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31 March 2004: IASB issues three new and three revised standards
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The International Accounting Standards Board has issued three new International Financial Reporting Standards – on business combinations, insurance, and asset disposals – and has issued three revised International Accounting Standards, including the finalised macro hedging amendment to IAS 39. These are briefly noted in the table below. We will post more detailed summaries shortly:
IFRS 3 Business Combinations, replacing IAS 22.
- All business combinations are accounted for using the purchase method.
- Pooling of interests is prohibited.
- Goodwill may not be amortised but must be tested for impairment at least annually.
- Post-combination restructuring costs are not accrued as liabilities at the time of the acquisition.
- Press Release (PDF 60k).
IFRS 4 Insurance Contracts.
- Insurers are exempted from applying the IASB Framework and certain existing IFRSs.
- Catastrophe reserves and equalisation provisions are prohibited.
- Requires a test for the adequacy of recognised insurance liabilities and impairment test for reinsurance assets.
- Insurance liabilities may not be offset against related reinsurance assets.
- Accounting policy changes are restricted.
- New disclosures are required.
- Press Release (PDF 32k).
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, replacing IAS 35.
- Assets held for sale are measured at the lower of carrying amount and fair value less costs to sell.
- Such assets are not depreciated.
- A major line of business or area of geographical operations must be classified as discontinued when its assets are classified as held for sale.
- Requirements are substantively the same as US FASB Statement 144
- Press Release (PDF 32k).
IAS 36 Impairment of Assets
- The amendments to IAS 36 relate to adoption of IFRS 3 (see press release above) and are not a comprehensive revision of IAS 36.
IAS 38 Intangible Assets.
- The amendments to IAS 38 relate to adoption of IFRS 3 (see press release above) and are not a comprehensive revision of IAS 38.
IAS 39 Financial Instruments: Recognition and Measurement.
- This amendment incorporates new provisions that permit, in certain cases, fair value hedge accounting for a portfolio hedge of interest rate risk (macro hedging).
- Press Release (PDF 43k).
IASB subscribers will be able to download the new pronouncements from IASB's Website.
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31 March 2004: Change of dates for IASB May 2004 meeting
The IASB's May Board meeting will be held on 19-21 May 2004 (Monday to Wednesday) rather than 21-23 May.
30 March 2004: New Accounting Roundup newsletter
We have posted the 29 March 2004 edition of Accounting Roundup (PDF 150k) from Deloitte (United States). This newsletter briefly describes key regulatory and professional developments that have recently occurred and provides links to locations where additional information can be found on each topic. This issue includes updates on activities of FASB, SEC, PCAOB, and IASB (including the 17-19 March 2004 IASB meeting). You will find past issues Here.
30 March 2004: UK consultation on use of IFRS by unlisted companies
The United Kingdom Department of Trade and Industry has released a consultation document Modernisation of Accounting Directives/IAS Infrastructure (PDF 655k). DTI is seeking input on proposed changes to the UK 1985 Companies Act that would allow companies that are not already required by European law to follow IFRSs to choose IFRSs instead of UK GAAP in preparing their financial statements. Companies choosing the IFRS option would be able to reverse it only in limited circumstances. Parent companies would be required to ensure consistency of choice within the group unless there are good reasons against it.
30 March 2004: FASB will issue its stock options exposure draft this week
The US Financial Accounting Standards Board has announced that it will post its exposure draft, Share-Based Payment, to its Website "early in the week of March 29". The FASB's proposals are expected to be largely the same as those in IASB IFRS 2, which was issued last month. IFRS 2 requires that all share-based payment transactions must be recognised in the financial statements, using a fair value measurement basis. An expense is recognised when the goods or services received are consumed. The same recognition and measurement standards apply to both public and non-public companies. In the United States, currently, FASB Statement 123 allows companies to choose either to recognise the fair value of stock options and other share-based payment as expense or to disclose those fair values in the notes.
29 March 2004: Publications expected in the next several days
The IASB's timetable calls for publication of the following documents by 31 March 2004. These will all be effective for adoptions of IFRSs in 2005:
- Amendments to IAS 39 Financial Instruments relating to macro hedging
- IFRS 3 Business Combinations (replacing IAS 22)
- Revisions to IAS 36 Impairment of Assets
- Revisions to IAS 38 Intangible Assets
- IFRS 4 Insurance Contracts
- IFRS 5 Asset Disposals
29 March 2004: Project pages updated
We have updated our summaries of the following IASB agenda projects to reflect the discussions at the Board's March 2004 meeting:
28 March 2004: IFAC releases 2004 public sector standards handbook
The International Federation of Accountants (IFAC) has published its Handbook of International Public Sector Accounting Pronouncements. The Handbook includes all of the currently effective International Public Sector Accounting Standards and other pronouncements related to public sector accounting issued by IFAC as of 1 January 2004. It is available in print, PDF, and electronic formats. There is no charge to download the 2.8mb PDF version. Click for Information. IFAC also recently released its auditing and ethics handbook – see our news story of 25 March.
27 March 2004: Swiss exchange backtracks on IFRS
In August 2003, we Reported an announcement by the Swiss Exchange that starting in 2005 all listed companies would required to use either US GAAP or IFRS. The Exchange has now announced an exception for companies that are not multinational: "From 2005, companies listed on the Swiss Exchange will have to carry out their accounting according to IFRS or US GAAP. Companies that are oriented towards their home markets in terms of financing may, however, continue to use the Swiss GAAP ARR standards which are tailored to the Swiss marketplace."
26 March 2004: IFRIC project pages updated to reflect recent meeting
We have updated the following Project Pages to reflect the deliberations at IFRIC's meeting on 23-24 March 2004:
26 March 2004: UK ASB seeks comments on converging with IFRS
The United Kingdom Accounting Standards Board has published a Discussion Paper on UK Accounting Standards: A Strategy for Convergence with IFRS. The Paper proposes a phased approach to convergence, including:
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New standards effective in 2005 and 2006 that will "enhance existing UK financial reporting requirements, maintain their position as highly regarded internationally, and adapt to changes in the law"; and
Thereafter, a series of 'step changes' replacing one or more existing UK accounting standards with standards based on IFRS as prospective IASB projects are completed.
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Click for Press Release (PDF 28k). The Discussion Paper itself must be purchased from ASB. Comments are due 30 June 2004.
26 March 2004: International convergence of auditing oversight
In Remarks (PDF 67k) at a meeting of the European Policy Centre, Frits Bolkestein,
Member of the European Commission in charge of the Internal Market, Taxation and Customs, addressed the issue of Ensuring Robust International Audit.
25 March 2004: "Thanks a million" for visiting us
Someone today became the one millionth visitor to www.iasplus.com. We thank that person and all of our other loyal visitors for making IASPlus The Number One Source in the Internet for Information about International Financial Reporting. Please come back often.
25 March 2004: IFAC's 2004 Handbook is available
The International Federation of Accountants (IFAC) has published its 2004 Handbook of International Auditing, Assurance, and Ethics Pronouncements. The Handbook includes all pronouncements issued by the International Auditing and Assurance Standards Board (IAASB) and the Ethics Committee through 31 December 2003. It is available in print, PDF, and electronic formats. There is no charge to download the 4.8mb PDF version. Click for Information.
25 March 2004: Notes from the IFRIC meeting on 24 March
The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB offices in London on 24 March 2004, the second day of a two-day meeting. Presented below are our observers' preliminary and unofficial notes from the meeting.
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NOTES FROM THE IFRIC MEETING 24 MARCH 2004
 Accounting for Service Concession Arrangements
The IFRIC discussed accounting for service concession arrangements, with the objective of providing sufficient guidance to staff to enable a draft interpretation to be prepared for presentation at the May IFRIC meeting. The staff noted that guidance provided by IFRIC would need to cover a range of situations such as a contract that relates to new infrastructure, a contract that relates to existing infrastructure, a contract in which the concession provider pays, and a contract in which the user pays. The IFRIC agreed that the following issues must be addressed
- Which party effectively owns the fixed asset?
- What is the nature of the asset (if any) held by the concession operator if they do not effectively own the fixed asset?
- How should contracts be combined or a contract segmented into separate units of account?
- How should the high finance costs of such contracts be accounted for?
- How should the eventual return of the asset to the concession provider (if relevant) be accounted for?
The IFRIC then considered some examples developed by staff. The IFRIC requested that staff develop further examples to illustrate whether or not, if finance costs are capitalised as part of the construction contract, the effect of segmenting or combining the build and operate phases of the project will be significant.
The IFRIC tentatively agreed that in assessing how to account for assets arising under concession contracts, the following hierarchy should be followed
- Determine whether concession operator owns the fixed asset (and therefore accounts for the asset in accordance with IAS 16); if not
- Analyse whether a leasing transaction exists (and is therefore accounted for in accordance with IAS 17); if not
- Analyse whether the concession operator has a receivable (and therefore accounts for the asset in accordance with IAS 39); if not
- Determine whether the concession operator has a recognisable intangible asset (and therefore accounts for the asset in accordance with IAS 38); if not
- No asset arises.
The IFRIC discussed interest methods of depreciation and agreed that the basis for conclusions of the eventual interpretation should state that this depreciation method was considered and determined to be inappropriate.
The IFRIC considered the requirements of US GAAP (SFAS 71) and Spanish GAAP in relation to the rights of recovery of finance and other costs. The IFRIC decided that the issues addressed by those pronouncements should be addressed in the draft interpretation, but did not finalise an IFRIC position on how the concepts in these pronouncements would be incorporated into the eventual interpretation.
The IFRIC considered the issue of depreciation of assets arising from concession arrangements on a basis that is less conservative than straight line. The IFRIC agreed that where the concession operator is considered to own the fixed asset, the units of production method is appropriate. The IFRIC agreed that the expected revenue method of depreciation should not be discussed in the interpretation. If the asset arising under the contract is accounted for as an intangible asset, the IFRIC considered that it should not endeavour to override the statement in IAS 38 that it would be rare for a method of depreciation other than straight line to be appropriate.
IFRIC 1: Changes in Decommissioning, Restoration and Similar Liabilities
The IASB recommended a number of changes to this document as a result of their review of the document. The IFRIC considered a draft Interpretation that staff had amended to address the concerns of the Board. The changes included improvement of the explanation as to how the interpretation is applied to revalued assets and the inclusion of an exemption to IFRS 1 for first-time adopters. IFRIC members suggested minor amendments, and the interpretation will be circulated for final approval out of session with a view to the final interpretation being issued in April.
This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.
Scroll down for notes from 23 March 2004.
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25 March 2004: New EITF Roundup newsletter posted
We have posted the latest edition of the Deloitte (USA) EITF Roundup Newsletter (PDF 322k). This edition provides an overview of the issues discussed, consensuses reached, and administrative matters discussed at the 17-18 March 2004 meeting of FASB's Emerging Issues Task Force. EITF Roundup is published after each Task Force meeting. You will find past issues Here.
25 March 2004: IASB proposes reforms to its own due process
The IASB has initiated an internal review of its own deliberative procedures alongside the Trustees' Constitution Review now under way. As part of its internal review, the IASB has published a consultation paper, Strengthening the IASB's Deliberative Processes, inviting public comment on certain proposed improvements to its procedures. Comment deadline is 25 June 2004. The consultation paper cites some steps already taken by the Board to improve its due process and sets out the Board's preliminary views on some further changes:
Steps Already Taken by the IASB:
- Post observer notes in advance of Board meetings.
- Include more substantive content in observer notes.
- Webcast Board meetings live.
- Provide archived webcasts for those unable to listen live.
Further Changes Under Consideration:
- Post comment letters on the IASB's website when received, rather than as a batch after the deadline date.
- Post on the IASB's website a summary of the Board's position on the major points raised in the letters, once they have been addressed.
- Post changes to EDs when tentatively agreed by the Board, as consideration of an ED progresses.
- Make available near-final drafts of forthcoming exposure drafts and standards on the Board's website before they have been formally voted for issue.
- Use existing advisory groups or an appropriate expert group to discuss near-final drafts of exposure drafts and standards.
- Use advisory groups more regularly.
- Use field testing and public hearings more regularly.
- Make greater use of discussion papers.
- Re-expose proposals when changes are made as a result of comments received.
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Click for Press Release (PDF 45k) and Consultation Paper (PDF 53k).
24 March 2004: Notes from the IFRIC meeting on 23 March
The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB offices in London on 23 March 2004, the first day of a two-day meeting. Presented below are our observers' preliminary and unofficial notes from the meeting.
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NOTES FROM THE IFRIC MEETING 23 MARCH 2004
Activities of Other Interpretation Bodies
The IFRIC considered a paper outlining the activities of other interpretation bodies. The IFRIC agreed that the issue addressed by the Australian Urgent Issues Group on accounting for the purchase of delinquent debt portfolios should be referred to the agenda committee. The IFRIC agreed that staff should continue to monitor the progress of the other projects currently under consideration by other interpretation bodies.
Report of the Agenda Committee
The IFRIC discussed the report of its agenda committee. In reviewing the items that the agenda committee had considered and determined did not require an IFRIC interpretation, the IFRIC discussed the means of communicating this to the public. It was noted that the staff are currently considering due process issues to ensure there are no impediments to the IFRIC announcing that an issue has been considered but not accepted on to the agenda. It was noted that it is important that the IFRIC is not seen to be issuing interpretations by stealth, which could be the perception if the IFRIC includes notes on the reasons for rejecting items from the agenda in a publication such as the IASB Update. Those notes might themselves be viewed as interpretations.
IAS 11 - Combining and Segmenting Construction Contracts
The IFRIC continued its discussion of the appropriate criteria for combining and segmenting construction contracts. It was noted that IAS 18 Revenue refers preparers to IAS 11 for guidance in determining the appropriate method of accounting for service contract revenue. Accordingly the IFRIC agreed that once the text of an interpretation relating to combining and segmenting construction contracts has been decided, the text should be tested against other service contracts to ensure that the results are considered appropriate. The IFRIC considered a draft interpretation and agreed to discuss the principles therein, but with a view to refraining from issuing a draft Interpretation until the service concessions project is further progressed, to ensure consistency between the projects.
The IFRIC agreed that the wording from SOP 81-1 (as had been included in the draft interpretation under consideration) should be amended so as to present the principles for separation of contracts, followed by indicators that suggest separation is appropriate. The broad principle agreed was that the contract in question should be separated when the negotiations for the parts of the contract were separate and it is common market practice for the negotiations for parts of such contracts to be considered separately.
The IFRIC considered a number of examples as to when multiple contracts should be combined and agreed that multiple contracts should be combined where they are sufficiently interdependent, such that the contractor has the obligation to complete all phases of the contracts, and the counter-party the right to demand completion of all contracts.
The IFRIC agreed a broad principle that where a single contract for a project exists, the contract should be presumed to be a single unit of accounting but should be tested to determine whether separation is appropriate. Conversely, where multiple contracts for a project exist, those contracts should each be presumed to be single units of accounting but should be tested to determine whether combination is appropriate.
The IFRIC considered when options to extend contracts should be separated from or combined with the original contract for accounting purposes. The IFRIC requested additional guidance from staff on the method of amending the original contract where separation/combination are not considered necessary.
The IFRIC will discuss the issues further at a later meeting.
D6: Employee Benefits - Plans with a Guaranteed Minimum Return on Contributions and Notional Contributions
The Exposure Draft was given negative clearance by the IASB at its March meeting. However, at that meeting a number of non-fatal concerns were aired by Board members. The IFRIC considered the comments of the Board presented to them by staff and agreed to amend the Basis for Conclusions to better explain the methodology required by the draft interpretation and to reduce the content of the example. Staff will make the amendments and circulate the draft interpretation for out-of-session approval.
Members Shares in a Co-operative Entities
Three representatives of the European Association of Co-operative Banks attended the IFRIC meeting to assist in the discussions.
The IFRIC agreed to amend the scope to clarify that the interpretation applies to all entities applying the December 2003 version of IAS 32. Amending the scope in this manner will enable the IFRIC to include a paragraph clarifying that members' current accounts held in a relationship with them as customers or suppliers should be treated as liabilities.
The IFRIC agreed that members' shares should be treated as equity in two broad situations:
- where the entity has an unconditional right to refuse redemption; and
- where the entity has an obligation (such as a statutory obligation) to refuse redemption.
The IFRIC discussed the inclusion of a paragraph specifying that, when the members' shares are considered equity, periodic payments are treated as dividends, and where they are classified as liabilities such payments are treated as expenses. The IFRIC agreed this inclusion was conceptually correct, albeit potentially redundant. The IFRIC also agreed that where the treatment results in the reclassification of items between liabilities and equity, gain or loss should not be recognised on such reclassification.
The IFRIC discussed transition issues, particularly in relation to European Co-operative Banks. The bank representatives noted that their current constitutions would result in a classification as liability, but that they would be unwilling to attempt to amend their constitutions until the IFRIC Interpretation is finalised. As the only general meeting in which such changes for a co-operative bank could be approved is held in May or June each year, they noted that on transition their members' shares will be treated as a liability, until such time as the constitution can be amended. The IFRIC agreed that this issue is best addressed by disclosure by the co-operative banks, as this best reflects the fact that for a time, for accounting purposes, these items should be treated as liabilities, and there is not any guarantee that members will agree to the changes in their constitutions.
The IFRIC agreed to include an example showing the accounting in a situation where an entity is prohibited from ever redeeming a members share unless there is a new shareholder coming in.
Emission Rights (D1)
The staff provided the IFRIC with an update of the IASB's ongoing project of amending IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. No decisions were made as the IASB will continue its discussions in this area.
Transitional Requirements of IAS 39 on Impairment of AFS Equity Instruments
IAS 39 (revised 2003) amends the guidance in the previous version of IAS 39 for when objective evidence of an impairment of available-for-sale equity instruments is present. Specifically, the requirement to have either a significant or prolonged decline in the instrument's fair value was added. The IFRIC agenda committee could not decide whether the amendment should be viewed as a change in policy or a clarification of what was required in 39 all along.
The IFRIC discussed the issue and noted a preference for impairments recognised as a result of the change in 39 to be classified as a change in accounting policy (not a correction of an error). However, there was not a consensus view. The IFRIC decided not to take this item on the agenda as the staff believes the answer to be clear and since there was only a minority view for treatment in current income or as an error in prior periods.
This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.
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23 March 2004: Updated plan for adopting IFRS in Australia
The Australian Accounting Standards Board (AASB) has updated its Plan for Adopting IASB Standards by 2005 (PDF 66k). The AASB is a government-sponsored board that operates under the oversight of the government's Financial Reporting Council (FRC). The plan states:
| The AASB's plans are aimed at achieving the FRC's strategic direction of ensuring that for-profit entities applying AASB standards for reporting periods beginning on or after 1 January 2005 will also be complying with IASB standards. This will enable those entities to make an unreserved statement that their financial reports are prepared in compliance with IASB standards and, as mentioned in the FRC's strategic direction, will enable audit reports to refer to entities' compliance with IASB standards. |
23 March 2004: Progress on IASC Foundation constitution review
The IASC Foundation Trustees have announced the next steps in their review of the IASCF Constitution. The Trustees' Announcement (PDF 27k) said that 70 responses have been received to the November 2003 consultation paper. They are posted on IASB's Website. And the constitution committee met with the Standards Advisory Council in February. The committee will meet with the IASB's liaison standard setters and EFRAG on 26 April 2004 and will hold a series of public round-tables in at least four cities around the World from June through October. The Trustees have identified the following ten issues for review (others may be added):
- Whether the objectives of the IASC Foundation should expressly refer to the
challenges facing small- and medium-sized entities (SMEs).
- Number of Trustees and their geographical and professional distribution.
- The oversight role of the Trustees.
- Funding of the IASC Foundation.
- The composition of the IASB.
- The appropriateness of the IASB's existing formal liaison relationships.
- Consultative arrangements of the IASB.
- Voting procedures of the IASB.
- Resources and effectiveness of the International Financial Reporting.
Interpretations Committee (IFRIC).
- The composition, role, and effectiveness of the Standards Advisory Council.
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22 March 2004: Review of the financial reporting structure in New Zealand
The government of New Zealand has begun a comprehensive review of that country's financial reporting act by publishing a discussion paper on The Financial Reporting Structure. The Discussion Paper examines the specific needs of NZ companies and the users of their reports and considers the questions "who should be required to report" and "which reporting standards should they follow". The paper proposes a three-tier structure – full reporting using IFRS for publicly accountable entities, reduced requirements for larger non-publicly accountable entities, and no formal reporting required for small entities. Paragraphs 49-58 of the paper discuss the advantages of switching to IFRS in New Zealand. "The most significant advantage to New Zealand from adopting IFRS will be international comparability. International investors will be able to readily comprehend New Zealand financial reports without the need to first expend time and effort to understand New Zealand's financial reporting framework."
20 March 2004: Notes from the third day of the March IASB meeting
We have combined our observers' notes from all three days of the March 2004 IASB meeting on a Separate Page.
19 March 2004: Big-Four letter to US Congress on independent standard-setting
The Big Four public accounting firms have collectively written a Letter to Members of Congress (PDF 184k) endorsing the broad policy objectives of independent accounting standard setting and encouraging the Congress not to legislate accounting standards for stock options. There are two key bills pending in Congress that would establish accounting for stock options and would result in recording compensation expense for only the top five officers in a company. All other options would not be expensed. FASB has announced its intention to propose that the fair values of all share-based payments (including share options) be charged to expense – a requirement similar to that in the recently issued IFRS 2 Share-based Payment. The Big Four wrote:
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Investors and the capital markets rely on transparent financial reporting and an independent accounting standards-setting process. As we have previously stated in other contexts, we urge Congress to preserve the independence of the Financial Accounting Standards Board (FASB) and to avoid legislation that would have the effect of restricting the FASB's ability to establish accounting standards.
Further, we reaffirm our support, already expressed to the FASB, for the mandatory expensing of all employee stock options, whose fair value would be determined in a manner suitable for the reporting company. |
19 March 2004: Notes from the second day of the March IASB meeting
We have combined our observers' notes from all three days of the March 2004 IASB meeting on a Separate Page.
18 March 2004: FEE has some concerns about proposed EU audit directive
The European Federation of Accountants (FEE) has welcomed the European Commission's recent proposals to modernise the EU laws on auditing [see our News Story of 17 March] but voiced immediate concern over some weaknesses in relation to oversight, audit standards, independence, and liability. Click for FEE Statement (PDF 140k).
18 March 2004: Notes from the first day of the March IASB meeting
We have combined our observers' notes from all three days of the March 2004 IASB meeting on a Separate Page.
18 March 2004: New Australian accounting alert
We have posted a new Accounting Alert from Deloitte Australia: International Convergence Update, Including Impact on June 2004 Reports. Click to Download (PDF 82k).
18 March 2004: New Accounting Roundup newsletter
We have posted the 16 March 2004 edition of Accounting Roundup (PDF 259k) from Deloitte (United States). This newsletter briefly describes key regulatory and professional developments that have recently occurred and provides links to locations where additional information can be found on each topic. This issue includes updates on activities of FASB, SEC, PCAOB, and IASB. You will find past issues Here.
17 March 2004: European Commission proposes new audit and governance rules
The European Commission is proposing major revisions to its rules in the areas of auditing standards, auditor oversight, and related corporate governance. The proposals, which are somewhat along the lines of the Sarbanes-Oxley Act in the US, are set out in a proposed Directive on Statutory Audit of Annual Accounts and Consolidated Accounts. The new Directive would replace the current 8th Directive and amend the 4th and 7th Directives. Some of the proposals in the new Directive are:
PROPOSALS IN DRAFT EU DIRECTIVE ON AUDITING
- Require registration of all statutory auditors and audit firms. Non-EU auditors of companies listed in Europe will have to register in the EU.
- Create an EU-wide, publicly accessible, electronic database of registered statutory auditors and audit firms.
- Require that statutory auditors and audit firms be subject to a code of professional ethics at least as rigorous as the code adopted by the Ethics Committee of IFAC.
- Adopt International Standards on Auditing throughout the EU. The proposed Directive notes that the Commission may adopt a common standard audit report for use throughout the EU.
- Require that the group auditor assume full responsibility for financial statements.
- Define "public interest entities" to include all listed companies plus other entities that are publicly accountable because of the nature of their business (such as banks and insurance companies) or because of their size (number of people employed).
- Require that boards be established in each EU member state (something like the PCAOB in the US) to oversee the auditing profession:
- The board overseeing audit firms that do not audit public interest entities should comprise a "clear majority" of non-practitioners.
- The board overseeing audit firms that audit public interest entities must be 100% non-practitioners.
- In overseeing audit firms from outside the EU, an EU-wide system will be established to decide whether and to what extent the quality assurance systems in other countries should be recognised.
- Form an EU-wide audit regulatory committee to co-ordinate oversight (details have not yet been agreed).
- Require each "public interest entity" to form an audit committee of non-executive directors to oversee the audit.
- Establish principles of auditor independence, with more stringent independence requirements for auditors of public interest entities.
- Require annual transparency reports of statutory auditors and firms that audit public interest entities. These would be publicly available.
- Require companies and audit firms to explain to national authorities the reasons for all auditor changes.
- Require disclosure of audit and non-audit fees paid by listed companies.
- Give member states the following options regarding auditor rotation: (a) require rotation of the lead audit partner on an engagement every five years or (b) require rotation of the entire audit firm every seven years.
- Mandate mutual recognition in a number of areas, including auditor licensing, oversight, quality assurance, and registration. An EU member state would be allowed to impose an "aptitude test" for statutory auditors registered in other member states or other countries.
- Update education requirements for auditors, adding a requirement for continuous education.
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The Commission has asked the European Parliament and the Council to consider the proposal in detail in the second half of 2004 with the aim of "fasttrack" adoption by mid-2005. There would then be a period of 18 months for member
states to implement it in national law. Click to download:
16 March 2004: Agenda for 23-24 March 2004 IFRIC meeting
The International Financial Reporting Interpretations Committee will meet at the IASB's offices in London on 23 and 24 March 2004. The provisional agenda for the meeting is as follows:
AGENDA IFRIC MEETING 23-24 MARCH 2004
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15 March 2004: IASB project timetable updated
We have updated our IASB Project Timetable to reflect the most recent information from the IASB. The most significant change is deferral of a final IFRS on Application of the Purchase Method of Business Combinations from 2004 to 2005.
14 March 2004: Guidance for applying IFRS 2 Share-based Payment
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Deloitte's new 76-page book on IFRS 2 Share-based Payment provides guidance on how to put the new Standard into practice. This publication includes guidance on measurement of share-based payments, a benchmark study of key measurement variables, comparison with US SFAS 123, and illustrative disclosures. It also offers further illustrative examples and implementation guidance on applying IFRS 2. You can Download the IFRS 2 Publication (PDF 694k) free of charge.
Note: This publication was replaced, in June 2007, with an updated 2007 Guide to Applying IFRS 2 Share-based Payment (PDF 748k, 128 pages).
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14 March 2004: Australian industry group wants deferral of IFRS adoptions
The Group of 100 – an association of senior finance executives from Australia's largest companies – has written to the government agency that oversees the Australian Accounting Standards Board (AASB) recommending that "Australia should not adopt IAS 32 and IAS 39 until the current uncertainties, including endorsement by the European Union are resolved, and the concerns of Australian companies about the timing and requirements of the Year 2005 Standards and not moving concurrently with the EU are addressed." Therefore the Group of 100 has requested that the AASB defer adopting IASB standards "for one year or such later date when EU endorsement occurs". The AASB has been adopting IFRSs as "pending standards" not yet in force. Click for Group of 100 Letter.
14 March 2004: IASC Foundation trustees will meet on 3-4 June 2004
The Trustees of the IASC Foundation have announced that they will meet on 3-4 June 2004 in New York. The meeting will "most likely" begin in the afternoon of 3 June.
13 March 2004: PCAOB questions and answers for non-US accounting firms
The US Public Company Oversight Board has published Frequently Asked Questions
Regarding Issues Relating to Non-US Accounting Firms (PDF 37k). Click for More Info about PCAOB.
12 March 2004: US SEC proposes rules for transition to IFRS
The US Securities and Exchange Commission yesterday voted to propose amendments to Form 20-F that would affect foreign issuers that change their basis of accounting to IFRS. Normally, Form 20-F requires a company to include in its SEC filings three years of audited financial statements prepared on a consistent basis of accounting. The proposed amendments would allow companies switching to IFRS for the first time for any financial year beginning no later than 1 January 2007, in their first year of reporting under IFRS, to include only two years of audited financial statements, with appropriate related disclosure. The SEC's News Release said:
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The proposals are intended to ease the burdens that foreign companies may face when they adopt IFRS for the first time, while improving the quality of financial disclosure that they provide to investors. The proposals are addressed particularly at foreign issuers located in the European Union (EU), which under current EU law will generally be required to adopt IFRS for reporting on their 2005 financial year. The proposals are also intended to encourage other foreign companies to switch their accounting voluntarily to IFRS. |
In a separate action, the Commission added 10 new items that must be reported on Form 8-K, the form used to disclose important corporate events when they occur.
12 March 2004: Deloitte letter of comment on IFRIC D4
We have posted Deloitte's Letter of Comment on IFRIC D4 Decommissioning, Restoration and Environmental Rehabilitation Funds (PDF 63k). Our comments questioned the value added to the IFRS reporting requirements by the proposed Interpretation. "We do not believe that current practices, absent the draft Interpretation, are sufficiently diverse or inconsistent with the IFRS framework to justify the introduction of an IFRIC interpretation."
You will find all Past Deloitte Letters to IASB here.
12 March 2004: Deloitte letter of comment on IFRIC D3
We have posted Deloitte's Letter of Comment on IFRIC D3 Determining Whether an Arrangement Contains a Lease (PDF 73k). In our view, an Interpretation in this area may be an improvement to current IFRS. However, "we have reservations regarding the application of the draft Interpretation and the consequences the theory supporting the consensus may cause." You will find all Past Deloitte Letters to IASB here.
11 March 2004: Deloitte IFRS e-learning server upgrade
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The server that handles the downloading of Deloitte IFRS e-Learning modules is scheduled for an upgrade tomorrow. We've been advised that downloading is likely not to be available on 12 March 2004. |
11 March 2004: IFRIC issues draft interpretation on hyperinflationary reporting
IAS 29 Financial Reporting in Hyperinflationary Economies requires that the financial statements of an entity that reports in the currency of a hyperinflationary economy must be stated in terms of the measuring unit current at the balance sheet date. Comparative figures for prior period(s) should be restated into the same current measuring unit. The IFRIC has released Draft Interpretation D5, Applying IAS 29 Financial Reporting in Hyperinflationary Economies for the First Time, which contains guidance on how an entity would restate its financial statements in the first year it identifies the existence of hyperinflation in the economy of its functional currency. Comment deadline is 14 May 2004. Click for:
10 March 2004: PCAOB gives non-US firms a little extra time
The US Public Company Accounting Oversight Board changed the initial registration deadline for non-US auditing firms from 19 April 2004 to 19 July 2004. The Board also approved an auditing standard for audits of internal control over financial reporting. The PCAOB will submit both decisions to the Securities and Exchange Commission for approval. PCAOB News Release.
10 March 2004: Notes from the IASC Foundation trustees meeting
The trustees of the International Accounting Standards Committee Foundation, under which the IASB operates, met on 9 March 2004. Below are the preliminary and unofficial notes taken by our observers at the meeting:
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NOTES FROM IASCF TRUSTEES MEETING 9 MARCH 2004
IASB Chairman's Report
IASB Chairman Sir David Tweedie reported on current projects and application of IFRS in 2005. He also provided details of the ongoing discussions on financial instruments. Those included:
- Fair value option. Sir David discussed the proposed IASB exposure draft resulting from the European Central Bank's request to limit the use of the fair value option. He said that the ECB is concerned about the reliability of the fair value measurement, particularly for liabilities.
- Macro hedging. He noted that the IASB is in ongoing discussions with the banking community, which had recently proposed an alternative solution to the one in the IASB Exposure Draft. This was being considered, but as it was unlikely to be finalised in time, the exposure draft would be finalised in its current format and discussions would continue.
Sir David noted that the IASB has issued two new standards:
- First-time Adoption of IFRS. He noted that this had been well accepted and that the Board has received only a few queries on its application.
- Share-based Payment. He noted that FASB would be publishing an exposure draft with similar proposals. The IASB would look at the comments received, and it is intended that ultimately the standards would be similar.
He provided details as to convergence activity both at the IASB and at other standard setters. In response to a question Sir David stated that the goal in achieving convergence with the US was 2007.
Sir David noted that the IASB would be issuing a document on "due process" for public comment.
Constitutional Review
The IASCF Constitutional Committee has met to begin consideration of the comments received. Various themes arising from the comments were mentioned but were not discussed. The Constitutional Committee will develop proposals for discussion with various groups prior to presenting the proposals to the trustees towards the end of the year. Further details as to the procedures will be announced on the IASB's website in due course.
Education Programme
The Trustees noted and reaffirmed a previous decision to form an Education Advisory Group. This would not be a technical group but would advise the education director on:
- Educational needs with regard to international financial reporting.
- Priorities in the IASCF's educational work.
- Markets for the IASCF's educational products and services.
- The means of delivering IASCF's educational products and services.
- Potential partners the IASCF could collaborate with on educational work.
- The educational quality of IASCF's educational products and services.
The Trustees approved the above terms of reference. It was agreed that the education director would chair the group.
The group will have a geographically diverse membership of 6 to 10 persons. The members will not be drawn from organisations involved in providing materials to the IASCF or directly to the market. Therefore, the large audit firms will not be on the group. The Trustees will consider, at their next meeting, proposals from the Education Committee as to membership of the advisory group.
The education director presented details of summaries of individual standards that will be produced. It is intended that these would be used by CFOs to inform CEOs and Board and Audit Committee members. It was noted that these would not be reviewed by the IASB Board and would contain a disclaimer.
This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary.
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10 March 2004: SEC bulletin on accounting for loan commitments
The SEC staff have issued Staff Accounting Bulletin 105, Application of Accounting Principles to Loan Commitments, to provide guidance regarding loan commitments accounted for as derivative instruments. Click for:
10 March 2004: Comment deadlines on D3 and D4 approaching
Reminder that the IASB's deadline for comments on the following two draft Interpretations is Friday 19 March 2004:
- IFRIC D3, Determining Whether an Arrangement Contains a Lease
- IFRIC D4, Decommissioning, Restoration and Environmental Rehabilitation Funds
9 March 2004: Agenda for IASB March 2004 meeting
The International Accounting Standards Board will meet Wednesday-Friday 17-19 March 2004 at its offices, 30 Cannon Street, London. The announced Agenda is as follows:
AGENDA IASB MEETING 17-19 MARCH 2004
- Accounting and Financial Reporting by Small and Medium-sized Entities
- Business Combinations Phase I
- Consolidation
- Financial Instruments - Fair Value Option
- Financial Instruments - Fair Value Hedge Accounting of a Portfolio Hedge of Interest Rate Risk (Macro Hedging)
- Convergence - IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- Convergence - IAS 12 Income Taxes
- IFRIC Issues
- Post-employment Benefits
- Reporting Comprehensive Income
- Revenue Recognition
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9 March 2004: Review of restatements and other US financial reporting matters
A report by the Huron Consulting Group titled 2003 Annual Review of Financial Reporting Matters analyses the leading causes and trends in financial restatements filed with the SEC for the five years 1999-2003. The report categorises the restatements based on the size and industry of the restating company and the nature of the underlying accounting error. The report also reviews the actions taken during 2003 by the US Securities and Exchange Commission, the Public Company Accounting Oversight Board, the FASB, and the IASB. "In a world where our economy is global and the free flow and formation of capital across borders is good for all, uniformity in accounting standards should be a high priority.". We have posted the Report (PDF 230k) with the kind permission of the Huron Consulting Group.
9 March 2004: US SEC may ease transition for first-time IFRS adopters
At its meeting on 11 March 2004, the US Securities and Exchange Commission will consider whether to propose amendments to Form 20-F that would allow an eligible foreign private issuer that adopts International Financial Reporting Standards as its basis of accounting for the first time for any financial year beginning no later than 1 January 2007 to file two years, rather than three years, of financial statements in a registration statement or annual report filed for the year in which it first adopts IFRS, with appropriate related disclosure. In addition, the amendments would require all first-time adopters of IFRS to include certain information. Link to notice in SEC News Digest.
9 March 2004: EFRAG seeks views on whether to endorse IFRS 2
The European Financial Reporting Advisory Group has Invited Comments on its draft letter to the European Commission recommending that the Commission adopt IFRS 2 Share-based Payment for use in Europe. Comments are due 5 April 2004.
8 March 2004: UK will adopt six International Standards on Auditing
The Auditing Practices Board of the United Kingdom and Ireland has Announced its intention to adopt six recent International Standards on Auditing as UK auditing standards effective for 2005. The six standards relate to risk assessment, audit evidence, fraud, and quality control,
7 March 2004: PCAOB to vote on new registration deadline for non-US firms
At its upcoming meeting on 9 March 2004, the US Public Company Accounting Oversight Board will consider a final vote on changing the registration deadline for non-US auditing firms. The deadline under the existing rule is 19 April 2004. The PCAOB will vote on extending that to 19 July 2004. At the same meeting, the PCAOB will vote on an auditing standard for audits of internal control over financial reporting. More Info.
6 March 2004: Study on the future of the accounting profession
Two years ago, The American Assembly, an arm of Columbia University in New York, began a project to determine whether America's current accounting model was able to deal effectively with contemporary business practices. Members of the project steering committee include IASC Foundation Chairman Paul Volcker and IASB Chairman Sir David Tweedie. The project included numerous commissioned research papers and a national meeting from 13-15 November 2003 in which Mr. Volcker and IASB Vice Chairman Tom Jones participated. The report of that project, titled The Future of the Accounting Profession, has now been published. Click to Download the Report (PDF 836k) from the American Assembly website.
5 March 2004: Acceptability of IFRS for tax purposes in UK
In our news story of 11 December 2003, we reported that UK Chancellor Gordon Brown told the House of Commons that "firms applying IAS will not have to submit a second and separate set of accounts to the Inland Revenue". The Inland Revenue's Website now has details about what will be proposed. "Finance Bill 2004 will include measures to ensure that companies choosing to adopt International Accounting Standards (IAS) to draw up their accounts will receive broadly equivalent tax treatment to companies that continue to use UK GAAP." The website has a table comparing IAS and UK GAAP and "background on IAS/UK GAAP and why it is important for tax. This section gives details on why tax departs from the accounts and where IAS may lead to changes in the way items are accounted for, in particular the increased use of fair value accounting."
5 March 2004: Analysis of ED 6 on exploration and evaluation costs
The latest Deloitte Australian Accounting Alert, Accounting for Exploration and Evaluation under IFRS (PDF 126k), provides an overview of the requirements and practical implications of IASB ED 6 Exploration for and Evaluation of Mineral Resources. Click for IASB Project Info.
4 March 2004: Global accounting standards as a tool for promoting democracy
US Secretary of State Colin Powell took the opportunity of a recent Speech on democratic political development in Asia to urge the adoption of global accounting standards as a tool for promoting Asian democracy: "Private American business can help by promoting universal 'best practice' accounting and auditing standards. Perhaps by teaching others, we can raise our own standards as well."
4 March 2004: The European Commission's strategy on accounting and auditing
In an address to the Institute of Chartered Accountants in England and Wales in London earlier this week, Frits Bolkestein,
Member of the European Commission in charge of the Internal Market, Taxation and Customs, spoke about The European Commission's Strategy on Accounting and Auditing. His presentation covered use of IFRS in Europe, EU measures on statutory audits, and EU/US relations in this area. Download the Full Text (PDF 71k). An excerpt:
The Commission has promoted a strategy based on a principles-based approach to financial reporting, designed to reflect economic reality and give a true and fair view of the financial position and the performance of a company. At the heart of our strategy is the application, from 1 January 2005, of International Accounting Standards. I remain firmly committed to
this strategy....
Nonetheless, as regards adoption and application of IAS a few stubborn issues remain to be resolved: in particular hedging of core deposits in the context of IAS 39 and the so-called 'insurance mismatch'. A European Consultative Group was recently set up to address these issues. Personally, I am still convinced that acceptable temporary solutions can be found in the short term, pending longer term work by the IASB. I have urged Sir David Tweedie to continue working in the short term with technical experts - around the clock if necessary - to try to find such appropriate solutions. One of the problems we have, unfortunately, is a lack of trust between the interested parties. Due process has not been optimal so far and must improve in future. |
4 March 2004: EFRAG endorses the 'improved' IASs
The European Financial Reporting Advisory Group (EFRAG) has concluded that the revised IASs resulting from IASB's Improvements Project "meet the requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards" and, in a Letter to the European Commission (PDF 68k), said: "We believe that it is in the European interest to adopt the revised IASs and, accordingly, we recommend their adoption."
4 March 2004: SEC commissioner speaks about IFRS-US GAAP convergence
In a Speech to the Institute of International Bankers, SEC
Commissioner Cynthia A. Glassman provided an update on "our views on progress towards international accounting standards". An excerpt:
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On the subject of international accounting standards, our goal is clearly convergence. The IASB has grown in stature and credibility, and its International Financial Reporting Standards ('IFRS') will become mandatory in the EU in 2005. Our Chief Accountant, Don Nicolaisen, tells me that his staff is spending a lot of time gearing up on IFRS and that all the large accounting firms are developing IFRS training programs in anticipation of the 2005 goal. |
3 March 2004: Update on Deloitte's IFRS e-learning
We launched Deloitte's IFRS e-learning on 22 January 2004. We are making this education system available in the public interest without charge. To date, over 12,000 modules have been downloaded by over 1,600 individual users from 115 countries – all in just six weeks. Click for Review. Here's an update on content:
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- On 1 March 2004 we posted the new IAS 16 module.
- All modules are now based on the final IASs as revised in the Improvements Project (modules affected are IASs 1, 2, 8, 17, 21, 27, 28, 31, and 40)
- Next modules due for release (planned for the end of March 2004) are IAS 7 and IAS 10
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3 March 2004: IAS 39 agenda project page expanded
We have created separate sections on our IAS 39 revisions agenda project page for the Macro Hedging Amendments and the Fair Value Option Amendments.
2 March 2004: IASCF commercial director elected as XBRL chair
XBRL International has elected Kurt Ramin, Commercial Director at the IASC Foundation, as Chair of its Steering Committee. Click for Press Release. XBRL is a computer language for preparing Internet web pages in a way that makes the exchange of corporate financial information (including IFRS financial statements) easier and more reliable. Info about XBRL.
2 March 2004: Australian international convergence update
We have posted a new Australian Accounting Alert: International Convergence Update. Australia is in process of adopting national standards that are "largely consistent" with related IASs/IFRSs, though Australia has eliminated certain IFRS options, added some disclosures, and added some requirements for not-for-profit entities that are not consistent with IAS/IFRS. This Alert summarises 10 recent convergence standards.
2 March 2004: Links to IFRS-related websites updated
We have tested the links to IFRS-related websites on our comprehensive Links Page and fixed some broken ones. If you find any errors or have an additional link to suggest, please Email Us.
2 March 2004: Sarbanes-Oxley – Deloitte's point of view
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Dealing with the mandates of the Sarbanes-Oxley Act has proved something of a scramble for public companies. And not just US companies, because the 1,400 non-US SEC registrants have to comply, and so do the thousands of foreign subs of US registrants. In the course of assisting with hundreds of section 404 readiness and other Sarbanes-Oxley-related projects, we have learned numerous lessons and gained valuable insights. The Deloitte (USA) publication Sarbanes-Oxley: A Bridge to Excellence (PDF 517k) reveals Deloitte's point of view on Sarbanes-Oxley compliance. Compliance is just one step on the bridge to excellence. Corporate leaders who embrace the "spirit of the law" – strong ethics, good governance, reliable reporting – can get a re-energized company and reassured investors. |
1 March 2004: IAASB 2003 annual report is available
The 2003 annual report of the International Auditing and Assurance Standards Board (IAASB) may be downloaded from IFAC's website. Link to Download (PDF 293k).
1 March 2004: Agenda project pages updated
We have updated our agenda project pages to reflect the Board's decisions at its February 2004 meeting:
1 March 2004: EU consultation on directors' remuneration including disclosures
The European Commission has undertaken a Public Consultation on directors' remuneration, including the questions of (a) how each EU listed company should disclose in its annual accounts and annual report (or in the notes to the annual accounts) the remuneration policy for directors for the next financial year and (b) which elements, for example the performance-related elements of directors' remuneration, supplementary pensions, and contract policy, should be included in that disclosure? The IASB's recent amendments to IAS 24 include a requirement to disclose key management personnel compensation (amounts, but not policies) in total and subdivided into five categories. IFRS 2 also requires some disclosures about equity compensation arrangements (though not policies). Link to the full Consultation Paper. Comments are due 12 April 2004.
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