16:30-18:30 Joint IASB/ASBJ Meeting (ASBJ is Accounting Standards Board of Japan)
There is information about Japan's new Accounting Standards Board on our page about Japan.
25 February 2002: Project pages updated to reflect February decisions
We have updated our agenda project pages to reflect IASB decisions at its meeting last week on the following projects:
Business Combinations, First-Time Application of IFRS,
IAS 19 Amendment, IAS 39 Amendments, Improvements Project, Insurance Contracts, Performance Reporting, and Share-Based Payment.
25 February 2002: IASB proposes 'asset ceiling' amendment to IAS 19
IASB has published an exposure draft of a proposed amendment to IAS 19, Employee Benefits, to prevent a counter-intuitive result produced by the interaction of two aspects of IAS 19 - the option to defer gains and losses in the pension fund and the limit on the amount that can be recognised as an asset (the 'asset ceiling'). Because of the wording of the asset ceiling, a gain is sometimes recognised solely as a result of deferring and amortising an actuarial loss or added past service cost in the current period. Conversely, deferral of actuarial gains sometimes causes a loss to be recognised. The IASB concluded that reporting gains and losses in these circumstances is not appropriate, and the proposed amendment would prevent their recognition. Comments are due 25 March 2002 -- a 30-day comment period. Click to Download the IASB Press Release (PDF 12k).
23 February 2002: Last batch of notes from the 19-22 February IASB meeting
We have posted notes from the third and fourth days of the IASB Meeting on 19-22 February 2002. Those sessions covered the Improvements Project, specifically issues relating to the true and fair override in IAS 1; amendments to IAS 32 and IAS 39 (particularly derecognition); share-based payment; business combinations (phase I) including some consequential amendments to IAS 36 and IAS 38; and insurance contracts.
23 February 2002: Comment letters on share-based payment and SIC 28-34
IASB has posted letters of comment it has received on:
22 February 2002: Fix 'damaged' financial reporting system: Financial Analysts
The Association for Investment Management and Research has taken full-page ads in the Wall Street Journal and Washington Post with its views on How to Fix a Damaged Financial Reporting System (PDF 259k):
For the past 20 years, AIMR has advocated that issuers should not be allowed to tailor transactions to get an accounting treatment that suits them. We have repeatedly asked for accounting rules that would require issuers to:
- Report on the balance sheet all assets under their control and all liabilities for which they have responsibility.
- Explain how and why they use derivatives.
- Measure and record compensation expense for employee stock options.
- Recognize all financial assets, liabilities, and derivatives at fair value with changes reported in earnings.
- Conduct and disclose meaningful market-sensitivity analyses or 'stress tests' so users can forecast potential risks under changing market conditions.
Despite their best efforts to enact such rules, the FASB and SEC succumbed to political pressure and issuers' objections.
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Click for AIMR Press Release.
22 February 2002: SEC Chairman urges 'principles-based accounting standards'
In a speech before the Federal Bar Council, SEC Chairman Harvey L. Pitt called for a "move toward a principles-based set of accounting standards": [Click for Full Text]
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Present-day accounting standards are cumbersome and offer far too detailed prescriptive requirements for companies and their accountants to follow. That approach, by necessity, encourages accountants to 'check the boxes' — that is, to read accounting principles narrowly, to ascertain whether there is technical compliance with applicable accounting principles.
But the first principle should always be the one Judge Henry Friendly articulated four decades ago... If literal compliance with GAAP creates a fraudulent or materially misleading impression in the minds of shareholders, the accountants could, and would, be held criminally liable.
That is why we are advocating fundamental and far-reaching changes in the Financial Accounting Standards Board. We seek to move toward a principles-based set of accounting standards.
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22 February 2002: Additional notes from the 19-22 February IASB meeting
We have posted notes of the discussion of First-Time Application of IFRS from the second day of the IASB Meeting on 19-22 February 2002.
21 February 2002: FEI testimony criticises FASB, IASB support of JWG proposals
In their Testimony (PDF 84k) before the ongoing US Congressional hearings on "Are Current Financial Accounting Standards Protecting Investors", Financial Executives International called mark-to-market accounting for financial instruments flawed and criticised both FASB and IASB for publishing and "strongly supporting" the Joint Working Group Proposal. They voiced concerns regarding Enron's recognition in earnings of fair value increases for its energy trading derivatives.
21 February 2002: EC urges US SEC to replace US GAAP with IAS
In an interview with the Financial Times, Frits Bolkestein, European internal market commissioner, urged the US SEC to replace the 'cookery book' approach of US GAAP with the more 'substance over form' approach of IAS. The Commission plans to require listed European Companies to Use IAS by 2005. Mr. Bolkestein expressed concern about what he felt is a rule-book approach of US GAAP: "You tick the boxes and out come the answers," he is quoted as saying. "Having rules is a good thing, but having rigid rules is not the best thing.... American investors are no more protected than European investors." At a minimum, he will ask the SEC to allow US-listed European companies to submit IAS financial statements without reconciliation to US GAAP. Click for the full Financial Times Story.
21 February 2002: Additional notes from the 19-22 February IASB meeting
We have posted notes from the second day of the IASB Meeting on 19-22 February 2002. That session covered the Improvements Project, specifically issues relating to IAS 21, discussion of issues raised during the 18-19 February Meeting of SAC, and Performance Reporting.
20 February 2002: Notes from the 19-22 February IASB meeting
We have posted notes from the first day of the IASB Meeting on 19-22 February 2002. That session covered the Improvements Project, specifically issues relating to IAS 19, 21, 27, and 28.
20 February 2002: Notes from the 18-19 February SAC meeting
We have posted Notes from the IASB meeting with the Standards Advisory Council on 18-19 February 2002.
19 February 2002: Fast track for Improvements Exposure Draft
At its meeting with the Standards Advisory Council yesterday, the IASB indicated that it intends to vote on all the proposals for the Improvements Project at its February Board meeting. The Board expects to publish an Exposure Draft including proposals for all 14 standards addressed in the project in April 2002, with a 90-day comment period. It intends to issue revised standards in December 2002, effective for financial periods beginning on or after 1 January 2003. Revisions to IAS 32 and IAS 39 are a separate project, not part of the Improvements Project.
19 February 2002: FT urges IASB approach to accounting standards
The Financial Times has been running a series of special reports, After Enron - Agenda for Reform 2002. One report, Honest Numbers Require Robust Rules and Policing, suggests replacing US national GAAP with IAS:
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The reform that is needed, therefore, leads away from US Generally Accepted Accounting Principles' very detailed prescriptions towards the approach of the new standards devised by the International Accounting Standards Board. The IASB approach, which emphasises substance over form, has been treated with mild suspicion in the US. But the Enron case, by revealing the limits of the prescriptive approach, has given impetus to the case for replacing national standards with IASB ones, or at least with rules sympathetic to the IASB framework.
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18 February 2002: US Senate hearings on accounting continue 26 February
Former SEC Chief Accountants Walter P. Schuetze (1992-95), Michael H. Sutton (1995-98), and Lynn E. Turner (1998-2001) will testify, as will former FASB Chairman Dennis R. Beresford (1987-97). Click for Hearing Information.
17 February 2002: Accounting/auditing reform legislation introduced in US Congress
Legislation known as the Corporate and Auditing Accountability, Responsibility, and Transparency Act (H.R.3763) has been introduced in the US Congress. The bill would:
- Establish a public regulatory organisation to oversee the auditing profession
- Prohibit auditors from offering financial information system design or implementation services or internal audit services to audit clients
- Require 'real time' disclosure of off-balance sheet financing, relationships with unconsolidated entities, and insider trading
- Recommend that the SEC require management to explain, where material, its choice of accounting principles from among the different available accounting principles, the judgments made in their application, and the likelihood of materially different reported results if different assumptions of conditions were to prevail
- Increase the SEC's budget from $480 million to $700 million
- Require the SEC to conduct thorough reviews of the audits of the largest and most widely traded companies
- Require the SEC to consider ways to reduce financial analysts' conflicts of interest.
Click for Press Release (PDF 52k).
Click for Full Text of H.R. 3763 (PDF 139k).
16 February 2002: Additional item for agenda of upcoming IASB meeting
IASB will discuss proposed improvements to IAS 21, The Effects of Changes in Foreign Exchange Rates, at its meeting on 19 February. That item has been added to the previously announced Agenda for the 19-22 February 2002 meeting.
15 February 2002: Support for IASB from former SEC Chairmen
Five former SEC Chairmen (Roderick M. Hills, Harold M. Williams, David Ruder, Richard C. Breeden, and Arthur Levitt, Jr.) testified at the US Congressional committee hearing on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies". You can Download Each Chairman's Statement.
- Chairmen Breeden and Levitt supported giving the SEC the authority to adopt other standards when it finds shortcomings in FASB's standards. Chairman Breeden said: "the SEC should be able to adopt International Accounting Standards or standards drafted by other authorities, as well as its own staff, where it finds that FASB standards are not in the interest of investors. The FASB is too slow, standards are too complex, and it is not sufficiently accountable for action."
- In his oral testimony, Chairman Levitt praised IASB's willingness to tackle expense recognition for stock options.
- Chairman Breeden expressed a preference for IASB's "Ten Commandments" approach to principle-based standards in contrast to FASB's "cookbook" approach.
- Chairman Williams noted: "Rule making itself is very difficult particularly as financial activity and economic transactions become increasingly complicated and sophisticated. For example, the FASB has engaged for a number of years in an effort to create a clear standard for disclosing off-the-books transactions and special purpose entities. They have not been able to come up with a rule acceptable to the business community and the profession. That acceptability should not ultimately be the determining factor."
15 February 2002: US SEC announces some 'post-Enron' disclosure changes
The US SEC has announced proposed changes in corporate disclosure rules as the first in a series of steps designed to improve the US financial reporting and disclosure system. The rule changes, which would apply to foreign as well as domestic registrants, "will provide significant improvements quickly while other proposals are considered". The proposed rules are intended to:
- Accelerate reporting by companies of transactions by company insiders in company securities, including transactions with the company;
- Accelerate filing by companies of their quarterly and annual reports;
- Expand the list of significant events requiring current disclosure on existing Form 8-K, including changes in rating agency decisions, obligations that are not currently disclosed, and lock-out periods affecting employee stock-ownership plans.
- Require public companies to post their annual and quarterly reports on their websites at the same time they are filed with the SEC; and
- Require disclosure of critical accounting policies in Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in annual reports.
Click for Details of Planned SEC Rules.
15 February 2002: Tweedie and Volcker testify to US Congress
IASB Chairman Sir David Tweedie and IASC Foundation Chairman Paul Volcker testified at a hearing conducted by the US Senate Committee on Banking, Housing, and Urban Affairs on 14 February 2002 on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies: International Accounting Standards and Necessary Reforms to Improve Financial Reporting".
Excerpts from Sir David's statement.
Click for Full Text (PDF 108k):
I do not plan to comment on specific accounting and auditing issues surrounding Enron, although
there are many. None of us knows enough about the specifics of the transactions, the
information available to the auditors, and the judgements involved to form a solid professional
conclusion. As we learn more, we may find the U.S. accounting standards should be improved.
If so, we plan to learn from this case and to make sure that international accounting standards do
not have similar problems....
Why have an international standard setter?
- First, there is a recognised and growing need for international accounting standards.
- Second, no individual standard setter has a monopoly on the best solutions to accounting problems.
- Third, no national standard setter is in a position to set accounting standards that can gain acceptance around the world.
- Lastly, there are many areas of financial reporting in which a national standard setter finds it difficult to act alone.
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Excerpts from Mr. Volcker's statement.
Click for Full Text (PDF 39k):
We have had too many restatements of earnings, too many doubts about
'pro forma' earnings, too many sudden charges of billions of dollars to 'good will',
too many perceived auditing failures accompanying bankruptcies to make us at all
comfortable. To the contrary, it has become clear that some fundamental changes and
reforms will be required to provide assurance that our financial reporting will be
accurate, transparent, and meaningful....
I think of good financial reporting as resting on three pillars:
Accounting standards setting out with clarity logically consistent and
comprehensive 'rules of the game' that reasonably reflect underlying economic
reality.
Accounting and auditing practices and policies able to translate those standards
into accurate, understandable, and timely reports by individual public companies.
A legislative and regulatory framework capable of providing and maintaining
needed discipline.
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14 February 2002: SIC will meet 26-27 February
IASB's restructured Standing Interpretations Committee will hold its first meeting on 26 and 27 February 2002 at the IASB offices in London. (IASB has proposed to rename the group as International Financial Reporting Interpretations Committee, or IFRIC.) Principal agenda items include IFRIC operating procedures, discussion of SIC D32, Website Costs, and proposals for the initial agenda of the committee. Click for the List of Members of the reorganised IFRIC.
12 February 2002: Chairs of IASCF and IASB will testify before US Senate committee
IASC Foundation Chairman Paul A. Volcker and IASB Chairman Sir David Tweedie will testify before the United States Senate Committee on Banking, Housing, and Urban Affairs on 14 February 2002. They will give testimony at a hearing on "Accounting and Investor Protection Issues Raised by Enron and Other Public Companies: International Accounting Standards and Necessary Reforms to Improve Financial Reporting". Mr. Volcker was also recently appointed chairman of a new independent oversight board created by Andersen. Five former Chairmen of the US SEC (Roderick M. Hills, Harold M. Williams, David Ruder, Richard C. Breeden, and Arthur Levitt, Jr.) testified at a session of that hearing conducted on 12 February. Click for Hearing Information.
8 February 2002: IAS required for all IPOs, secondary offerings in China
The China Securities Regulatory Commission has announced that, for all initial public offerings of 'A Shares' (shares that can be purchased by Chinese investors) filed after 1 April 2002 and all secondary offerings by PRC listed companies after 1 January 2002, IAS financial statements must be published, and they must be audited by an international accounting firm. These would supplement financial statements prepared using Chinese GAAP. It is estimated that the total number of such IAS audits will be around 400 per year. Companies issuing 'B Shares' (shares available for purchase by foreign investors) already are required to publish IAS financial statements at the time of an offering and thereafter.
6 February 2002: Our comment letters on Preface and Constitution
We have posted the Deloitte Touche Tohmatsu letters of comment on:
