|
29 December 2003: IAASB EDs on the auditor's report and group audits
 |
The International Auditing and Assurance Standards Board (IAASB) has issued the following new exposure drafts (EDs) addressing issues pertaining to the auditor's report and group audits. |
- Proposed Revised International Standard on Auditing (ISA) 700, The Independent Auditor's Report on a Complete Set of General Purpose Financial Statements.
- Proposed Revised ISA 600, The Work of Related Auditors and Other Auditors in the Audit of Group Financial Statements.
- Proposed new International Auditing Practice Statement (IAPS), The Audit of Group Financial Statements.
|
Comments are requested by 31 March 2004. Click for Press Release and Links to Download the EDs (PDF 87k).
28 December 2003: Differences between "Improved" IAS and UK GAAP
The United Kingdom Accounting Standards Board has posted a Summary of Key Differences Between UK GAAP and the recently issued IASs resulting from the IASB's Improvements Project on the ASB website.
24 December 2003: New FASB pension disclosures delayed for foreign plans
The US Financial Accounting Standards Board (FASB) has revised its Statement 132 on Employers' Disclosures about Pensions and Other Postretirement Benefits. Among other things, companies must now disclose plan assets by category, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognised during interim periods. Disclosure requirements for nonpublic entities are reduced. The guidance is effective for financial years ending after 15 December 2003, and for quarters beginning after December 15, 2003. However, the effective date for disclosure of certain information relating to foreign plans is financial years ending after 15 June 2004. But until IAS 132 is fully adopted, financial statements that exclude foreign plans from (a) the actual allocation of assets, (b) the description of investment strategies, (c) the basis used to determine the expected long-term rate-of-return-on-assets assumption, or (d) the amount of accumulated benefit obligation must include, separately for domestic plans, the total fair value of plan assets and the overall expected long-term rate of return on assets. You can download the full Statement 132 and related news release and FAQ from the FASB Website.
24 December 2003: Hong Kong intends to adopt revised IAS 32 and 39 in full
The Financial Accounting Standards Committee of the Hong Kong Society of Accountants (HKSA) has announced that it intends to seek approval of the HKSA's Council to adopt the IASB's newly revised standards on financial instruments – IAS 32 and IAS 39 – in full as Hong Kong Statements of Standard Accounting Practice (SSAPs). The HKSA's goal is to have the final SSAPs approved in January. They had previously been exposed for comment in Hong Kong. The HKSA Press Release (PDF 117k) said: "These two accounting standards provide comprehensive guidance on the accounting for financial instruments. The need for such guidance is crucial. Financial instruments are a large part of the assets and liabilities of virtually every company, in particular financial institutions. They also play a central role in the efficient operation of financial markets". Accounting standard-setters in Australia, Canada, Germany, New Zealand, and United Kingdom have all issued press releases commending the IASB for its new standards, as has the US Securities and Exchange Commission and the Australia Securities and Investments Commission.
24 December 2003: Project pages updated
We have updated our summaries of the following IASB agenda projects to reflect the discussions at the Board's December 2003 meeting:
22 December 2003: New SEC guidance on MD&A
The US SEC has issued an interpretive release providing guidance regarding Management's Discussion & Analysis of Financial Condition and Results of Operations, commonly called MD&A, included in reporting companies' disclosure documents. Link to Release (PDF 312k) on SEC website. Regarding foreign issuers, the SEC said:
|
While this release refers primarily to U.S. GAAP, the underlying events and circumstances described in the release ordinarily will be applicable to foreign private issuers and should be discussed to the extent material. Consistent with the Instructions to Form 20-F, however, companies using that form should focus on the primary financial statements in their discussion and analysis in Item 5 (Operative and Financial Review Prospects). Also, companies are required to discuss in Item 5 of Form 20-F any aspects of the differences between foreign and U.S. GAAP that they believe are necessary for an understanding of the financial statements as a whole
|
22 December 2003: Proposal – international auditing standards for Canada
A discussion paper published by the Certified General Accountants Association of Canada concludes that Canada would be well served by adopting International Auditing Standards (ISAs) for use as the domestic auditing standards in Canada. Click for More Information.
22 December 2003: PCAOB adopts its first auditing standard
The US Public Company Accounting Oversight Board has adopted its first auditing standard – Auditing Standard No. 1, References in Auditors' Reports to the Standards of the Public Company Accounting Oversight Board. AS 1 requires that auditors' reports on engagements conducted in accordance with the PCAOB's standards include a reference that the engagement was performed in accordance with the standards of the PCAOB. This replaces previously required references to generally accepted auditing standards. SEC approval is required before the standard takes effect. News Release (PDF 55k).
22 December 2003: EFRAG public hearing on strengthening its role
In our News Story of 6 December 2003, we previously reported that the European Financial Reporting Advisory Group (EFRAG) is inviting comment on proposals to enhance its role and streamline its operating processes with the goal of "strengthening European input to the IASB". EFRAG has announced that it will hold a public hearing on those proposals on 8 January 2004 at the Renaissance Hotel, Rue du Parnasse 19, Brussels, Belgium, from 13:30pm to 17:00pm.
21 December 2003: SEC Chief Accountant welcomes actions by FASB and IASB
The Chief Accountant of the US Securities and Exchange Commission welcomed the publication by the Financial Accounting Standards Board (FASB) of proposals that would modify several aspects of American accounting standards to be consistent with the guidance on those issues currently included in international accounting standards. The Chief Accountant also welcomed the release by the IASB of revised IASs 32 and 39. Click for News Release (PDF 34k).
21 December 2003: Comment letters on asset disposals and macro hedging
The IASB has posted on its Website the comment letters it received two exposure drafts: ED 4, Disposal of Non-current Assets and Presentation of Discontinued Operations, and the unnumbered ED on Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk. They are available for download without charge.
20 December 2003: Report of the third day of the IASB meeting
The IASB met in London 17-19 December 2003. We have moved our notes from the IASB meeting on 19 December 2003 to a Separate Page.
19 December 2003: Report of the second day of the IASB meeting
The IASB met in London 17-19 December 2003. We have moved our notes from the IASB meeting on 18 December 2003 to a Separate Page.
19 December 2003: IASB publishes 13 revised IAS
The International Accounting Standards Board has published 13 revised International Accounting Standards reflecting changes resulting from the Improvements Project. The Board also withdrew IAS 15. Click here for IASB Press Release (PDF 39k). The revised standards mark the near-completion of the Improvements project. The completion of these improved standards brings the IASB closer to its commitment to have a platform of high quality, improved standards in place by the end of March 2004. The IASB has set itself this deadline to ease the implementation of its standards in the many countries, including those of the European Union, that will be adopting international standards from 2005. The revised standards issued are:
- IAS 1 Presentation of Financial Statements
- IAS 2 Inventories
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 10 Events after the Balance Sheet Date
- IAS 16 Property, Plant and Equipment
- IAS 17 Leases
- IAS 21 The Effects of Changes in Foreign Exchange Rates
- IAS 24 Related Party Disclosures
- IAS 27 Consolidated and Separate Financial Statements
- IAS 28 Investments in Associates
- IAS 31 Interests in Joint Ventures
- IAS 33 Earnings per Share
- IAS 40 Investment Property
|
19 December 2003: New edition of Accounting Roundup posted
We have posted the 16 December 2003 Edition of Accounting Roundup, a Deloitte newsletter that summarises selected recent accounting and financial reporting developments and provides Internet links to related content where appropriate. Accounting Roundup is published periodically as developments warrant. This issue includes about recent and proposed FASB Staff Positions, issues relating to FAS 133 and FIN 46, and summaries of recent activity at FASB, GASB, AICPA, SEC, PCAOB, and IASB.
19 December 2003: Report of the first day of the IASB meeting
The IASB met in London 17-19 December 2003. We have moved our notes from the IASB meeting on 17 December 2003 to a Separate Page.
19 December 2003: Revised versions of IAS 32 and IAS 39 released
The IASB has published the final texts of the revised versions of IAS 32 and IAS 39 on financial instruments. IASB subscribers may download them from the IASB's Website. Click for IASB Press Release (PDF 81k). IAS 39 is expected to be further revised in first quarter 2004 to reflect the Board's decisions regarding macro hedging.
17 December 2003: All IAS have been adopted or proposed in the Philippines
With the recent issuance of two exposure drafts by the Philippine Accounting Standards Council, every existing International Accounting Standard has now either been adopted virtually word for word or proposed for adoption in the Philippines. The last two exposure draft are the equivalents of IAS 30 (disclosures by financial institutions) and IAS 41 (agriculture). In addition to these two, the Philippine exposure drafts of the following standards have not yet been issued as final Statements of Financial Accounting Standards: IAS 12 (income taxes), IAS 19 (employee benefits), IAS 26 (employee benefit plans), IAS 29 (hyperinflation), IAS 32 and IAS 39 (financial instruments), and IAS 40 (investment property).
16 December 2003: FASB publishes four "convergence" exposure drafts
|
The US Financial Accounting Standards Board has published four exposure drafts that would result in US accounting standards converging to existing International Financial Reporting Standards. Under the four EDs: |
- Voluntary changes in accounting policies would be required to be applied retrospectively rather than by cumulative effect adjustment as currently required.
- Three changes are proposed for calculating earnings per share.
- A gain or loss would be recognised on the exchange of similar productive assets based on the fair value of the exchange unless the exchange lacks commercial substance.
- Abnormal amounts of idle capacity and spoilage costs would be excluded from the cost of inventory and expensed as incurred.
|
Additional information:
15 December 2003: FASB Chairman speaks out on convergence
Convergence of IFRS and US GAAP was one of the major themes in a presentation by FASB Chairman Robert H. Herz at last week's AICPA Conference on Current SEC Developments. Another major theme was undue political pressure on controversial topics such as accounting for stock options. Below is an excerpt from Mr. Herz's comments. Click to Download the Full Text (PDF 72k).
|
While getting the [IASB and the FASB] to agree on a common answer to particular issues can be quite challenging, that is not, in my view, the greatest hurdle facing international convergence. Rather, the biggest challenge and potential obstacle thus far has seemed to come from particular constituent groups who have lobbied heavily against particular proposals from either the FASB or the IASB that would move our standards closer together. We have seen this here with the campaign in Congress and elsewhere by the hi-tech lobby against expensing stock options and in Europe with certain financial institutions who have lobbied the European Commission and national governments against the introduction in Europe of international standards on the accounting for financial instruments that are in many respects similar to those in U.S. GAAP. Let's be clear, convergence is a two-way street. If you are truly in favor of international convergence, then inevitably there will be changes on both sides. Convergence does not mean convergence to my way, rather it must mean convergence to the better approach. And while U.S. GAAP may be more highly developed and tested than international standards, we don't have a monopoly on all the right answers. Indeed in some cases, the international folks have addressed a subject more recently than we have and may have come up with a higher quality approach. And in some cases (like revenue recognition), neither U.S. GAAP nor international standards are particularly good in my view and thus we need to work together to find a better approach.
So can we get to convergence? I believe so but it will take time, a lot of hard work, and a relentless determination. And, as I just suggested, the biggest potential obstacle I see is the political one. That is whether the politicians on either side of the Atlantic will have the vision and political will to restrain themselves from intervening into what are supposed to be the independent and objective processes of either the FASB or the IASB each time a powerful lobbying group asks them to block a particular proposal they don't like.
|
15 December 2003: Update on integration of European capital markets
An inter-agency monitoring group within the European Commission has published its second interim report on progress toward regulating European securities markets at the EU level. Currently, those markets are generally regulated at the member state level, though steps have already been taken to centralise the regulatory process. Adoption of IFRS in Europe is part of the centralisation programme. Click to Download the Report (PDF 156k).
11 December 2003: South Africa supplement to IFRS in your Pocket
Deloitte South Africa has published a South Africa Supplement (PDF 131k) to IFRS in your Pocket. The supplement summarises the differences between South African Statements of Generally Accepted Accounting Practice and IFRS. Following completion of the harmonisation process, those differences relate to the effective dates of the standards, additional disclosures required by South African GAAP, and elimination of certain alternatives allowed under IFRS.
11 December 2003: Model Hong Kong GAAP financial statements for 2003
11 December 2003: IFRS will be acceptable to tax authorities in Britain
In his Annual Pre-Budget Report to the House of Commons, the UK Chancellor of the Exchequer Gordon Brown announced the following "deregulations: firms applying international accounting standards will not have to submit a second and separate set of accounts to the Inland Revenue. For firms with turnovers below £5.6 million there will now be no independent audit requirement."
11 December 2003: Is a whole new business reporting model needed?
The Institute of Chartered Accountants in England & Wales has published New Reporting Models for Business, a report aimed at widening debate on how businesses should report to their various stakeholders. The report examines issues such as whether a new conceptual framework is needed; the degree to which business reporting can serve multiple stakeholders and a broad range of decision-making needs; reporting on intangibles; and transparency and commercial confidentiality. The report does not put forward its own new reporting model, but rather it analyses the models that have already been proposed and raises a series of questions for further discussion and research. The 11 models analysed are:
- The Balanced Scorecard (Kaplan and Norton)
- The Jenkins Report (AICPA)
- Tomorrow's Company (RSA/Tomorrow's Company)
- The 21st Century Annual Report (ICAEW)
- The Inevitable Change (ICAS)
- Inside Out (ICAEW)
- Value Dynamics (Arthur Andersen)
- GRI (Global Reporting Initiative®)
- Unseen Wealth (Brookings Institution)
- ValueReporting® (PricewaterhouseCoopers)
- The Hermes Principles (Hermes Pensions Management)
The report notes:
|
None of these models, whatever their merits, has so far succeeded in commanding
general support. At present, they provide a collection of interesting and challenging ideas,
many of which seem to have little prospect of widespread implementation....
Some may feel that more wide-ranging reforms should take second place for the
foreseeable future to such pressing concerns as the improvement and implementation
of IFRS. But the criticisms of business reporting referred to in this report did not suddenly
appear at the height of the bull market and they will not disappear as and when
companies are using a common set of international accounting standards. When these
issues have been dealt with, the fundamental questions that the reformers raise will still
need to be addressed. Indeed, unless they are addressed it might not be possible to
restore or maintain confidence in business reporting.
|
Click for:
Full Report (PDF 321k). Comments are requested by 31 March 2004.
Link to ICAEW Information for Better Markets Campaign
11 December 2003: Explain impact of IFRS starting in 2003
In its Letter of Comment on a consultation paper, Draft Recommendation for Additional Guidance Regarding the Transition to IFRS, issued by the Committee of European Securities Regulators, the Institute of Chartered Accountants in England and Wales has urged companies to explain the impact of switching from UK GAAP to IFRS as soon as reasonably practicable. The Institute recommends that companies begin the process in their 2003 annual report by including narrative on the preparation process.
10 December 2003: PCAOB rules for inspection of non-US audit firms
The US Public Company Accounting Oversight Board has invited comment on proposed rules relating to the inspection and investigation of non-US public accounting firms. The Board also proposed extending the registration deadline for non-US firms by 90 days to 19 July 2004. The proposed inspection rule would permit the PCAOB to rely on the work of non-US oversight systems in other jurisdictions, based on a sliding scale: the more independent and more rigorous a local oversight system, the greater the PCAOB's reliance on that system. The non-US inspecting entity's would be expected to follow an inspection work program that meets certain requirements. Click for Press Release (PDF 114k). When available, the text of the proposed rules will be posted here on PCAOB's Website.
10 December 2003: IFRIC project summaries updated
We have updated the following summaries of IFRIC agenda projects to reflect the deliberations and decisions reached at IFRIC's meeting on 2-3 December 2003:
9 December 2003: Agenda for next week's IASB meeting
The IASB will meet at its offices in London on 17-19 December 2003. The following Agenda topics will be discussed:
|
AGENDA – IASB MEETING 17-19 DECEMBER 2003
|
9 December 2003: Steps toward IFRS convergence in New Zealand
The New Zealand Financial Reporting Standards Board has issued two exposure drafts as part of the process to converge with
International Financial Reporting Standards. A new edition of the Deloitte New Zealand Accounting Alert newsletter (Issue #16) describes ED NZ IAS-1: Presentation of Financial Statements, and ED NZ Interpretation SIC-29: Disclosure Service Concession Arrangements.
8 December 2003: Changes to IASB's project timetable
We have changed our Timetable for IASB Projects to reflect changes made in the timetable on the IASB's website. Changes include:
7 December 2003: Provisional revised versions of improved standards released
The IASB is making available on-line to subscribers the "provisional final" texts of Standards being revised under the Improvements Project. The Provisional Final versions of IAS 17 Leases, IAS 28 Investments in Associates, IAS 31 Interests in Joint Ventures, IAS 40 Investment Property, and the Withdrawal of IAS 15 Information Reflecting the Effects of Changing Prices are now available on IASB's website. The IASB has previously made available the provisional texts of IASs 2, 10, 16, 21, 24, and 33.
6 December 2003: Proposal to enhance EFRAG's role and working process
The European Financial Reporting Advisory Group (EFRAG) has invited comment on proposals to enhance its role and streamline its operating processes with the goal of "strengthening European input to the IASB". EFRAG, a private-sector body, was created in mid-2001 by a broad array of groups interested in financial reporting in Europe, including the preparers and the accountancy profession. Its principal goal is to make a pro-active contribution to the work of IASB while also advising the European Commission on the technical assessment of the IASB standards and interpretations for application in Europe. Key proposals include:
- Increasing EFRAG's pro-active role with the IASB, to allow EFRAG to present European concerns at the earliest stage.
- Seeking full recognition of EFRAG as a liaison standard-setter by the IASB.
- Creating an Advisory Forum to allow a wide range of stakeholders to contribute to the European financial reporting debate.
- Making EFRAG's working processes more efficient, including (a) closer relationships with the European national standard setters; (b) smaller and more efficient Supervisory Board; and (c) a full-time Chairman for the Technical Expert Group.
- Increasing EFRAG's resources.
|
Written comments on the proposals are invited by 12 January 2004, and a public hearing will be held in Brussels on 8 January 2004. Click to download:
6 December 2003: EC comments on IAS regulation and accounting directives
The European Commission has made some small changes to the document interpreting aspects of the EU's IAS Regulation and the
interaction of the Regulation with the Accounting Directives (see news story of 3 December 2003). If you previously downloaded it, please click here to Download the Revised Version (PDF 175k).
5 December 2003: Disclosure of the impact of IFRS convergence in Australia
 The Australian Accounting Standards Board (AASB) has released Exposure Draft ED 129, Disclosing the Impact of Adopting AASB Equivalents to IASB Standards. A new Deloitte Australian Accounting Alert provides an overview of ED 129 (which would require disclosures starting June 2004) and analysis of the issues arising.
4 December 2003: Notes from the IFRIC meeting
Presented below are the preliminary and unofficial notes taken by our observer at the second day of the 2-3 December 2003 meeting of the International Financial Reporting Interpretations Committee.
|
NOTES FROM THE IFRIC MEETING 3 DECEMBER 2003
 Rights of Use
The Draft Interpretation was sent to the Board. One Board member expressed concerns on the three criteria, as they appear to be internally inconsistent. The staff has redrafted the Interpretation, and IFRIC generally agreed on the amendments. Some IFRIC members expressed concerns that the draft is still unclear as to whether the asset being accounted for is a right of use or the underlying asset.
The staff was asked to redraft the Interpretation to address those concerns. Additionally, the staff should consider the relationship of this project to the one on concession agreements.
Emission Rights (Draft Interpretation D1)
Four issues were discussed during this meeting:
- Whether IFRIC should propose the amendment of IAS 38 to the Board.
- Measurement of inventory.
- Additional guidance when there is no active market.
- Disclosure.
The staff noted that EITF is taking this topic off their agenda.
The staff proposed that IFIRC create a new category of intangible asset – intangible asset that will be used to extinguish a liability – to be accounted for at fair value if there is an active market. Though some members expressed concerns, IFRIC generally agreed with the proposal because it solves a part of the mismatch problem (change in liability to income and change in asset to equity under current IAS 38). Two members still support the net approach; however the majority view supports the gross approach. If the IASB agrees to amend IAS 38, this would require re-exposure and, therefore, this Interpretation may not be part of the 2005 "stable platform".
IFRIC agreed that the final Interpretation should not address whether emission right payments should be a component of the cost of inventory. However, there was general agreement that emission payments should not be considered a penalty (and therefore prohibited from inclusion in the cost of inventory). Also, no additional guidance will be given on how to calculate the fair value of emission rights when there is no active market. The IFRIC will not require or encourage additional disclosures requested by respondents.
Some members asked the staff to redraft the scope of the Interpretation to clarify that it would not apply to potential new emission rights schemes that are not consistent with a cap and trade scheme.
The IFRIC discussed when the allowance should be first recognised under IAS 20 – when it is received or when it becomes receivable. The staff will consider this further.
Concessions
The IFRIC agreed with the staff's proposal that the lease model is the most suitable model. Some members expressed concerns about the process and asked for a timeline with expected objectives for IFRIC at each meeting.
The staff presented several examples with which the IFRIC generally agreed. IFRIC asked the staff to explore and emphasise, in the draft Interpretation, the conditions that transform a contract from being accounted for under IAS 11 to being accounted for under IAS 17 (that is, what types of services may lead to a lease contract). IFRIC asked the staff to work on the componentisation and segmentation of contracts and to explore whether some contracts should be seen as "leaseback contracts" by analogy because the "rights" could be reversed. IFRIC asked the staff to look at alternative models as well.
It was noted that the revenue recognition issue would be dealt at future meeting. The staff will come back with a new analysis at the next meeting. Given the significance of this project and the breadth of issues to be addressed, this issue should be considered a long-term project.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
|
4 December 2003: Agenda project pages updated
We have updated our agenda project pages for the following projects to reflect discussions and decisions at the IASB's November 2003 meeting:
4 December 2003: Changes in decommissioning and similar liabilities
The IASB has posted on its website the Comment Letters on IFRIC D2, Changes in Decommissioning, Restoration and Similar Liabilities. The 50 comment letters overwhelmingly supported a prospective approach to accounting for such changes. At its meeting earlier this week, the IFRIC decided to switch from the retrospective proposed in D2 to a prospective approach.
4 December 2003: IFAC Public Sector Committee newsletter
We have posted the latest issue of the IFAC Public Sector Committee Update Newsletter. A section of the newsletter deals with harmonisation of International Public Sector Accounting Standards with International Financial Reporting Standards issued by the IASB. For background information on the PSC Click Here.
3 December 2003: EC comments on IAS regulation and accounting directives
The European Commission has published the final version of a document interpreting aspects of the EU's IAS Regulation and the interaction of the Regulation with the Accounting Directives. The formal title of the document is a long one: Comments Concerning Certain Articles of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the Application of International Accounting Standards and the Fourth Council Directive 78/660/EEC of 25 July 1978 and the
Seventh Council Directive 83/349/EEC of 13 June 1983 on Accounting. Click here for Table of Contents. Click here to Download the Document (PDF 176k).
3 December 2003: Notes from the IFRIC meeting
The International Financial Reporting Interpretations Committee is meeting on 2 and 3 December 2003 at the IASB's offices in London. Presented below are the preliminary and unofficial notes taken by our observer at the first day of the meeting.
|
NOTES FROM THE IFRIC MEETING 2 DECEMBER 2003
Onerous Contracts: Operating Leases and Other Executory Contracts
IFRIC was asked to develop an Interpretation addressing how the guidance on onerous contracts in IAS 37 should be applied to certain issues not currently being addressed by the IASB's convergence project. The issues relate to whether a contract is onerous if it is used in production and how the determination of onerous should be identified. The staff developed two approaches, the impairment approach and the liability approach.
The impairment approach views the contract as an unrecognised asset that should be reviewed for impairment under IAS 36. The liability approach views the obligation under the contract as a provision under IAS 37. Depending on the model used (IAS 36 or IAS 37 models), there could be a difference with the discount rate chosen and whether a fair value or value-in-use notion is used, leading to significantly different measurements.
After discussing on the Board's progress on IAS 37 and the two views, IFRIC concluded that this issue (which was basically rejected by the IASB as being too difficult and requiring a fundamental rewrite to IAS 37) is better addressed at the Board level. Therefore, this item was removed from the IFRIC agenda.
IAS 29, Financial Reporting in Hyperinflationary Economies
The staff came back to the Board with a draft Interpretation including an example clarifying the restatement principles under IAS 29. The staff proposed a retrospective approach as it is required under IAS 29. Several IFRIC members were concerned that the proposed approach was impractical, as many entities will not be able to retrace the information. Additionally, it was inconsistent with the notion that balances are not restated for the effects of inflation during periods of normal inflation – so why restate 40 years of balances if the most recent year is considered hyperinflationary?
Therefore, IFRIC concluded that the staff should explore paragraph 16 of IAS 29, to allow entities to use an independent valuation of fair value when information is not available. It was noted that first-time adopters will be allowed to chose the prospective approach by using the alternative treatment under IFRS for PP&E (revaluation at the day of transition). The IFRIC concluded that these choices would not set an accounting policy to revalue the assets continuously.
Reports to IFRIC
The staff presented the IFRIC members with an update of prior items discussed that were sent to the IASB.
Allocation of Benefits to Periods of Service
The staff asked whether they should address guidance on how to allocate the benefits to periods of service – specifically, whether future salaries should be included in the measurement of the plan liability. The IFRIC previously could not interpret IAS 19 in a manner it thought appropriate and therefore had previously asked the IASB to amend IAS 19. The staff noted that there will not be a short-term amendment to IAS 19 given the delay in the performance reporting project. Therefore IFRIC is being asked whether it wants to address this issue again.
There was general agreement that IAS 19 requires the inclusion of future salaries in the measurement. However, the IFRIC was uncomfortable with that answer. It was noted that the EITF agreed that future salaries should not be used to measure the liability, although it questioned the logic of how the EITF came to that decision.
The IFRIC reaffirmed its position that it will not address this issue since (a) it is not a priority issue, (b) IAS 19 appears clear enough to interpret, and (c) any proposed interpretation by IFRIC would require an amendment to IAS 19 which would not happen anytime soon.
Differences between Voluntary Redundancy Benefits
and Early Retirement Benefits
The staff asked IFRIC whether it would want the staff to raise an issue to the agenda committee on the accounting distinction between voluntary redundancy benefits and early retirement benefits (IAS 19 vs. IAS 37 models). The IFIRC asked the staff to analyse existing plans, as it seems that many included both elements. The agenda committee was asked to develop the questions and scope of the project.
Multi-employer Plans
The IFRIC discussed a draft interpretation on when the exception from defined benefit accounting (and therefore the application of defined contribution accounting) can be used for multi-employer plans that meet the definition of a defined benefit plan. Several members expressed concern with the model proposed for various reasons (including divergence with US GAAP and disagreement on when information will not be available). The IFRIC decided to issue the current draft (with minor amendments and clarifications) for exposure.
Recognition and Measurement of Biological Assets
There is general concern that paragraph 21 of IAS 41 is internally inconsistent. The first part of paragraph 21 clarifies the principle that the objective of the measurement is fair value. However, the second part, read literally, seems to require the exclusion of a major portion of the fair value calculation, potential future growth of the biological assets. There was general agreement among IFRIC members that the goal is fair value and therefore, the potential (risk adjusted) growth should be considered. The IFRIC concluded to request the IASB clarify this paragraph in its improvements to IAS 41.
The IFRIC also discussed whether and when obligations to replant or restore land (for instance after deforestation) should be included in the cost of the assets produced today in accordance with paragraph 22 of IAS 41. Some IFRIC members believe a model similar to decommissioning in IAS 16 (and interpreted by IFRIC D2) should by applied, while other members believe an obligation to replant should not be recognised unless an obligation exists and that the asset should be subjected to an impairment test. This issue will be discussed at a future meeting.
Plans with a Guaranteed Minimum Return on Contributions
The IFRIC was asked to give final comments on a draft interpretation on the accounting for both variable and fixed guaranteed minimum returns on contributions. Some members continue to believe such plans should be viewed as defined contribution plans with an embedded derivative (the embedded derivative being the guaranteed return). The IFRIC concluded that most defined benefit plans could be viewed in that way and confirmed its decision that IAS 19 could not be interpreted as such.
There was concern as to the proper mechanics in applying the standard that the staff and certain IFRIC members will further explore outside of the IFRIC meeting. If significant, this issue may be brought back at a future meeting. Notwithstanding the measurement issue, the IFRIC voted to submit the exposure draft to the IASB for approval to be issued.
Changes in Decommissioning, Restoration and Similar Liabilities
The IFRIC discussed the comment letters received on Exposure Draft D2, Changes in Decommissioning, Restoration and Similar Liabilities. Based on the overwhelming support for a prospective approach (as opposed to the retrospective approach proposed in D2), the IFRIC agreed to change the position. The effects of this decision will be explored at future IFRIC meetings.
The IFRIC retained its position that changes in the discount rate should be accounted for similarly to changes in cash flows. However, this would now also be on a fully prospective basis.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
|
2 December 2003: International convergence update: Australia
We have posted the latest Australian Accounting Alert, International Convergence Update.
2 December 2003: GAO study on audit firm rotation
The US General Accounting Office (GAO) has published its report on Public Accounting Firms – Required Study on the
Potential Effects of Mandatory Audit Firm Rotation. The study was mandated by the Sarbanes-Oxley Act of 2002.
| "GAO believes that mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company's previous auditor of record, as well as the current reforms being implemented. The potential benefits of mandatory
audit firm rotation are harder to predict and quantify, though GAO is fairly certain that there will be additional costs." |
Click to Download the GAO Study (PDF 575k).
1 December 2003: Preliminary revised version of IAS 21 is available
The IASB is making available on-line to subscribers the "preliminary final" texts of Standards being revised in the Improvements Project. Subscribers can now download IAS 21, The Effects of Changes in Foreign Exchange Rates, from the IASB Website. The IASB has previously released the preliminary final texts of IASs 2, 10, 16, 24, and 33.
1 December 2003: EFRAG asks IASB to reconsider IAS 39 decision
The European Financial Reporting Advisory Group (EFRAG) has asked the IASB to reconsider a decision about accounting for offsetting internal derivative contracts used to manage foreign currency risk. In September, the IASB concluded that internal hedges that are used in the same type of hedge relationship and are offset on a net basis with external contracts to manage foreign currency risk should not be eligible for hedge accounting under the revised IAS 39. EFRAG has recommended that the IASB adopt the US treatment, which permits hedge accounting. Click to download the EFRAG Letter (PDF 35k).
1 December 2003: Comment deadline on PCAOB proposals is near
The comment deadline on the following two proposed Auditing Standards of the US Public Company Accounting Oversight Board is 4 December 2003:
- Audit Documentation (PDF 44k). Addresses, among other things, documentation of audits of foreign affiliates of SEC-registered companies.
- References in Auditor's Reports to Standards of the PCAOB (PDF 44k). Starting 1 January 2004 (or 10 days after approval of the final Auditing Standard), the auditor's report (including reports on non-US SEC registrants) would have to state: "We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board." A similar requirement would be imposed on reviews of interim financial information.
|
