Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity
IFRS 2: Share plans with cash alternatives at the discretion of employees: grant date and vesting periods
27 May 2006: Notes from last day of IASB May 2006 meeting
The International Accounting Standards Board is holding its May 2006 Board meeting at its offices in London on Tuesday through Friday 23-26 May 2006. You will find all of the preliminary and unofficial Notes Taken by Deloitte Observers here.
26 May 2006: Australia establishes a financial reporting panel
The Australian Government has appointed the members of a new Financial Reporting Panel (FRP). The FRP was established under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 to resolve disputes between the Australian Securities and Investment Commission and a company in relation to the application of accounting standards in its annual financial reports. Click for Press Release (PDF 109k).
26 May 2006: IFAC guidance on developing a business plan for SMEs
The International Federation of Accountants' Professional Accountants in Business Committee has released an information paper that provides guidance on developing a business plan for small and medium entities (SMEs), including how to develop a corporate values statement and manage business risks. The principles and practices in the paper, entitled Business Planning Guide: Practical Application for SMEs, were designed primarily, but not exclusively, for management operating in SMEs and for the small- and medium-sized accounting practices that service them. Click for Press Release (PDF 55k). You can download the paper without charge from IFAC's On-line Store.
26 May 2006: Notes from third day of IASB May 2006 meeting
The International Accounting Standards Board is holding its May 2006 Board meeting at its offices in London on Tuesday through Friday 23-26 May 2006. You will find all of the preliminary and unofficial Notes Taken by Deloitte Observers here.
25 May 2006: EFRAG 2005 annual review
The European Financial Reporting Advisory Group (EFRAG) has published its Annual Review for 2005 (PDF 1,540k). EFRAG identifies the following among its 'most notable accomplishments':
Enhanced role through entering into the formal 'Working Arrangement' with the European Commission
An official IASB invitation to meet regularly with IASB Board Members on the convergence project
Setting up of the 'Pro-active Accounting Activities in Europe' project in partnership with national standard setters
25 May 2006: EFRAG appoints performance reporting advisory group
The European Financial Reporting Advisory Group (EFRAG) has appointed a Pan-European Advisory Group on Performance Reporting as part of its programme pro-active accounting activities. The project will be led jointly by the Spanish Standard Setter (ICAC) and EFRAG. Click for EFRAG Announcement (PDF 48k).
25 May 2006: IASB exposure draft on borrowing costs
The IASB has published an exposure draft proposing to amend IAS 23Borrowing Costs as part of its short-term convergence project with the US Financial Accounting Standards Board (FASB). The objective of the convergence project is to reduce differences between the IASB's International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP). The Exposure Draft proposes to require an entity to capitalise borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset as part of the cost of that asset. The option of immediately recognising those borrowing costs as an expense, which is in the current version of IAS 23, would be removed. Deadline for comments on the exposure draft is 29 September 2006. Click for IASB Press Release (PDF 57k). The exposure draft may be downloaded without charge from the IASB Website.
25 May 2006: Notes from day two of IASB May 2006 meeting
The International Accounting Standards Board is holding its May 2006 Board meeting at its offices in London on Tuesday through Friday 23-26 May 2006. You will find all of the preliminary and unofficial Notes Taken by Deloitte Observers here.
24 May 2006: PCAOB proposes rules for reporting by accounting firms
The US Public Company Accounting Oversight Board has proposed rules for annual and special reporting of information and events by registered public accounting firms. Nearly 1,700 accounting firms are registered with the PCAOB, of which about 40% are non-US firms. The proposed rules implement Section 102(d) of the Sarbanes-Oxley Act of 2002, which provides that each registered accounting firm must submit an annual report to the Board, and may also be required to report more frequently. The reporting framework proposed by the PCAOB includes two types of reporting obligations:
First, the proposal would require each registered firm to provide basic information once a year about the firm and the firm's issuer-related practice over the most recent 12-month period.
Second, the proposal identifies certain events that, if they occur with respect to a registered firm, must be reported by the firm within 14 days.
In addition, the PCAOB has proposed rules that, in certain circumstances, would allow a successor firm to succeed to the registration status of a predecessor firm following a merger or other change in the registered firm's legal form. Click to download the PCAOB News Release (PDF 58k). The full text of the proposed rules may be downloaded from http://www.pcaobus.org/Rules/Rulemaking_Docket.aspx.
Comments are due 24 July 2006.
24 May 2006: Notes from day one of IASB May 2006 meeting
The International Accounting Standards Board is holding its May 2006 Board meeting at its offices in London on Tuesday through Friday 23-26 May 2006. You will find all of the preliminary and unofficial Notes Taken by Deloitte Observers here.
23 May 2006: EC regulation adopting amendments to IAS 21, IFRIC 7
We have posted the European Commission's Regulation (EC) No 708/2006 (PDF 55k) adopting, for use in Europe, amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation and IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary
Economies.
23 May 2006: IFAC's 2005 annual report
The International Federation of Accountants has published its Annual Report for 2005 (PDF 2,046k). Among IFAC's most notable accomplishments for 2005 are:
Strengthening of its standard-setting processes including establishment of the Public Interest Oversight Board (PIOB)
and establishment and expansion of Consultative Advisory Groups for IFAC standard-setting boards
Development of good practice guidance to help developing nations build accounting capacity.
Release of an updated international Code of Ethics for Professional Accountants.
Progress on developing a global electronic knowledge resource for professional accountants in business
Successful implementation of Part 1 of the IFAC Member Body Compliance Program, which provides comprehensive information about the regulatory and standard-setting frameworks in countries around the world
23 May 2006: SEC 2005 annual report
We have posted the 2005 Annual Report of the US Securities and Exchange Commission (PDF 1,526k). The report includes sections on (1) Management Discussion and Analysis; (2) Performance; and (3) Financial Statements, including report of independent auditors, management's response to the audit opinion, and the Inspector General's summary of management challenges. A few items of interest:
74 new foreign private issuers registered US$250 million of securities in 2005 (compared to 63 and $146 million in 2004; 50 and $163 million in 2003; and 70 and $147 million in 2002)
'Milestones for international regulatory cooperation' include:
Eliminating GAAP reconciliation requirement for foreign issuers
IOSCO MOU on Enforcement Cooperation and Information Sharing
IOSCO initiatives on cross-border cases and financial fraud
The SEC made 438 requests to foreign securities regulators for enforcement assistance and received 315 requests for assistance from foreign regulators
51% of the approximately 15,000 registered companies had their disclosures reviewed by the SEC (compared to 23% in 2003 and 22% in 2004)
37% of the approximately 35,000 registered investment companies (including mutual funds) had their disclosures reviewed by the SEC (compared to 10% in 2003 and 57% in 2004)
29% of SEC enforcement cases relate to financial reporting and disclosures
99% of enforcement cases were successfully resolved in favour of the SEC
Number of on-line searches of SEC EDGAR database: 2002 96.9 million; 2003 141.5 million; 2004 288.9 million; 2005 379.0 million
23 May 2006: IASB May 2006 meeting agenda – addition
The agenda for the IASB's May 2006 Board meeting (which we had reported in our News Story of 12 May 2006) has been expanded to include discussion of Accounting Standards for Small and Medium-sized Entities on Thursday morning 25 May 2006. The SME discussion will continue on Friday morning 26 May 2006.
22 May 2006: Philip Laskawy is interim IASC Foundation chairman
The Trustees of the IASC Foundation have appointed Philip Laskawy, a retired Chairman of Ernst & Young International, as Chairman of the Trustees for the interim period. He succeeds Tommaso Padoa-Schioppa, who has stepped down due to his appointment as Minister of Finance of Italy in the new government of Prime Minister Romano Prodi. Mr Laskawy, a long-serving Trustee, is in the last year of his second and final term. The IASCF Nominating Committee has begun the process of selecting a successor to Mr. Padoa-Schioppa. The Nominating Committee will consult the Trustee Appointments Advisory Group, a body comprising leaders of regional and international organisations, in developing recommendations to present to the full Trustees. Click for IASCF Press Release (PDF 81k).
22 May 2006: SEC plans for improved SOx 404 implementation
The US Securities and Exchange Commission has announced a series of actions it intends to take to improve the implementation of the Section 404 internal control requirements of the Sarbanes-Oxley Act of 2002. Those actions include:
Guidance for companies. The guidance would assist management in its performance of a top-down, risk-based assessment of internal control over financial reporting. To ensure that this guidance is of help to non-accelerated filers and smaller public companies, the Commission intends that this future guidance will be scalable and responsive to their individual circumstances. The guidance will also be sensitive to the fact that many companies have already invested substantial resources to establish and document programs and procedures to perform their assessments over the last few years. The form of the guidance has yet to be determined. Public comment will be invited.
Revisions to PCAOB Auditing Standard No. 2. AS 2 addresses An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.
SEC oversight of PCAOB's programme for inspecting auditing firms.
Extension of compliance for non-accelerated filers. To permit non-accelerated filers and their auditors to have the benefit of the management guidance that the SEC intends to issue, and to have the opportunity to evaluate and implement the revisions that the PCAOB plans to make to AS No. 2, the Commission expects to issue a short postponement of the effective date of the Commission's rules implementing Section 404 for non-accelerated filers. All filers would be expected to comply with the management assessment of internal controls required by Section 404(a) of Sarbanes-Oxley for fiscal years beginning on or after Dec. 16, 2006.
21 May 2006: IASC Foundation begins search for new chairman
Tommaso Padoa-Schioppa, chairman of the IASC Foundation (IASCF), will step down from that role to become the Italian finance minister in the new government of Romano Prodi. Mr. Padoa-Schioppa, who was a founding member of the Executive Board of the European Central Bank, became chairman of the IASCF on 1 January 2006. The IASCF is the oversight body for the IASB. The 22 IASCF trustees are charged with naming the new IASCF chairman.
21 May 2006: New Global Offerings Services newsletter
We have posted the April 2006 Edition of the Deloitte Global Offerings Services Newsletter (PDF 179k). Global Offerings Services is a global team of Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US and International accounting standards (that is, US GAAP and IFRSs) and in complying with the SEC's financial reporting rules. Past GOs Newsletters are Here.
21 May 2006: ASBJ and FASB convergence meeting
Representatives of the Accounting Standards Board of Japan (ASBJ) and the US Financial Accounting Standards Board (FASB) met in Tokyo on 18 and 19 May 2006 in the "first of what is expected to be periodic meetings to enhance dialogue between the two Boards in their pursuit of international convergence". Click for ASBJ Press Release (PDF 88k).
21 May 2006: Updated EFRAG endorsement status report
The European Financial Reporting Advisory Group has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status as of 18 May 2006 (PDF 28k). Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:
20 May 2006: Commissioner McCreevy speaks about IFRSs in China
In our news story of 16 May 2006, we reported that EU Internal Market Commissioner Charlie McCreevy is making a six-day visit to China aimed at advancing the EU's international regulatory agenda. He has made three speeches relating to capital markets and accounting and auditing:
We do not believe the Board should issue the proposed amendments at this time. We refer you
to our comment letter responding to D11 Changes in Contributions to Employee Share Purchase
Plans dated 1 March 2005. The proposed amendments would codify in the standard the same
requirements as the IFRIC were proposing as an interpretation. We believe that the Board
should undertake further research and consider alternative approaches that may be better suited
to address the wide range of schemes that exist in practice today. We have included in our
comment letter a proposed approach that we believe should be considered by the Board prior to
issuing a final amendment (as discussed in the responses below).
19 May 2006: IFAC PIOB's first annual report
IFAC's Public Interest Oversight Board (PIOB) has issued its first public report, which highlights its activities during its first year of operation. It includes comments on its oversight of IFAC's ethical, auditing, and education standard-setting activities. The report, along with other information, may be downloaded from the PIOB's new website at www.ipiob.org. The PIOB was formally established in February 2005 to oversee IFAC's auditing and assurance, ethics, and education standard-setting activities as well as its Member Body Compliance Program. This last activity is designed to encourage member bodies to adopt international standards and to implement quality assurance and investigation and discipline programs. A Monitoring Group comprised of international financial regulators oversees the work of the PIOB. Click to download the First Public PIOB Report (PDF 195k).
17 May 2006: Prof. Thomas Linsmeier appointed to FASB
Professor Thomas J. Linsmeier has been appointed to the US Financial Accounting Standards Board (FASB). Mr. Linsmeier is the Russell E. Palmer Endowed Professor and Chairman of the Department of Accounting and Information Systems in the Eli Broad College of Business at Michigan State University. His term begins on 1 July 2006 and runs through 30 June 2011. He succeeds current FASB member Katherine Schipper, whose term will expire on 30 June 2006. Click for News Release (PDF 53k).
16 May 2006: EU-China cooperation in accounting
EU Internal Market Commissioner Charlie McCreevy has begun a six day visit to China aimed at advancing the EU's international regulatory agenda. The Commissioner will visit Beijing, Shanghai and Hong Kong, where he will have discussions with the Chinese authorities and business leaders on macroeconomic and financial regulatory issues, public procurement, accounting, and intellectual property rights. Among Commissioner McCreevy's meetings is one with Vice Minister of Finance Wang Jun on EU-China Cooperation in Accounting. Click for Outline of Commissioner McCreevy's Visit to China (PDF 102k).
16 May 2006: Redesign, expansion of IAS Plus website in German
Direct access to the German-language Deloitte publications on the home page
A Quick-Links box with links to the original websites of the most important national and international standard setters
A Sitemap, offering everything there is to find on IASPlus.de - at a glance
Moreover, all pages have been substantially updated and adapted to work with all major web browsers. With over 200,000 visitors in its first year online, IAS Plus.de has emerged as the German-language web medium for current, up-to-date international accounting news.
15 May 2006: IFRIC project summaries updated for May meeting
We have updated the following summaries of IFRIC agenda projects to reflect deliberations at IFRIC's May 2006 meeting:
14 May 2006: Notes from day 2 of the IFRIC meeting
The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 11 May and Friday 12 May 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting.
The staff presented the IFRIC with three different views of how 'groups of similar financial assets' should be interpreted in relationship with the derecognition provisions of IAS 39.
The debate focussed on whether 'similar' in paragraph 16 was only relevant when grouping assets that have either a pro rata share of cash flows or a portion of specifically identified cash flows, as opposed to a wider interpretation of 'similar' that focuses on whether cash instruments, like receivables, are similar to derivatives. Many considered that the inclusion of the word similar had relevance when determining which assets can be grouped together when applying the derecognition decision tree under IAS 39. If the Board had intended something different when developing IAS 39, many considered this view was not clear from the current words in the standard. If the IFRIC were to pursue this alternative interpretation, IAS 39 would potentially need to be amended through the deletion of the word 'similar'.
The IFRIC decided that the staff should consider the various options available to IFRIC and propose alternatives at a future meeting.
The IFRIC continued its discussion of D17 - Group and Treasury Share Transactions. At IFRIC's November 2005 meeting, the staff had presented an analysis of comments on the draft interpretation. The IFRIC was not able to get to a consensus at that meeting. Some members thought the IFRIC should discontinue the project as the issues in D17 did not address a principle for how group transactions should be accounted for in the separate financial statements of the subsidiary. However, the IFRIC asked the staff to develop a paper exploring accounting under the following issues:
a. when an entity grants rights to its equity instruments to its employees, and either chooses or is required to buy those instruments from another party;
b. when and entity's employees are granted rights to equity instruments of the entity, either by the entity itself or by its shareholder, and the shareholder provides the equity instrument;
c. when a parent entity grants rights to its equity instruments directly to a subsidiary entity's employees; and
d. when a subsidiary grants rights to equity instruments in its parent to its employees
The issue before the IFRIC at the current meeting is how to continue on D17. (Note that the staff had outlined a rejection note that the IFRIC used in their discussion, which was not available for observers).
The staff had analysed issue (a) and (b) and concluded that the principles set out in IFRS 2 were sufficiently clear to recommend that an interpretation not be issued. The IFRIC did not discuss those two issues but focused its discussion on the accounting treatment for issue (c) and )d), and specifically the accounting treatment in the subsidiary's separate financial statements.
The staff's paper outlined a treatment that would be similar for issues (c) and (d), resulting in equity-settled treatment for both. The IFRIC members were divided in their views. Some disagreed with the staff analysis as they did not think that equity-settlement accounting is appropriate in the separate accounts of the subsidiary under (d). This led to debate on the issue of 'push-down' accounting (that is, if the transactions are accounted as equity-settled share-based payment in consolidation, that accounting should be 'pushed down' to the parent's and the subsidiary's separate accounts).
At the end of the discussion, the IFRIC asked the staff to review the wording in IFRS 2 and to explore whether it possible to read into the current standard how accounting in the separate financial accounts the subsidiary and a parent in at group share-based payment transaction should be accounted for.
The IFRIC decided to postpone the decision on whether to issue an interpretation or whether to discontinue the project until the staff had analysed the wording of IFRS 2.
The staff presented the IFRIC with an analysis of the comment letters received on D18, along with staff's proposed responses. Staff asked the IFRIC for how to proceed.
Although the majority of respondents agreed with the consensus in the draft interpretation, there was some strong disagreement as well. The IFRIC therefore decided that the Basis for Conclusion should include a paragraph stating that the IFRIC respondents were divided and that the IFRIC had considered their views.
Some respondents believed that the consensus lacked a clear principle or failed to identify such a principle. The IFRIC said that this was the reason that they had chosen to issue a narrow interpretation that will reduce divergence, and that there should be no amendment to the interpretation based on this comment.
Some respondents said the transitional requirements were bit clear and could be read to require retrospective application from a date before the effective date of IAS 36 and IAS 39. The IFRIC decided that the draft interpretation should be amended to clarify that the draft interpretation should apply prospectively from the date when the entity first applies IAS 36 and/or IAS 39.
One respondent would include the following statement from BC8 "the draft interpretation applies only to reversals of impairment losses on goodwill and investments in equity instruments and financial assets carried at cost" in the body of the standard rather than in the Basis for Conclusions. The IFRIC stated that this is merely emphasising what is already in the interpretation and decided not to move the wording.
A number of respondents commented that the requirements in IAS 34 were more specific to interim reporting than IAS 36 and IAS 39. They disagreed with the statement in the Basis for Conclusions that IAS 36 and IAS 39 should take precedence over IAS 34 on this matter. The IFRIC agreed to the staff proposal that IAS 36 and IAS 39 is more specific regarding reversal of impairment, and that identifying which standard is more specific is a matter of judgement and central to the consensus reached. No changes will be made.
A number of respondents stated that the argument that IAS 34 was issued before IAS 36 and IAS 39 and could therefore not have considered the implications is weak and could potentially set precedent for other standards. The IFRIC agreed and decided to remove this argument.
One respondent commented that it was not clear whether the interpretation would apply to interim financial statements other than those prepared in compliance with IAS 34. The IFRIC decided that they would not amend the interpretation in this regard as the implications of this had not been considered.
A respondent suggested amending the consensus to more closely reflect the wording in IAS 39. The IFRIC stated that the consensus is sufficiently clear and would not be changed.
The IFRIC decided that the revised draft should be presented to the IASB at the meeting in June as the IFRIC's agreed position.
Review of tentative agenda decisions published in March 2006 IFRIC Update
IFRS 2 Share-based Payment – Scope of IFRS 2: Share plans with cash alternative at the discretion of the
entity
As no comments were received, the IFRIC approved the tentative decision not to add this issue to its agenda. The final decision will be published in the next IFRIC Update.
IFRS 2 Share-based Payment – Share plans with cash alternative at the discretion of the employees: grant
date and vesting periods
As no comments were received, the IFRIC approved the tentative decision not to add this issue to its agenda. The final decision will be published in the next IFRIC Update.
IFRS 2 Share-based Payment – Fair value measurement of a post-vesting transfer restriction
In deciding tentatively not to add this topic to its agenda, the IFRIC had outlined a two-stage approach where the issue was whether the value of post vesting restrictions could be based on the 'opportunity cost' borne by employees. The IFRIC had received comments asking whether the approach taken in the rejection note was consistent with the requirements of IFRS 2. The staff presented revised wording of the earlier published tentative agenda decision (not handed out to observers). The IFRIC discussed the issue and decided to amend the wording to focus on the market opportunities available to the option holder. It was decided that a revised wording of the issue would be circulated to the IFRIC.
Recommendations by Agenda Committee regarding requests for IFRIC agenda items
The IFRIC considered a request from the IASB to consider whether any guidance should be issued on accounting for employee benefit trusts relating to share-based payment arrangements.
In November 2004, the IFRIC amended the scope of SIC 12 to remove the scope exclusion for equity compensation plans. However, the IFRIC believes that there is need for additional guidance on the separate or individual accounts, because current IFRSs do not specifically deal with accounting for employee benefit trusts relating to share-based payments.
Accordingly, the IFRIC agreed take add this issue to its agenda.
IAS 18 Revenue - Up-front revenue recognition by a fund manager
The IFRIC has received three requests for an interpretation on how a fund manager should recognise revenue arising from sale of mutual funds. Views diverge on whether all revenue received up front should be recognised immediately or whether some amount should be deferred and amortised over the investment period.
After a brief discussion, the IFRIC agreed that because practice is divergent, it should add the issue to its agenda.
IAS 32 Financial Instruments: Presentation - Classification of a financial instrument as a liability or equity
At its March 2006 meeting, the IFRIC had decided that IAS 32 was clear that a contractual financial obligation was necessary to classify a financial instrument as a liability. It also decided that economic compulsion may affect the manner of settlement but does not affect classification of a financial instrument as a liability or equity.
At the current meeting, the IFRIC was presented a draft rejection based on the above for not taking the item on the agenda (not handed out to observers). Some IFRIC members expressed strong reservations about the current draft wording, as well as the decision made, as they did not believe the answer was clear regarding economic compulsion. Due to the strong reservations, the IFRIC decided that the rejection note should rather state that the reason for rejection is that the IFRIC would not be able to resolve the matter on a timely basis.
IAS 32 Financial Instruments: Presentation - Puts and forwards held by minority interests
The IFRIC considered an issue where a parent either writes a put or agrees on a forward purchase to acquire shares in a subsidiary held by a third party. Essentially this issue raised two questions:
a. Should the parent entity recognise a liability for the amount potentially payable under the contract?
b. Should a minority interest continue to be recognised for the minority's shares that are subject to the agreement?
The IFRIC agreed that a liability would arise when the parent have a contractual obligation to pay cash even if that is conditional on the option being exercised by the holder.
On the second issue the IFRIC acknowledged that there is diversity in practice – some entities derecognise minority while others convey the reclassification through presentation. IFRIC members differed in their view on how to proceed. As the IFRIC could not agree, it decided to issue a rejection note stating that IFRIC could not reach a consensus on a timely basis.
The agenda for this meeting included the following potential agenda items that were not discussed due to time constraints. The IFRIC will address these issues at a future meeting.
IFRS 3 Business Combinations – Are puts or forwards received by minority interests in a business
combination contingent consideration
IAS 39 Financial Instruments: Recognition and Measurement – Definition of a derivative: Indexation on own EBITDA or own revenue
IAS 32 Financial Instruments: Presentation – Foreign Currency Instruments exchangeable into Equity Instruments of the Parent Entity of the Issuer
SIC 12 Consolidation - Special Purpose Entities – Relinquishment of control
IAS 11 Construction Contracts/ IAS 18 Revenue – Allocation of profit in unsegmented contracts
Scroll down for a summary of the first day of the IFRIC meeting.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
13 May 2006: Deloitte letter on ED 8 on segment reporting
We have posted the Deloitte letter of comments to the IASB on ED 8 Operating Segments (PDF 45k). Our overall view:
Whilst we support much of the Board's strategy on convergence between IFRS and US GAAP, we do not believe that the tactic on converging the requirements on segmental reporting is necessary at this time, and share many of the concerns of the three dissenting Board members. We believe that convergence should be to the superior standard and, as discussed further below, do not believe that a sufficient case has been made that moving to the approach required by SFAS 131 Disclosures about Segments of an Enterprise and Related Information would result in enhanced segmental disclosures.
In 1997, when IAS 14 and SFAS 131 were being developed, the IASC deliberately chose not to take a purely management approach to segmental reporting. We do not believe that convergence alone is justification for the proposed changes. Segmental reporting is solely a disclosure requirement and so does not affect reconciliations between IFRS and US GAAP. The convergence project should focus on items reported in the primary financial statements. If the two Boards believe that IAS 14 needs improving, they should do so by considering the advantages and disadvantages of both it and SFAS 131, rather than converge to a single standard that has not proved to be superior and we believe to be inferior.
12 May 2006: IASB May 2006 meeting agenda
The International Accounting Standards Board will hold its May 2006 Board meeting at its offices in London on Tuesday through Friday 23-26 May 2006. Presented below is the preliminary agenda for the meeting.
Amendment to IFRS 1: Cost of a subsidiary in the separate financial statements of a parent on first-time adoption. Proposed amendment would provide relief from the requirement to restate cost in accordance with IAS 27 on first time adoption.
12 May 2006: Notes from day 1 of the IFRIC meeting
The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday 11 May and Friday 12 May 2006. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting.
The IFRIC considered a request from a constituent for clarification of IAS 17's requirements on contingent rentals. The issue arises from an alleged conflict between the definition of contingent rent in IAS 17 paragraph 4 and the requirements in IAS 17 paragraphs 33 (lessee accounting) and 50 (lessor accounting). The issue is whether contingent rentals (as defined) are included in the estimate of total lease payments/income
to be recognised on a straight-line basis over the life of the lease.
The IFRIC decided that, notwithstanding the fact that a close reading of IAS 17 could suggest an alternate treatment, there was no evidence of diversity in practice, which was to exclude contingent rent from the estimate of total lease payments/ income. Consequently, the IFRIC declined to take this issue to its agenda.
The IFRIC discussed the first draft of a Draft Interpretation on customer loyalty programmes. In March, the IFRIC Chairman had directed the IFRIC staff to develop the draft on the basis of recognising a separate component of the initial sales transaction in which the award credits are granted as representing the unperformed performance obligation. Under this approach, some of the consideration received for each initial
sale would be allocated to the award credits.
The IFRIC spent a considerable amount of time discussing the tension between IAS 18 paragraphs 13 and 19, and several IFIRC members were not satisfied that the Draft Interpretation explained adequately the approach inferred by IAS 18 paragraph 13 should be used to the exclusion of that in paragraph 19. The debate was concluded by the Chairman, who asked whether there was sufficient support for the approach in the Draft Interpretation. Two IFRIC members would oppose the document. On this basis, the Chairman directed the staff to proceed with the approach as adopted, but to work with those who were opposed to the approach to ensure that their concerns were reflected adequately in the Basis for Conclusions.
Scope
The IFRIC agreed with a staff proposal that the scope of the Draft Interpretation need not be defined rigorously and should not specify scope exclusions.
Awards supplied by third-party providers
The IFRIC held an inconclusive discussion on how to account for awards supplied by third parties. The IFRIC was concerned that the Draft Interpretation should not confuse agency relationships with sub-contracting: that is, who is providing the service. The IFRIC discussed a staff example, which demonstrated that the measurement of these awards is also problematic. The IFRIC will continue its discussions of this topic at a later meeting.
Separate component approach
The IFRIC discussed the justification for the separate component approach in the draft Basis for Conclusions (not available to Observers). However, it was apparent that part of the justification was based on SIC 15, an Interpretation of IAS 17. IFRIC members criticised the prominence awarded to an interpretation of a leasing standard in an Interpretation of IAS 18.
Next steps
At its next meeting, the IFRIC will discuss an amended version of the Draft Interpretation.
Larry Smith, Chairman of the FASB's Emerging Issues Task Force, attended the meeting. He noted that the EITF had attempted to issue an Abstract on this issue and had been unable to reach consensus.
It should also be noted that three IFRIC Members who did not object to the Draft Interpretation were attending their last meeting. How their successors vote could be critical to the future of the direction of this issue.
The IFRIC continued its discussion of how the additional liability resulting from a minimum funding contribution requirement should be presented in the financial statements. The staff noted that this additional liability arises only because of the limit on the measurement of the balance sheet asset in IAS 19.58.
Presentation of results
The staff noted that IAS 19.58 governs the presentation of the net balance sheet position in the pension plan rather than the gross liability. The staff proposed that the adjustment which results from the impact of the limit in that paragraph should be recognised and presented in the financial statement on a net basis. There was general agreement with the staff proposals.
Treatment of future minimum funding contributions payable
The IFRIC discussed a staff recommendation that the additional liability to be recognised in respect of such a minimum funding requirement was equal to the present value, using IAS 19 assumptions, of the contributions payable in accordance with the minimum funding requirement. In addition, in some circumstances, a minimum funding requirement may also stipulate a schedule of future minimum contributions payable in order to cover the future accrual of benefits over the period during which the contributions are payable. In this case, the staff noted that the contributions payable in respect of future accrual did not generate an additional liability at the balance sheet date as they represented a future rather than a present obligation.
The staff suggested that the future minimum funding contribution requirements, in respect of future accrual, reduce the extent to which the entity can take a future contribution reduction. Therefore the available asset from a contribution reduction should be calculated as the present value of the IAS 19 service cost less the future minimum funding contribution requirement in respect of future accrual in each year. The IFRIC agreed with the staff's analysis and conclusion.
Other statutory funding requirements
The IFRIC agreed that the Interpretation need not address other statutory funding requirements.
Transition
The IFRIC generally agreed with the staff proposals for transition. However, it was evident from the discussion of the proposed Basis (not available to Observers) that individual members had concerns with how the Basis was drafted and suggested different matters of emphasis.
Next steps
The IFRIC Chairman asked for an indication of which IFRIC members would object to the Interpretation along the lines discussed. None indicated an intention to object.
The staff would was directed to prepare a revised draft Draft Interpretation and Basis for Conclusions with the intention that this would be approved formally at the July 2006 meeting. The staff will hold a public Education Session with the IASB during its June 2006 meeting.
The IFRIC discussed a draft Interpretation based on D12 Service Concession Arrangements – Determining the accounting model. In summary, the IFRIC agreed:
Not to address sale and leaseback accounting in this Interpretation.
To include in the Interpretation an explanation of the reasons for the scope limitations and the reasons for the control approach adopted by the IFRIC. The IFRIC agreed to include additional implementation guidance (an appendix) explaining how other IFRSs might apply to concession arrangements for private sector performance of public services and for determining whether existing infrastructure of the operator was within the scope of the Interpretation.
To amend the scope of the Interpretation to include 'whole of life infrastructure' (infrastructure used in a service concession arrangement for the whole of its useful life).
To amend the approach in D12 to require that an entity should recognise a financial asset to the extent that the operator has a contractual right to receive cash from or at the direction of the grantor. A right other than a contractual right to receive cash does not meet the definition of a financial asset and is within the scope of IAS 38 Intangible Assets. This implies that some concession arrangements will be bifurcated – containing both a financial asset and an intangible asset.
To make a consequential amendment to IFRIC 4 to make explicit the boundary between IFRIC 4 and this Interpretation.
To adopt a new title for the Interpretation along the lines of Private Sector Participation in the Provision of Public Services. IFRIC members did not like the term 'participation' but agreed with the general idea (for example, 'Private Sector Operation of Public Services').
The accounting issues identified in Draft Interpretations D13 and D14 would be incorporated in D12 and issued as a single Interpretation.
The IFRIC discussed these issues in some detail. Unusually, the Observers were provided with the draft Basis for Conclusions (but not the draft Interpretation). IFRIC Members made detailed comments on the proposed Basis, and it is likely to be redrafted significantly before the individual IFRIC members are happy with it.
Significant residual value
The IFRIC agreed with a staff recommendation that Application Guidance should be added to specify the meaning of the term residual interest. The residual interest is the estimated value of the infrastructure at the end of the term of the concession, if the infrastructure were already of the age and in the condition expected at the end of the term of the concession. The staff had drafted a detailed rationale, but the IFRIC seemed to prefer a statement of the principle rather than providing the detailed explanation of how the IFRIC reached its conclusion (for fear of the rationale being applied to situations to which such a conclusion might not be appropriate).
Next steps
The IFRIC will continue its discussions of D13 and D14 at a later meeting.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
10 May 2006: Comment deadlines on ED 8 and measurement paper
We remind you that the deadlines for responding to both of the following IASB documents are Friday 19 May 2006:
ED 8 Operating Segments. ED 8 The proposed IFRS would replace IAS 14 Segment Reporting and align segment reporting with the requirements of FASB's SFAS 131 Disclosures about Segments of an Enterprise and Related Information.
ED 8 and the Discussion Paper may be downloaded from the IASB's Website.
9 May 2006: US GAO report on SOx impact on small public companies
A report prepared by the United States General Accountability Office (GAO) found that small public companies (defined as market capitalisation under US$700 million) incur a disproportionate cost of compliance to implement Section 404 of the Sarbanes-Oxley Act of 2002 (internal control reporting) compared to large companies. GAO suggests that this may have been one factor in the reduced number of IPOs, increased number of companies 'going private', and shift among small companies from use of the largest audit firms, to mid-size and smaller audit firms. Examples cited in the report include:
Of the companies that reported implementing section 404, public companies with market capitalisation of $75 million or less paid a median $1.14 in audit fees for every $100 of revenues compared to $0.13 in audit fees for public companies with market capitalisation greater than $1 billion.
81% of the small public companies that responded to the GAO survey had hired a separate accounting firm or consultant to assist them in meeting Section 404 requirements. Services provided included assistance with developing methodologies to comply with section 404, documenting and testing internal controls, and helping management assess the effectiveness of internal controls and remediate identified internal control weaknesses. These small companies reported paying fees to external consultants for the period leading up to their first section 404 report that ranged from $3,000 to more than $1.4 million.
The number of public companies that went private has increased significantly from 143 in 2001 to 245 in 2004, with the greatest increase occurring in 2003.
The report includes recommendations for both SEC and PCAOB consideration, and comments from both of those organisations. Click to Download the GAO Report (PDF 1,012k), which is titled Sarbanes-Oxley Act: Consideration of Key Principles Needed in Addressing Implementation for Smaller Public Companies.
9 May 2006: SEC roundtable on interactive data
The US Securities and Exchange Commission will host a public forum on ways that interactive data can improve disclosure for ordinary investors. The roundtable will be held at the SEC's Washington, DC, headquarters on 12 June 2006. Particular emphasis will be placed on disclosures by mutual funds. Interactive data permits Internet users to search for and use individual items of information from financial reports, such as net income, executive compensation, or mutual fund expenses. Topics to be considered at the forum include:
What investors and analysts are looking for in the new world of interactive data.
How to accelerate the use of new software that permits the dissemination of interactive financial data.
How best to design the SEC's requirements for company disclosures to take maximum advantage of the potential of interactive data.
8 May 2006: Comparison of Singapore GAAP and IFRSs updated
We have updated the Comparison of IFRSs and Singapore GAAP on our Singapore page. You can find other comparisons of local GAAP and IFRSs Here.
8 May 2006: Further steps toward convergence of securities regulation in Europe
The Council of European Finance Ministers (ECOFIN) has adopted recommendations for further convergence of the supervision of the securities markets in the EU Member States. ECOFIN noted that "the growing number of cross-border financial groups and the increasing international and cross-sector interlinkages in the financial markets call for further progress in the convergence of supervisory practices and cross-border cooperation among supervisory authorities in the EU. The Council underlines that supervisory convergence needs to be intensified to fully benefit from the FSAP [Financial Services Action Plan] and related measures and thus, to reap the benefits of an integrated financial market." ECOFIN asked the Committee of European Securities Regulators (CESR), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), and the Committee of European Banking Supervisors (CEBS) to further strengthen their co-operation and day-to-day working arrangements. Click for:
8 May 2006: Guidance on fair value measurements under FAS 123(R)
Deloitte & Touche (USA) has updated its book of guidance on FASB Statement No. 123(R) Share-Based Payment: A Roadmap to Applying the Fair Value Guidance to Share-Based Payment Awards (PDF 2335k). This second edition reflects all authoritative guidance on FAS 123(R) issued as of 28 April 2006. It includes over 60 new questions and answers, particularly in the areas of earnings per share, income tax accounting, and liability classification. Our interpretations incorporate the views in SEC Staff Accounting Bulletin Topic 14 "Share-Based Payment" (SAB 107), as well as subsequent clarifications of EITF Topic No. D-98 "Classification and Measurement of Redeemable Securities" (dealing with mezzanine equity treatment). The publication contains other resource materials, including a GAAP accounting and disclosure checklist. Note that while FAS 123 is similar to IFRS 2 Share-based Payment, there are some measurement differences that are Described Here.
FASB developments including a final FSP on Determining the Variability to Be Considered in Applying Interpretation 46(R).
GASB developments including a Preliminary Views Document on Accounting and Financial Reporting for Derivatives.
AICPA developments including an AICPA Alert Updating the SEC's Position Regarding Changes to the Statement of Cash Flows Relating to Discontinued Operations; and Technical Practice Aids on Consolidation of Variable Interest Entities.
SEC developments including SEC approval of PCAOB's Rules Concerning Independence, Tax Services, and Contingent Fees; Final Report of the SEC Advisory Committee on Smaller Public Companies; and SEC plan for electronic notification of registration statement effectiveness.
International developments including IASB's Statement on Its Working Relationship With Other Standard Setters and the IASB Due Process Handbook.
You will find past issues of Accounting Roundup Here.
7 May 2006: Comments invited on IFRIC due process
The Trustees of the International Accounting Standards Committee (IASC) Foundation have invited public comment on the Draft Due Process for the International Financial Reporting Interpretations Committee (IFRIC). Comment deadline is 30 September 2006. To download the consultation document from the IASB's website Click Here (PDF 299k). Click for Press Release (PDF 44k).
6 May 2006: IASC Foundation 2005 annual report is available
The IASC Foundation has published its report on its activities in 2005. The report also contains audited financial statements and other information, including a report on the IASB's activities. To download the report from the IASB's website Click Here (PDF 863k).
4 May 2006: Agreement between US SEC and China CSRC
The United States Securities and Exchange Commission (SEC) and the China Securities Regulatory Commission (CSRC) announced today a new relationship to increase their co-operation and collaboration through an enhanced bilateral dialogue. Meeting at SEC headquarters in Washington, D.C., SEC Chairman Christopher Cox and CSRC Chairman Shang Fulin presented terms of reference that establish the structure of this enhanced dialogue and discussion subjects for the agenda during 2006. Several aspects of the dialogue relate to financial reporting. The new dialogue has three primary objectives:
to identify and discuss securities markets regulatory developments of common interest, particularly those relevant to reporting requirements for public companies listed in one another's markets;
to improve cooperation and the exchange of information in cross-border securities enforcement matters; and
to continue and expand upon the existing program of training and technical assistance provided by the SEC to the CSRC.
In setting out the areas of dialogue for the agenda in 2006, the following regulatory issues for discussion were identified:
corporate governance reforms, including requirements for audit committees, auditor independence and internal controls over financial reporting;
convergence of national accounting standards with International Financial Reporting Standards; and
the use of information technology, including interactive data tagging systems, to enhance the usefulness of reported of financial information.
4 May 2006: Joint forum report on regulatory and market differences
The Joint Forum – a consortium of the global associations of bank, securities, and insurance regulators – has published Regulatory and Market Differences: Issues and Observations. The report presents the findings of a review of differences in the regulatory approaches to risk across banking, securities, and insurance sectors. One section of the report discusses market practices and differences and similarities in regulatory reporting requirements.
The Joint Forum determined that cross-sectoral convergence in both market practice and regulatory approaches is occurring naturally and can be expected to continue as a result of a number of trends and developments highlighted in the paper. At the same time, however, the Joint Forum recognises that cross-sectoral convergence in regulatory approaches is not desirable in every instance. There may be good reasons for sectoral differences in regulatory approaches to the same risk.
4 May 2006: Textbook on Australian accounting standards
Paul Pacter, a director in Deloitte's IFRS Global Office and webmaster of IASPlus, is co-author of a university textbook released in April 2006 – Australian Accounting Standards, published by John Wiley and Sons, Australia. The focus of this 1,110-page text is on the application of accounting standards issued by the Australian Accounting Standards Board. The book has been written for intermediate and advanced financial reporting courses, at both undergraduate and postgraduate level. Paul's co-authors are Ruth Picker, Ken Leo, Keith Alfredson, Jeannie Radford, and Victoria Wise. For international orders, email custservice@johnwiley.com.au (cite ISBN-10: 047081148X). Paul is also co-author of another Wiley textbook Applying International Accounting Standards. The second edition of that book will be published later this year, retitled Applying International Financial Reporting Standards.
3 May 2006: Agenda for IFRIC meeting 11-12 May 2006
The International Financial Reporting Interpretations Committee (IFRIC) will meet at the IASB's offices in London on
Thursday 11 May and Friday 12 May 2006. The agenda for the meeting is below:
IAS 32 Financial Instruments: Presentation – Classification of a financial instrument as liability or equity
IAS 32 Financial Instruments: Presentation – Puts and forwards held by minority interests
IFRS 3 Business Combinations – Are puts or forwards received by minority interests in a business
combination contingent consideration
IAS 39 Financial Instruments: Recognition and Measurement – Definition of a derivative: Indexation on own EBITDA or own revenue
IAS 32 Financial Instruments: Presentation – Foreign Currency Instruments exchangeable into Equity Instruments of the Parent Entity of the Issuer
SIC 12 Consolidation - Special Purpose Entities – Relinquishment of control
IAS 11 Construction Contracts/ IAS 18 Revenue – Allocation of profit in unsegmented contracts
3 May 2006: Agenda project pages updated
We have updated the following agenda project pages to reflect the discussions and the decisions reached during the IASB's April Board meeting (24-26 April 2006) and the joint IASB-FASB meeting (27-28 April 2006).
3 May 2006: New IASC Foundation Trustee from Poland
Alicja Kornasiewicz of Poland has been named a Trustee of the IASC Foundation, under which the IASB operates. Mrs Kornasiewicz will complete the term of Jens Røder, who retired following the Trustees' meeting in March 2006. Mrs Kornasiewicz's term expires on 31 December 2007. Mrs Kornasiewicz is a member of the Board of CA IB Corporate Finance Gmbh, Vienna, and serves as CEO and Chairman of CA IB Group in Poland. She is also Chairman of the Supervisory Board of Bank BPH S.A., the third largest bank in Poland. Previously, until October 2000, Mrs Kornasiewicz was Secretary of State - First Deputy Minister of the Ministry of the State Treasury of Poland. Click for Press Release (PDF 53k). Click for Complete List of IASCF Trustees.
2 May 2006: Independent chair for IFAC's ethics advisory panel
Richard Fleck has been appointed as the first independent chair of the Consultative Advisory Group (CAG) to the International Ethics Standards Board for Accountants (IESBA), an independent standard setter within the IFAC structure. Mr. Fleck is a partner with the international law firm of Herbert Smith. His three-year term begins May 2006. Click for Press Release (PDF 82k).
2 May 2006: PCAOB plan for 2006 audit firm inspections
The US Public Company Accounting Oversight Board has released a statement regarding its approach to inspections of the independent auditing firms' audits of internal control over financial reporting. Those inspections will begin this month.
The PCAOB said its inspectors will evaluate:
the degree to which the audit of internal control over financial reporting and the audit of financial statements were performed as a single, integrated and mutually reinforcing process;
whether auditors use a top-down approach in which company-level controls were identified as the first step in planning the audit;
whether auditors properly assessed risk and used a risk-based approach to determine the nature, timing, and extent of internal control testing; and
whether auditors took full advantage of the opportunities available to use the work of others, such as the company's internal audit staff.
The 2006 inspections will include the annual inspections of the nine firms – eight US and one Canadian – that audit more than 100 public companies. In addition, the PCAOB will continue its three-year cycle of inspections of smaller firms that audit at least one public company, including non-US firms. In 2005, the PCAOB inspected 281 firms, including 16 non-US firms. Click for:
We have published the fifth edition of our popular guide to IFRSs – IFRSs In Your Pocket 2006 (PDF 403k). This 96-page guide includes information about:
IASB structure and contact details.
Use of IFRSs around the world, including updates on Europe, Asia, USA, and Canada.
Summaries of each IASB Standard (through IFRS 7) and Interpretation (through IFRIC 9), as well as the Framework and the Preface to IFRSs.
Background and tentative decisions on all current IASB projects.
IASC and IASB chronology.
Other useful IASB-related information.
We are pleased to grant permission for accounting educators and students to print copies of the PDF file for educational purposes. Please contact your local Deloitte practice office to request a printed copy. You will find Links to our Many Other IFRS Publications here.
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
Representatives of the Accounting Standards Board of Japan (ASBJ) and the US Financial Accounting Standards Board (FASB) met in Tokyo on 18 and 19 May 2006 in the "first of what is expected to be periodic meetings to enhance dialogue between the two Boards in their pursuit of international convergence". Click for 
We have updated the 
Deloitte & Touche (USA) has updated its book of guidance on FASB Statement No. 123(R) Share-Based Payment: 
