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31 July 2002: ED on First-Time Application of IFRS is published
The IASB has issued exposure draft ED 1, First-time Application of International Financial Reporting Standards. Comments are requested by 31 October 2002. The purpose of the Standard is to ensure that all entities adopting IFRSs for the first time present comparative information in their financial statements that is as close as possible to the information provided by existing users, but within cost/benefit constraints. The proposals would require an entity to comply with every IFRS current in the first year when it first adopts IFRSs. At least one year of comparative information prepared using those same IFRS is required. The draft Standard requires first-time preparers of financial statements under IFRSs to disclose how the transition to international standards affected the entity's reported financial position, financial performance, and cash flows. Click for Project Information.
30 July 2002: SEC will study a 'principles-based' accounting system
The accounting reform legislation in the United States requires the SEC to conduct a study on the "adoption by the United States financial reporting system of a principles-based accounting system", including:
- the extent to which principles-based accounting and financial reporting exists in the United States;
- the length of time required for change from a rules-based to a principles-based financial reporting system;
- the feasibility of and proposed methods by which a principles-based system may be implemented; and
- a thorough economic analysis of the implementation of a principles-based system.
The SEC must complete the study in one year and must submit its report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.
30 July 2002: Full text of US accounting reform legislation posted
Click here to Download the Full Text of the US Public Company Accounting Reform and Investor Protection Act of 2002 (PDF 226k). A foreign public accounting firm that prepares an audit report with respect to any SEC registrant is subject to the Act and to the rules of the new Public Company Accounting Oversight Board. The new law permits the SEC to look to a private-sector accounting standard-setter, such as FASB, provided that the standard-setter:
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"considers, in adopting accounting principles, ... the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors"
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30 July 2002: Comparison of IFRS and US GAAP
We have posted the latest Deloitte Touche Tohmatsu publication about IAS: GAAP Differences in your Pocket: IAS and US GAAP. This 20-page booklet identifies and explains 81 differences between International Financial Reporting Standards and US GAAP. Twenty of these differences are being addressed in current IASB agenda projects. The booklet identifies them. Click to Download the Booklet (PDF 453k). Deloitte Touche Tohmatsu is pleased to grant permission to accounting educators and students to print copies of the booklet for educational use. You can find other DTT publications relating to IAS Here.
30 July 2002: New Accounting Roundup newsletter posted
The 29 July 2002 edition of the Accounting Roundup newsletter from Deloitte & Touche USA covers the AcSEC project on valuation of private equity securities, the July IASB meeting, the US accounting reform legislation, and securitisations.
29 July 2002: Accounting reform legislation passed in United States
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By vote of 99-0 in the Senate and 423-3 in the House, the United States Congress has approved legislation creating a Public Company Accounting Oversight Board (PCAOB) to oversee the accounting profession. |
Key Features of the
Public Company Accounting Reform and Investor Protection Act of 2002
- Oversight Board. The Act creates the Public Company Accounting Oversight Board (PCAOB)
- Organisation and administration. PCAOB will be organised as a nonprofit corporation. The SEC will provide administration and oversight.
- Timing. The initial PCAOB members must be appointed within 3 months. The board must be organised to begin its work within 9 months.
- Mission of PCAOB. PCAOB is charged with overseeing the audits of public companies and related matters.
- Subpoena power. PCAOB will have subpoena power.
- Funding. PCAOB will be funded by assessing public companies.
- Board members. PCAOB will have five full-time members (maximum of two CPAs) appointed by SEC with approvals of Treasury Secretary and Chairman of the Federal Reserve Board. They will serve five-year terms, with one renewal term allowed.
- Authority to establish or adopt standards. PCAOB must establish or adopt auditing, quality control, ethics, and independence standards. In doing so, the PCAOB may look to standards established by recognised professional organisations.
- Auditor registration. All auditors of public companies must register with the PCAOB, identify public audit clients, identify all accountants associated with those clients, list fees earned for audit and non-audit services, explain its audit quality control procedures, and identify all criminal, civil, administrative, and disciplinary proceedings against the firm or any of its associated persons in connection with an audit report.
- Disciplinary power. PCAOB can discipline or suspend auditors of public companies. Disciplinary proceedings will be confidential until completed.
- Inspection of CPA firms. PCAOB must inspect all CPA firms that audit public companies to assess compliance with the law, SEC regulations, rules established by PCAOB, and professional standards. Firms that audit more than 100 public companies will be inspected annually. Firms that audit 100 or fewer public companies must be inspected at least once every three years. If violations are found, the board must take disciplinary action.
- Engagement of auditors. Audit firms will be appointed by, and will report directly to, the audit committee which must be comprised entirely of independent (non-executive) directors.
- Restrictions on non-audit services to audit clients. The law restricts consulting work auditors can do for their clients. Prohibited services include bookkeeping, financial systems design, appraisal and valuation, actuarial, internal audit, management functions, human resources, broker-dealer, investment banking, and legal. PCAOB may enumerate additional prohibited services. The registrant's audit committee must pre-approve engaging the auditor for any other non-audit services, including tax work.
- Audit partner rotation. The law requires audit partner rotation after 5 years.
- Mandatory audit firm rotation. The Comptroller General must study and report on this within one year.
- Disclosures in financial reports. The law requires certain disclosures in financial reports, including information about off-balance sheet transactions, and orders the SEC to develop rules regarding pro forma disclosures.
- Loans to company executives. The Act prohibits most personal loans to company executives.
- Financial analyst conflicts of interest. Financial analysts cannot be involved in marketing securities (detailed rules to be developed by the SEC).
- Rules of conduct for lawyers. The SEC must develop rules of professional responsibility for attorneys who represent securities issuers.
- Principles-based accounting. The SEC must conduct a study on the adoption of a principles-based accounting system in the United States.
- Corporate and criminal fraud. The Act provides for criminal penalties for corporate fraud and document shredding.
- Accounting standards. The Act permits the SEC to recognise standards established by a private-sector accounting standard-setter, such as FASB or IASB, provided that the standard-setter:
— has an independent and broad-based board of trustees;
— is funded through the fees collected by the PCAOB;
— is deemed acceptable by the SEC in terms of improving financial reporting and protecting investors, and reports annually to the SEC;
— has adopted procedures to consider accounting issues promptly and to keep its standards current; and
— "considers, in adopting accounting principles, ... the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors".
A pending issue before the SEC, set out in its February 2000 Concept Release, is the extent to which the Commission should allow registrants to use IASB standards.
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The President has indicated he will sign the bill into law. Click here to Download the Legislation (PDF 226k).
29 July 2002: Country updates posted for Europe and Africa
We have updated our summaries of recent accounting standards activities in six Jurisdictions in Europe and Africa: France, Germany, Russia, South Africa, Sweden, and United Kingdom.
29 July 2002: The July 2002 IASPlus Europe-Africa newsletter is now available
We have posted the July 2002 Europe-Africa edition of our IASPlus Newsletter.
28 July 2002: Report from IFRIC meeting 23-24 July
The International Financial Reporting Interpretations Committee met in London on 23-24 July. We have moved our notes from the meeting to our IFRIC Page.
25 July 2002: July 2002 IASPlus Asia-Pacific newsletter available for download
We have posted the July 2002 Asia-Pacific edition of our IASPlus Newsletter.
25 July 2002: Russia will adopt IAS starting in 2004
All companies and banks in Russia will be required to prepare their financial statements in accordance with International Accounting Standards starting 1 January 2004, Prime Minister Mikhail Kasyanov has announced. The Prime Minister has ordered the Finance Ministry to develop implementation guidelines for the accounting changes by 1 January 2003.
24 July 2002: Look for the exposure draft on first-time application next week
We expect the IASB to publish for comment its exposure draft on First-Time Application of IFRS around 31 July (next week). Three exposure drafts relating to Phase 1 of the Business Combinations project (revisions to IAS 22, 36, and 38) are planned for issuance by the end of September.
23 July 2002: Performance reporting project will move directly to ED
At its meeting last week, the Board decided that the Performance Reporting Project should move directly to an exposure draft, rather than first issuing a discussion paper. Publication of the ED is planned for first quarter 2003. Click here for a Timetable for IASB projects.
23 July 2002: Notes from IASB meeting 19 July
We have combined all of our notes from the IASB meeting on 16-19 July 2002 on a Separate Page.
22 July 2002: IFAC proposes education standards for professional accountants
The International Federation of Accountants (IFAC) has invited comments on exposure drafts of seven standards and one guideline on international accounting education for professional accountants. Comment deadline is 31 December 2002. The draft International Education Standards cover:
- Entry Requirements
- Content of Professional Education Programs
- Professional Skills and General Education
- Professional Values and Ethics
- Experience Requirements
- Assessment of Professional Competence
- Continuing Professional Education and Development.
The International Education guideline is intended to assist member bodies in establishing an effective program of continuing professional education for their members.
22 July 2002: Agenda project pages updated
We have updated our project pages for the following Board agenda projects to reflect decisions at last week's meeting:
Also, we have created a new project page for Consolidation, Including Special Purpose Entities.
20 July 2002: Analysts want FASB to follow IASB lead on stock options
The Association for Investment Management and Research wants FASB to follow IASB's plan to require companies to recognise the fair value of stock options given to employees as compensation expense. "The International Accounting Standards Board is demonstrating leadership in putting the best interests of investors ahead of the preferences of corporate managements", AIMR said. AIMR is a professional association of 58,000 securities analysts, fund managers and other investment professionals in 112 countries. Click for AIMR Press Release (PDF 86k).
20 July 2002: Additional details from IASB meeting 16 July
We have expanded substantially our earlier notes from the Board meeting on 16 July at which share-based payment was discussed. Please see the Report Below Dated 17 July 2002.
19 July 2002: Notes from IASB meeting 18 July afternoon
We have combined all of our notes from the IASB meeting on 16-19 July 2002 on a Separate Page.
19 July 2002: IAS essential for consolidation of European capital markets
In an Address (PDF 27k) in Paris on 11 July, European Internal Markets Commissioner Frits Bolkestein said that the quantity and magnitude of accounting and corporate governance scandals that have come to light in the past year make it essential to speed up the consolidation of European capital markets -- and one of the keys is International Accounting Standards.
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We need to take measures to raise investor confidence in the numbers, through improvements in accounting standards. The Union has already taken the highly important step in its accounting strategy that almost all listed EU companies will be required to use International Accounting Standards by 2005. Australia has recently joined us. I invite other countries to follow.
We must above all ensure that International Accounting Standards are implemented and enforced effectively and evenly across jurisdictions. I also want to see IAS and US GAAP converge by 2005 so that there may be full reconciliation between them.
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19 July 2002: Notes from IASB meeting 18 July morning
We have combined all of our notes from the IASB meeting on 16-19 July 2002 on a Separate Page.
18 July 2002: Notes from IASB meeting 17 July
We have combined all of our notes from the IASB meeting on 16-19 July 2002 on a Separate Page.
18 July 2002: New Accounting Roundup newsletter posted
We have posted the 15 July 2002 edition of the Accounting Roundup newsletter from Deloitte & Touche USA.
17 July 2002: Updates on accounting standards setting in Asia-Pacific
We have updated our summaries of recent accounting standards activities in nine Asia-Pacific Jurisdictions: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, and Singapore.
17 July 2002: IASB votes to propose expensing of stock options
At its meeting on 16 July 2002 in London, the IASB approved the principle that the fair value of stock options given to employees (and others) should be recognised as expense. The Board considered and rejected allowing an option of disclosure in lieu of expensing. For employees, fair value would be measured at grant date; for options given to non-employees, a different measurement date would be used. IASB expects to publish an exposure draft in the fourth quarter. The target effective date would be 1 January 2004, though this is tentative, and the IFRS might include a 'look-back' period to cover options granted after the exposure draft is issued. Click for information about the IASB's Agenda Project on Share-Based Payment. Discussion that day also included Insurance Contracts. We have combined all of our notes from the IASB meeting on 16-19 July 2002 on a Separate Page.
16 July 2002: IASB begins a four-day London board meeting today
The IASB will meet 16-19 July in London. Click for Agenda.
15 July 2002: How the ED on IAS 32/39 will change securitisations
We have posted the 1 July 2002 issue of the Deloitte & Touche newsletter, Speaking of Securitization (PDF 134k). The newsletter summarises the securitisation aspects of IASB's exposure draft of Amendments to IAS 32 and IAS 39.
13 July 2002: IASC Foundation invites nominations for 3 Trustee seats
The IASC Foundation is seeking to appoint as IASCF Trustees, for three-year terms, three individuals with a background as a senior corporate executive, one each from the Asia-Pacific region, Europe, and North America. Click for IASCF Press Release (PDF 9k).
13 July 2002: Basel Committee accord on measuring capital adequacy of banks
At its meeting on 10 July, the Committee on Banking Supervision of the Bank for International Settlements (the Basel Committee) reached agreement on a new capital accord for internationally active banks. The accord establishes the international benchmark for measuring the capital adequacy of banks. Click for Basel Committee Press Release.
13 July 2002: EFRAG invites comments on its draft letter on Improvements
The European Financial Reporting Advisory Group (EFRAG) has developed its initial views on the IASB Improvements Exposure Draft and posted them to its Website for comment (due 20 August).
12 July 2002 11 July 2002: Apologies: our website host server crashed
Fixed (we hope). We are operating on a backup system now. The site hosting company has advised us that problems are likely to continue for a while.
11 July 2002: New valuation standards proposed by IVSC
The International Valuation Standards Committee has posted the following Exposure Drafts of valuation guidance on the IVSC Website:
- Valuation of Agricultural and Rural Properties
- Reviewing Valuations
- Personal Property
- Valuation of Mortgage Portfolios for Securitisation Purposes.
Click for Information about IVSC.
10 July 2002: AIMR sees urgent need to amend deferral provisions of IAS 19
The Global Financial Reporting Advocacy Committee of the Association for Investment Management and Research (AIMR) has asked the IASB to act "with a sense or urgency" to amend IAS 19, Employee Benefits, to (1) eliminate the deferral and amortisation of past events and (2) disaggregate the activity relating to defined benefit pension plans. Disaggregation would entail separate disclosure of categories of periodic costs (current service costs; interest cost; the expected return on assets; actuarial gains and losses) and non-periodic costs (past service costs; gains and losses on settlements and curtailments). AIMR represents 58,000 investment professionals in over 100 countries. Click for Link to AIMR Letter.
9 July 2002: Over 90% of institutional investors want unified global standards
A survey by McKinsey & Company of over 200 institutional investors in 31 countries found that over 90% of them want a single unified set of global accounting standards. However they are split over which standards, with investors from Western Europe, Eastern Europe, Africa, and Asia favouring IAS and those from North America and Latin America favouring US GAAP. The study also found that 'accounting disclosure' is the single most significant factor affecting their investment decisions. Another interesting finding: investors strongly favour expensing stock options, with over 90% supporting such a change in all parts of the world except North America, where it is 67% in favour.
9 July 2002: Earnings management: an international comparison
Despite the accounting scandals that have surfaced recently in the United States, a study by three accounting academicians has found that the opportunities for accounting abuses are far greater in Continental Europe and Southeast Asia than in the U.S. and the U.K. Using data for nearly 9,000 companies in 31 countries from 1990 to 1999, the researchers identified measures of the extent to which insiders can manage the 'accounting' component of reported earnings to smooth or mask the firm's economic performance -- for the insiders' own benefit. The study, titled "Investor Protection and Earnings Management: An International Comparison", highlights an important link between legal institutions and the quality of accounting earnings reported to market participants. To download the latest version of the paper, Click Here.
8 July 2002: Role of the board of directors in Enron's collapse
A subcommittee of the US Senate has published a report on The Role of the Board of Directors in Enron's Collapse. Click to Download (PDF 302k). Among other conclusions: "The Enron Board of Directors knowingly allowed Enron to engage in high risk accounting practices."
4 July 2002: Australia proposes to replace national standards with IAS
The Australian Financial Reporting Council (FRC) has announced its support for the adoption by Australia of International Accounting Standards by 1 January 2005. The FRC is the body established under Australian law to oversee the process for setting accounting standards in Australia, including overseeing the operations of the Australian Accounting Standards Board (AASB). The FRC proposal, which is subject to the Government's support for necessary amendments of the Corporations Act, would mean that, from 1 January 2005, the accounting standards applicable to reporting entities under the Act will be the standards issued by the International Accounting Standards Board. After that date, audit reports will refer to companies' compliance with IASB standards. Click for:
3 July 2002: Current SEC initiatives in accounting and disclosure
In a Speech before the Economic Club of New York, SEC Chairman Harvey L. Pitt summarised the Commission's key initiatives in the area of accounting and disclosure as follows:
- A proposed framework for oversight of the accounting profession
- CEO and CFO certification of financial statements
- Actively assisting FASB in retaining its independence and addressing key issues on a more timely basis and in a way that will better adapt to changing business environments and emphasise overall accuracy
- Requiring companies to discuss the effects of their critical accounting policies
- Reminders to companies to disclose off-balance sheet financing arrangements, and about the appropriate use of, and limitations on, pro forma financial information
- Enforcement actions underscoring that technical compliance with GAAP, without more, can still produce insufficient disclosure
- Accelerated reporting of insider transactions, including company loans
- Tripling the number of items that companies must report currently, and to accelerate those disclosures
- Accelerating the deadline for annual reports from 90 to 60 days, and quarterly reports from 45 to 30 days.
3 July 2002: Agenda is set for IFRIC's meeting on 23-24 July
IFRIC has announced the Agenda for its upcoming meeting on 23-24 July 2002.
3 July 2002: Exposure draft on IAS 32/39 amendments can be downloaded
IASB's exposure draft on Amendments to IAS 32 and IAS 39 may now be Downloaded without charge; comment deadline is 14 October 2002. The ED on Improvements is also available at this same link, comment deadline 16 September 2002.
2 July 2002: New Deloitte analysis of IASB insurance contracts project
Click here to download Future IAS on Insurance Contracts, analysis by Deloitte Touche Tohmatsu updated as of May 2002 (PDF 612k)
2 July 2002: Growing need for IAS as stock exchanges form alliances
An alliance announced yesterday between the London Stock Exchange (LSE) and the Hong Kong Stock Exchange (HKEx) will allow 200 of each exchange's largest listed companies to trade on the other exchange starting in mid-2003. Significant differences between UK GAAP and HK GAAP highlight the need for global accounting standards.
2 July 2002: New Accounting Roundup newsletter posted
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We have posted the 1 July 2002 edition of the Accounting Roundup newsletter from Deloitte & Touche USA. |
1 July 2002: SEC orders management certification of financial statement accuracy
The US Securities and Exchange Commission has posted a list of 947 companies whose chief executive and chief financial officers are now required to personally certify in writing, under oath, that their most recent reports filed with Commission are both complete and accurate. Officers who make false certifications will face personal liability. The companies are domestic SEC registrants with annual revenues above $1.2 billion. Click for Details in SEC Press Release (PDF 36k).
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