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Agenda for April 2007 IASB meeting

12 Apr 2007

The International Accounting Standards Board will hold its April 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 17-19 April 2007. Presented below is the agenda for the meeting.

The Board will also hold a joint meeting with the US Financial Accounting Standards Board in London on Monday and Tuesday 23-24 April 2007 (agenda details in the second news story below).

BOARD MEETING AGENDA

17-19 April 2007, London

Tuesday 17 April 2007

Wednesday 18 April 2007

Thursday 19 April 2007

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Heads Up newsletter on SOx Section 404

11 Apr 2007

In the United States the SEC and the PCAOB are working to make the internal control provisions of Section 404 of the Sarbanes-Oxley Act 'more efficient and cost effective'.

At an open meeting earlier this month, the SEC discussed collaboration with the PCAOB on potential modifications to the standards proposed in December by the PCAOB: An Audit of Internal Control Over Financial Reporting [ICFR] That Is Integrated With an Audit of Financial Statements, and Considering and Using the Work of Others in an Audit. The 10 April 2007 Edition of the Heads Up Newsletter  (PDF 79k) summarises those discussions. Also, to promote harmony with the proposed ICFR standard, the SEC discussed its proposed interpretive guidance to help management improve Section 404 implementation (see the 8 January 2007 Heads Up (PDF 338k).
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IFRS matters discussed at ARC's 16 March 2007 meeting

11 Apr 2007

The European Commission has posted a summary of the discussions at the Accounting Regulatory Committee and Contact Committee on 16 March 2007.

Presented below is a brief summary of selected IFRS-related matters discussed. Click to Download the ARC Meeting Summary (PDF 59k).
  • IFRIC 12 Service Concession Arrangements. Views of ARC members were divided regarding whether the ARC should recommend endorsement, including possibly some type of transitional modification of IFRIC 12 for use in Europe. The ARC decided to continue consideration of endorsement at its 6 June 2007 meeting. Meanwhile ARC members were invited to put their views in writing by 30 April 2007.
  • Effective dates of IFRSs. The Commission Services presented the issue of suitable wording for the date of application of IFRSs and IFRICs adopted in Commission Regulations. Two alternatives were discussed. Member States appeared to unanimously support the following approach for the 'date of applicability' clause in the endorsing Commission Regulations endorsing IFRSs and IFRICs: The endorsed IFRS or IFRIC should apply to the company's first financial year beginning after a specific date.
  • Roundtable for Consistent Application of IFRSs in Europe. The Commission Services reported on discussions at the three Roundtable meetings that have taken place to date (May and September 2006, January 2007). Twenty-six issues have been discussed of which five have been concluded as being of common concern regarding consistent application of IFRS in Europe.
  • CESR experience in IFRS implementation. The Committee of European Securities Regulators (CESR) will publish, in 'early summer', a report giving a general overview of issues. Another report with information on about 20 enforcement decisions taken by EU Regulators is expected to be published by the end of March 2007. Some CESR members have also issued reports on IFRS application at a national level.
  • IFRS branding.The ARC discussed an IASB plan to modify IAS 1 to require companies to disclose any differences between full IFRSs and the company's reporting framework if that framework is based on, but not fully compliant with, full IFRSs. The ARC considered such matters as:
    • Whether the differences between IFRSs as adopted by the EU and full IFRSs are likely to be so material that they merit a disclosure in the accounts.
    • Whether the SEC's requirement for reference to full IFRSs is in accordance with the principle of the mutual recognition of EU-US accounting standards.
    • Whether there is a need for a standard formulation for those companies using the carve out (a standardised description of the differences).
  • Equivalence of IFRSs and Third-Country GAAP. The Commission Services described the key points to be covered in its first report to the European Securities Committee and European Parliament under the two legislative measures adopted in late 2006. It will describe the work timetables towards convergence to IFRSs in Canada, Japan, and the US.
  • Simplification of accounting rules for small and medium-sized entities (SMEs) – possible revision of the 4th and 7th Directives. The ARC discussed a range of issues relating to SMEs, including introduction of a category of 'micro entities' and relieving small entities of any requirement to publish annual accounts. Regarding the IASB's Proposed IFRS for SMEs: "The majority of Member States confirmed that the exposure draft of the IFRS SME standard would not be suitable for most SMEs in Europe, as it does not contain enough simplifications. Member States also explicitly expressed their opposition to making a future SME standard binding for non-listed companies in the EU."
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EFRAG and the IASB representatives will meet

09 Apr 2007

On 17 April 2007 a delegation from the European Financial Reporting Advisory Group (EFRAG) will meet with IASB representatives in London in order to present European views on certain convergence topics.

This will be the third meeting of this kind and is part of the consultation arrangements between the IASB and EFRAG
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SEC will simplify implementation of SOx Section 404

06 Apr 2007

The US Securities and Exchange Commission has endorsed a number of steps designed to make the internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 "more efficient and cost effective".

Steps the Commission has agreed to take include:
  • Swift consideration of the PCAOB's new auditing standard AS-5 when the PCAOB submits it to the SEC in the coming weeks (currently this is Proposed Auditing Standard An Audit of Internal Control Over Financial Reporting that Is Integrated with an Audit of Financial Statements)
  • Aligning the SEC's proposed new management guidance under Section 404 with the new AS-5
  • Scaling the 404 audit to account for the particular facts and circumstances of companies, particularly smaller companies
  • Encouraging auditors to use professional judgment in the 404 process, particularly in using risk-assessment; and
  • Following a principles-based approach to determining when and to what extent the auditor can use the work of others.
Click for SEC Press Release (PDF 31k).
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FEI plan 'to combat financial reporting complexity'

06 Apr 2007

Financial Executives International (FEI) has issued a "four-point plan to combat financial reporting complexity....

The capital markets are not well served, and US competitiveness is hindered, when scarce financial resources are not used in value-enhancing business initiatives but to satisfy disclosure and accounting requirements that fail to meet cost-benefit tests. The FEI's Four-Point Plan  (PDF 59k) recommends action by both FASB and IASB, including global convergence and mutual recognition:

FEI's Recommendations to Address Complexity in Financial Reporting

  • 1. The FASB and SEC, in coordination with key financial reporting stakeholders (preparers, auditors and financial statement users), should take steps to end the proliferation of detailed rules.
    • a. Agree to a stable platform for a specified period of time, during which no new accounting standards would be issued. Efforts would be shifted from new standards to completion of the conceptual framework, including the development of a comprehensive accounting and disclosure model that is integrated with the codification project.
    • b. Upon completion of the model,work jointly with the IASB to evaluate proposals by stakeholders to improve and simplify the most complex standards by making them more principles-based, and eliminate important differences between US GAAP and IFRS. Stakeholders in the financial reporting process should continue to encourage global convergence and mutual recognition of high-quality accounting standards.
  • 2. Congress should consider meaningful class-action reform.
  • 3. The SEC and PCAOB should develop a framework that provides effective regulation in a principles-based environment, one that balances the objective of investor protection with the need to maintain market competitiveness.
  • 4. Stakeholders should come together to form an independent 'Committee on Complexity'.
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Accounting Roundup – first quarter 2007 review

06 Apr 2007

We have posted Accounting Roundup: First Quarter in Review–2007, prepared by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (USA).

During the first quarter of 2007, accounting standard setters and regulators issued a number of pronouncements affecting accounting, financial reporting, and corporate governance. Accounting Roundup: 1st Quarter in Review–2007 presents brief descriptions of those pronouncements, and outlines other first-quarter regulatory and professional developments. This quarterly review consists of articles, adapted as necessary, from issues of Accounting Roundup published in the first quarter of 2007, as well as new articles for the month of March. You will find past issues Here.

Please note that for months that end a calendar quarter, separate monthly Accounting Roundups will no longer be published. This should ensure a more timely release of the Quarter in Review issues.

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IASB publishes an Overview of the SME exposure draft

05 Apr 2007

The International Accounting Standards Board has published a Staff Overview of the exposure draft of the proposed IFRS for SMEs.

The Overview is written in question-and-answer format and is intended as a high level introduction to the proposals. However, it has not been approved by the IASB, and it is not intended to serve as the basis for commenting on the exposure draft. You can Download the SME ED Overview from the IASB's website (PDF 277k). Comment deadline on the ED is 1 October 2007. Click for More Information about the Project.
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Notes from public portion of IASCF Trustees' meeting

04 Apr 2007

The Trustees of the IASC Foundation, under which the IASB operates, met in London on 2 and 3 April 2007. The public portion of the meeting was be held on the afternoon of 2 April 2007.

The preliminary and unofficial notes taken by Deloitte observers at the public session are presented below.

IASCF Trustees Meeting, London, 2 April 2007

Trustees' Procedures Committee Issues

Fostering more effective interaction between the Trustees and the IASB
 
The chairman of the Trustees' Procedures Committee, Antonio Vegezzi, presented a proposal for a way of securing a closer interaction between the Trustees and IASB members to discuss strategic (but not technical) issues.

This is seen as a way to facilitate the Trustees' oversight role and enhance public confidence in the IASB, while maintaining the Board's independence.

Trustees were generally supportive, but were concerned that some technical matters became very political, and maintaining the independence of the IASB when faced with such a situation might be difficult.

The Trustees approved the proposed terms of reference:

  • The Procedures Committee will assume responsibility for managing and maintaining this dialogue with the IASB.
  • Two or three members of the Procedures Committee will meet twice annually with the IASB in London during a closed administrative session.
  • To ensure that a wide range of relevant issues are addressed, the members of the Procedures Committee attending the meeting with the IASB will consult with the other Trustees for topics in advance of the meetings with the IASB.
  • The IASC Foundation secretariat should prepare an agenda for the meeting following consultation between the IASB Chairman and the Procedures Committee Chair.
  • The IASC Foundation secretariat will circulate minutes of the meetings to the other Trustees.
  • The Trustees attending the meeting with the IASB will make a formal report to the full Trustees in public session at the next meeting of the Trustees.

Developing 'measures of effectiveness' in oversight

The Trustees discussed how they might measure [demonstrate] their effectiveness in exercising oversight of the activities of the IASB. An important foundation to the discussion was a letter (or report) from the European Commission to the Trustees that apparently gave the Commission's views on various aspects of the IASC Foundation's activities. This paper was not available to Observers and thus it is difficult to put some of the comments made in context.

Neutrality

The Trustees agreed that the best way for the IASB to ensure that an IFRS is neutral was through a thorough consultation process, by which a sustainable accounting solution was achieved. However, the consultation should not result in a biased result – the accounting standard should still report economic phenomena in a neutral and truthful manner.

Field research

The Trustees agreed to work with the Board to develop a workable, cost-efficient approach to undertaking field research. Field research was a collective phrase for both field tests (in which a draft standard is applied 'as if effective', which involves systems changes, etc) and field visits (which are more informal and qualitative). It was agreed that 'impact assessments' were beyond the capability of the IASCF and should not be considered.

There was lots of concern expressed that the IASCF were being asked to entertain matters that would blur the dividing line between oversight and intervention.

The Chairman noted that the fact that an accounting standard was costly to implement was not a good enough reason not to issue the standard. However, it was important to get the substance of the standard right. As an example, he noted that standards on post-retirement healthcare benefits were costly to implement, but it was the right thing to do.

Communicating

The Trustees supported a suggestion that the IASB experiment with providing a 'feedback statement' that would accompany a new standard. The statement would be more detailed than the Basis for Conclusions that accompanies an IFRS, and would bring together the staff analysis of issues, views of constituents (including comment letters and the SAC), and the results of field research, together with the Board's resolution of those issues. It is likely that this idea will be developed further before it is tested at the IASB.

Reporting on the oversight responsibility

The IASC Foundation's annual report will contain a report from the Trustees on their oversight activities.

Procedures Committee

 The Trustees agreed to expand the Procedures Committee from five to seven members.

Report from the IASB Chairman

The IASB Chairman Sir David Tweedie presented a report of the IASB's activities and the status of its projects. These activities are reported in detail on IASPlus.com. However, there were some interesting items to note.

Business combinations

The IASB and the FASB continue to disagree on two significant issues – the measurement of non-controlling interest ('minority interest') and the accounting treatment for step acquisitions. The problem with non-controlling interest is that the IASB wants an exception from fair value on the basis of undue cost or effort, whereas the FASB does not. With respect to step acquisitions, the IASB has decided on one of at least five methods in use currently but it was proving a hard sell. The problem was that the alternatives were equally unpalatable.

Sir David was candid when he said that the IASB did not have the votes to approve a standard at present.

Conceptual Framework

Sir David acknowledged that the issue of stewardship needed to be addressed. It was apparent that the Boards had not explained their decisions effectively and that many constituents had misinterpreted what they had written. The FASB and IASB had never intended 'decision usefulness' to imply prospective usefulness only. They did mean useful for retrospective assessments too. It was also apparent that constituents did not have a clear idea of what was implied by 'stewardship' either. A Trustee noted that an effective and meaningful resolution of this issue is vital if supporters of the stewardship concept in financial reporting were not to be left 'perpetually dissatisfied'.

Leases

It seems likely that the IASB will ask the major accounting firms to review the 'draft standard' developed by the G4+1 in 1998 to determine whether the principles in it could be audited, and then ask IOSCO whether such a standard could be enforced effectively.

The IFRS reporting assertion

The Trustees discussed the background to the draft proposed amendment to IAS 1 with respect to reporting compliance with IFRSs. The draft proposed amendment had been prepared at the suggestion of the International Auditing and Assurance Standards Board, whose constituents are increasingly being asked to report on financial statements prepared in accordance with 'IFRS as adopted in...'. IOSCO has subsequently raised concerns. It thinks that IAS 1 is fine as it is and sees nothing to be gained in lending legitimacy to 'IFRS clones'. However, there is a clear political problem in many jurisdictions, one both of law and sovereignty over accounting standards. Many corporations and securities acts require reporting in accordance with local GAAP, so the local standard setter is obliged to issue IFRSs as local GAAP, even though it is identical to IFRSs.

No conclusions were reached, but the Trustees were made aware of the problems being faced by IFRS preparers, their auditors, and regulators.

Report from the Chairman of the Standards Advisory Council (SAC)

The SAC Chairman gave a brief report of the February SAC meeting, noting that the Council had also discussed the IFRS reporting assertion in much the same terms as the Trustees.

Most of this session concentrated on efforts of the Council to measure its effectiveness. It is proving a matter of increasing frustration for Council Members and the Chairman in particular. However, as the Council brings together constituents with a variety of backgrounds, experience and views, and is advisory in nature, developing a measure of 'effectiveness' is proving elusive.

The Trustees discussed this for some time, but noted that the diversity of opinion around the Council is a sign of strength, not a weakness. However, the challenge for the Council was to determine (i) how it provides valuable input to the IASB; and (ii) how the IASB demonstrates that it has taken the Council's views into consideration. The resolution of both issues would require the SAC and the IASB (and the Trustees) to develop a clear understanding of their expectations of the Council, since the IASB is the Council's primary 'user'. Effectiveness could only be measured if there is clarity about expectations.

The Trustees encouraged the SAC Chairman to work with the IASB 'sooner rather than later' and report to the Trustees as soon as possible. The SAC brings together high-calibre people, and it is important that the resource the Council represents is used appropriately.

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PCAOB proposals on consistency and GAAP hierarchy

04 Apr 2007

The US Public Company Accounting Oversight Board (PCAOB) has proposed for public comment an auditing standard Evaluating Consistency of Financial Statements and a concept release concerning Rule 3523 Tax Services for Persons in Financial Reporting Oversight Roles.

In addition, the PCAOB published guidance, in the form of questions and answers, on Rule 3522 Tax Transactions and Rule 3523. Click for Press Release (PDF 24k).

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