, summarised here:
  • Overall, application of IFRSs has been a challenge for all stakeholders, but it has been achieved without disrupting markets or reporting cycles.
  • There is a general perception among preparers, auditors, investors and enforcers that application of IFRSs has improved the comparability and quality of financial reporting and has led to greater transparency.
  • Most stakeholders believe that the understandability of financial statements has generally improved, except for certain areas, where there seems to be room for improvement, notably on financial instruments, business combinations and share-based payments.
  • IFRS accounts are still influenced by national accounting traditions.
  • The IFRS recognition and measurement provisions appear to have been applied more consistently and clearly than certain disclosure requirements.
  • Options allowed by IFRSs, including those related to employee benefits, borrowing costs, and joint ventures, have been used in diverse ways by companies. Options in IFRSs for early application have also been widely used. However, options to widen application of fair value measurement have not been extensively used and use of the carve-out in IAS 39 is limited to very few banks. Enforcers have expressed concern and wish the number of options available in IFRSs to be reduced in the future.
The report also includes an analysis of the functioning of the endorsement process and related administrative requirements. The report concludes with this observation:

In order to maintain the current high acceptance of IFRSs in the EU, it is important that stakeholders feel that the work programme of the IASB is addressing the right issues and that future standards/interpretations will provide suitable accounting solutions. Some stakeholders have expressed doubts about some of the accounting projects currently being prepared by the IASB. It is therefore crucial that EU institutions, Member States and stakeholders become involved in the standard-setting process as early as possible, as this enhances the quality of the work and increases the legitimacy and acceptance of future standards/interpretations. The way the IASB undertakes impact assessment in future will also be monitored carefully.

Click to view Report on the Operation of Europe's IAS Regulation (PDF 181k).

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Deloitte partners co-author 2nd edition of Wiley IFRS guide

07 May 2008

Deloitte partners Abbas Ali Mirza and Magnus Orrell are co-authors, along with Prof Graham Holt, of the newly published second edition of Wiley IFRS: Practical Implementation Guide and Workbook.

The 474-page book includes outlines of all IASs/IFRSs, practical insights, cases studies with solutions, illustrations, and multiple-choice questions with solutions. For more information, go to The Book's Web Page.

 

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