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APRIL 2008

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30 April 2008: Deloitte Canada Countdown IFRS transition newsletter
Deloitte Canada has released the fourth issue of their Countdown IFRS transition newsletter, to provide a snapshot of where we are now as far as Canada's transition to IFRSs is concerned – both in Canada and in Deloitte. This issue of Countdown focusses (a) the proposed definition of Publicly Accountable Enterprises (PAEs) in order to help entities determine whether they are 'in or out' of IFRSs; (b) commentary on certain legal implications to enterprises transitioning to IFRSs; and an update on current IFRS events. Click to download:

29 April 2008: Noticias sobre información financiera internacional
Deloitte & Touche Ltda (Colombia) has translated into Spanish the April 2008 IAS Plus Quarterly Newsletter. This 33-page newsletter reports on the 1st quarter 2008 activities of the IASB, the IFRIC, and the IASC Foundation, and also on worldwide issues and events relating to international financial reporting:

29 April 2008: FASB and CASC sign memorandum of understanding
The Financial Accounting Standards Board (FASB) and the China Accounting Standards Committee (CASC) have issued a Memorandum of Understanding (MOU) articulating their commitment to strengthen cooperation and communication between the two standards-setting organisations. The groups met at the FASB's offices in Connecticut to discuss how they can work together on issues pertaining to international convergence of accounting standards. As a result of the meeting, the organisations expressed the following in the MOU:

  • The FASB and the CASC will enhance communication and improve understanding in terms of technical issues to facilitate economic interaction between the two countries;
  • The FASB and the CASC will facilitate the exchange of experience of accounting standard setting, implementation, and international convergence between the two countries, including inviting each other to significant accounting standards seminars, reciprocal visits, etc.; and
  • The FASB and the CASC will strive to exchange opinions regularly and build the technical foundation for sharing views on convergence of accounting standards. Accordingly, the CASC will send staff to work at the FASB on a regular basis to research US GAAP and FASB's convergence efforts with International Financial Reporting Standards (IFRS). FASB Board members and staff will also visit the CASC to understand implementation of Chinese accounting standards and its international convergence efforts.
Click for Press Release PDF 73k).

28 April 2008: Joint Forum paper on management of risk concentrations
The Joint Forum – a consortium of the Basel Committee, IOSCO, and IAIS – has published a paper titled Cross-sectoral Review of Group-wide Identification and Management of Risk Concentrations (PDF 650k). Click here for the Press Release (PDF 104k).
The Risk Concentrations paper is being released in final form and has also been included in the Joint Forum submissions to the Financial Stability Forum to contribute to its work related to the market turmoil. This paper expands on previous reports and explores the extent to which financial conglomerates active in two or more of the banking, securities, and insurance sectors currently identify, measure, and manage risk concentrations at the firm-wide level and across the major risks to which these firms are exposed. The paper also explores how current and emerging risk techniques, including stress testing and scenario analyses, are employed to identify potential concentrations. It also includes observations and lessons drawn from the market turmoil that begin in mid-2007. An annex to the paper contains a summary of current regulatory requirements relating to risk concentrations.
Click here to go to our permanent page for resources relating to the Credit Crunch. By 'credit crunch' we mean the recent turmoil in the world's financial markets and responses to it from various international, regional, and national agencies.

28 April 2008: Basel Committee steps to strengthen the banking system
the Basel Committee on Banking Supervision has announced a series of steps to help make the banking system more resilient to financial shocks. These measures will be introduced in a manner that promotes long-term bank resiliency and strong supervision, while seeking to avoid potentially adverse near-term impacts as the re-pricing of risk and deleveraging process continues in financial markets. The measures include:
  • Enhancing various aspects of the Basel II Framework, including the capital treatment of complex structured credit products, liquidity facilities to support asset-backed commercial paper (ABCP) conduits, and credit exposures held in the trading book. At the same time, the Committee notes the importance of prompt implementation of the Basel II framework, as this will help address a number of the shortcomings identified by the financial market crisis.
  • Strengthening global sound practice standards for liquidity risk management and supervision, which the Committee will issue for public consultation in the coming months.
  • Initiating efforts to strengthen banks' risk management practices and supervision related to stress testing, off-balance sheet management, and valuation practices, among others.
  • Enhancing market discipline through better disclosure and valuation practices.
Click to download the Basel Committee Announcement (PDF 30k).

28 April 2008: Agenda for 8 May 2008 IFRIC meeting
The International Financial Reporting Interpretations Committee (IFRIC) will meet at the IASB's offices in London on Thursday 8 May 2008. The meeting is open to the public and will be webcast. The tentative agenda is shown below. The IFRIC meeting is for one day only and will not continue on Friday 9 May.

8 May 2008, London

Thursday 8 May 2008

27 April 2008: We comment on IFRIC D24 on customer contributions
Deloitte has submitted a Letter of Comments on IFRIC Draft Interpretation D24 Customer Contributions (PDF 144k). IFRIC D24 proposes that if an entity receives assets that it uses to provide access to an ongoing supply of goods or services to a customer, the entity should recognise the contributed assets and revenue from providing access to the supply of goods or services over the period access is provided. Our letter does not support IFRIC's proposed consensus. We recommend that IFRIC not issue an Interpretation at this time but, instead, address the issue narrowly in an Agenda Decision. We suggest a proposed wording for the Agenda Decision. An excerpt from our letter:

We have reservations about the IFRIC's approach to this issue. The Interpretation does not clearly establish the principles on which it is based and, accordingly, the appropriate application of the proposed Interpretation is not always clear. In the absence of such clear principles, there is a danger that the Interpretation may be applied as a set of arbitrary rules, and may lead to practices which conflict with the principles of IAS 18.

For this reason, as explained in more detail below, we believe that it is best for the IFRIC not to proceed with the Interpretation but to address this issue for the time being in an Agenda Decision.

It appears to us that the IFRIC initially intended to address, in situations in which an entity receives a specific item of property, plant and equipment that must be used to provide access to a supply of goods or services, whether the recipient should recognise such an asset at fair value and how to account for the resulting credit. The IFRIC later extended this to circumstances where an entity receives cash to fund the acquisition or construction of that specific asset.

However, we believe that the Interpretation as currently drafted has a much wider scope without providing robust principles for all situations that may fall in that scope.

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27 April 2008: Our views on IFRIC D23 on non-cash distributions
Deloitte has submitted a Letter of Comments on IFRIC Draft Interpretation D23 Distributions of Non-cash Assets to Owners (PDF 170k). IFRIC D23 proposes that all types of distributions of non-cash assets to owners would be measured at the fair value of the assets distributed.

We agree with and support the consensus proposed in the Draft Interpretation to measure a liability to distribute non-cash assets as dividends to its owners at fair value, with any difference between the fair value of the liability and the carrying amount of the non-cash assets being recognised in profit or loss. We also agree that the entity should apply the requirements of IFRS 5 to non-current assets held for distribution to owners. However, we have a number of concerns with the consensus that are outlined in appendices to our letter.

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26 April 2008: We comment on two IAASB proposals
Deloitte has recently submitted letters of comment to the International Auditing and Assurance Standards Board (IAASB) on two proposed International Standards on Auditing (ISAs), as listed below. You will find all of our past comments to the IAASB since 2004 Here.

25 April 2008: Survey of European professional investors about fair values
The Accounting Standards Committee of Germany has published a comprehensive survey on Attitudes towards Fair Value and Other Measurement Concepts. The survey examines the attitudes of 242 professional investors (financial analysts, fund managers, institutional investors, and rating experts) from across Europe towards different measurement concepts. It was done in cooperation with the European Federation of Analysts Societies (EFFAS). Here's a quick summary of the major findings:
  • When asked to give a general opinion on financial accounting measurement concepts, the respondents, regardless of their background, favor the consistent application of fair value accounting for all assets and liabilities, rather than cost-based measurement.
  • However, users seem to distinguish between marked-based fair values ('mark-to-market' measurements) and fair values that are determined using valuation techniques ('mark-to-model' measurements):
    • For liquid and non-operating assets, investors consider mark-to-market fair value to be the most decision-useful measurement concept.
      IAS Plus observation: This finding is consistent with the view expressed recently by the CFA Institute strongly supporting the broad use of fair value measurement for all financial instruments. See our 21 April 2008 Story.

    • For non-liquid and operating assets, historical cost and market-based fair value are not regarded as being significantly different in respect to decision-usefulness.
      IAS Plus observation: This finding is somewhat at odds with the view of the CFA Institute in their 2007 Comprehensive Business Reporting Model: Financial Reporting for Investors, which concludes that 'fair value information is the most relevant information for financial decision making'... Our goal is for fair value to be the measurement attribute for assets and liabilities." See our 20 August 2007 Story.

    • Mark-to-model fair values are regarded as significantly less decision-useful than both market-based fair values and historical cost measures for practically all asset and liability classes. Only for financial assets do respondents view mark-to-model measures as more decision-useful than historical cost values.
      IAS Plus observation: The CFA Institute states: "With respect to the measurement of fair value, we believe that managers should look first to the most objective sources of fair value, for example, observable prices for the same or similar assets or liabilities in liquid markets. In the absence of such market-determined measurements, managers must report the best estimate of fair value as determined by widely accepted and applied valuation methods and by using market-based inputs."
Click to download:

25 April 2008: European Parliament adopts report on IASB and IASCF
By vote of 373 in favour to 21 against with 13 abstentions, The European Parliament has adopted a report calling for improvements to the governance of the IASB and the IASCF "to address concerns that they may lack transparency and accountability since they are not under the control of any democratically elected parliament or government". The report was previously approved by the Parliament's Committee on Economic and Monetary Affairs in February 2008. The Parliamentary resolution adopting the report welcomes steps already taken by the IASB and the IASCF to address these issues but argues that there is more to be done. The report calls for "a debate on integrating the IASB into the system of international governance with the IMF, OECD and World Bank". That process has already begun. The Trustees of the IASCF, at their March 2008 meeting, agreed to propose creation of a Monitoring Group as a way of putting in place 'structured contacts' with public authorities with a legitimate interest in accounting standard setting:
The IASCF Monitoring Group would be responsible for approving all Trustees. Consultation international organisations would be required. It is likely that the proposed Monitoring Group would be composed of:
  • four members of the International Organization of Securities Commissions (IOSCO), represented by the Chairman of the Japan Financial Services Agency, the Chairman of the US Securities and Exchange Commission, the chair of the IOSCO Emerging Markets Committee, and the chair of the IOSCO Technical Committee;
  • the responsible member of the European Commission [currently the Commissioner for Internal Market and Services];
  • the managing director of the International Monetary Fund; and
  • the president of the World Bank.
Click to download:

25 April 2008: Third EC report on IASB and IASCF governance
In July 2006, the Economic and Financial Affairs Council (ECOFIN*) of the European Union asked the European Commission to monitor the governance of the IASB and IASCF and to report to ECOFIN on a regular basis. The European Commission has released its Third Report on Governance Developments in the IASB and the IASCF (PDF 51k, March 2008). The report covers developments between July 2007 and January 2008. The report comments favourably on progress that has been made in improving the governance structure, funding arrangements, due process, and representation of stakeholders in the structure. Here is an excerpt:
During the period since the publication of the Commission services's 2nd report, the IASCF and IASB have made important announcements that, if fully and effectively implemented, will enhance the accountability of the IASCF/IASB to their stakeholders and enhance the transparency of their activities.

Most significantly, there is now broad-based agreement to establish a formal public oversight structure for the IASCF. This will also lead to a reform of the appointment process for Trustees, thus abolishing the self-appointment mechanism by granting an external, independent oversight body the power to decide upon the appointment of Trustees.

The Commission services welcome the decisions taken by the IASCF to strengthen the IASB's due process, in particular by carrying out ex ante impact assessments and ex post reviews of new standards and interpretations, as well as by publishing feedback statements. The Commission services are encouraged by the project summary and feedback statement published for the Business Combinations – Phase II project and encourage the Trustees and the Board to pursue their work in this area, in particular by ensuring that impact assessments are carried out earlier in the development of standards and interpretations.

Here are links to the two earlier governance reports:
* ECOFIN comprises the Economics and Finance Ministers of the EU Member States, as well as Budget Ministers when budgetary issues are discussed. It meets once a month. It develops EU policies for capital markets and economic matters, among other things.

25 April 2008: AICPA is gearing up for IFRSs
The American Institute of Certified Public Accountants (AICPA) is organising to assist its members as the US considers moving to IFRSs. The AICPA is looking for committee volunteers who have prepared or audited IFRS financial statements or who have taught the subject. This new committee will work to develop best practices to "help preparers and auditors, influence the content of the CPA examination, and share their thought leadership throughout this important period in our profession". AICPA members with IFRS experience can contact volunteerservices@aicpa.org.

25 April 2008: EU begins assessment of IFRS implementation in 2006
The European Commission has engaged a French consulting firm to study the implementation of IFRSs in Europe in 2006. This study is a follow-up to a Review of First-year Implementation of IFRSs in the EU that was done by the Institute of Chartered Accountants in England and Wales on behalf of the Commission. That study included a detailed review of the 2005 financial statements of 200 listed companies and 18 unlisted companies from 25 EU member states. The 2006 study will similarly focus on the consolidated accounts of listed companies but will also include some unlisted companies and individual accounts. The final report is due by the end of 2008. The project is described in the Minutes of 10 March 2008 ARC Meeting (PDF 157k).

24 April 2008: US SEC is developing an updated IFRS roadmap
In remarks before the US Chamber of Commerce in Washington, US SEC Chairman Christopher Cox outlined the benefits of IFRSs for investors in the United States. He also discussed the challenges of ensuring 'consistent and faithful application of IFRSs throughout global capital markets'. Chairman Cox said that later this year, the Commission's staff will formally propose to the Commission an updated 'Roadmap' that lays out a schedule and milestones for further progress toward US acceptance of IFRSs. Click to Download Chairman Cox's Remarks (PDF 59k). Here is an excerpt:

As even individual investors in the United States become globally active, our nation has a good deal at stake in seeing IFRS fulfill its promise. The United States has witnessed a remarkable growth in our own investors' interest in foreign securities. I came to Washington with President Reagan. When he was first elected, US gross trading activity in foreign securities was $53 billion. Today it's over $11 trillion. That's more than the GDP of Japan and China combined. And this isn't just institutional trading: roughly two-thirds of American investors own securities of non-US companies.

The same is true for foreign trading activity in US securities – that has exploded during this period as well. Today, it's over $33 trillion. That's more than twice the GDP of the European Union. It's for these reasons that our work on converging to a single global accounting standard is so important.

24 April 2008: 'Can Accounting Standards Save the Banks?'
In an article published in the 21 April 2008 edition of La Tribune (the French business daily), Nicolas Veron defends accounting standards such as IAS 39 that require banks to measure most financial instruments at fair value at each reporting date. Mr Veron, a research fellow at European 'think tank' Breugel, argues that mark-to-market standards, when rigorously applied, serve the public interest by providing investors with 'relevant, reliable, comparable, and understandable information'. Banks will actually benefit from accounting that reflects economic reality and provides full disclosure, Mr Veron suggests. Investors will understand any resulting earnings volatility. Click to download the article, titled Can Accounting Standards Save the Banks? (PDF 40k), which we have posted with the kind permission of the author. An excerpt:

Accounting losses are accepted by the marketplace when companies face up to them and explain. Evidence is the remarkable 15% hike in UBS shares upon its announcement of a USD19 billion write-down on 1 April.

Conversely, there can be no doubt that reducing accounting transparency, whether by reverting to historical cost or by authorising banks not to reflect market developments in their financial statements, would hurt the market and have negative consequences. This was illustrated by the 1990s Japanese crisis, when the opaque accounts of banks fed the general mistrust.

In a nutshell, fair value accounting may not be satisfactory, but the alternatives are worse. Pending the return of liquidity, investors prefer to view the world through the fuzzy lens of fair value, rather than being left to complete corporate discretion or have information which only reflects an outdated past.

We have also posted a publication by Mr Veron from the Bruegel Blueprint Series that we believe will also be of interest to IAS Plus visitors: The Global Accounting Experiment (PDF 1,111k), which argues that the adoption of IFRSs by the EU must now be accompanied by follow-on measures at several levels, one of which is a chief accountant for Europe.

24 April 2008: Agenda project pages updated
We have updated the following IASB agenda project pages to reflect the discussions and decisions at the IASB's meeting on 15-18 April 2008 and for discussions at the 21-22 April 2008 joint meeting of the IASB and the FASB:

23 April 2008: European Commission report on equivalence
The European Commission has prepared a Working Paper on non-EU countries in the process of converging their national GAAPs towards IFRSs and on the progress towards the elimination of reconciliation requirements that apply to EC issuers listed in these countries.
  • Japan, United States, China, Canada, Korea: The report concludes that Japanese GAAP and United States GAAP both meet the criteria of equivalence to IFRSs. Chinese GAAP will continue to be accepted, but since it moved to IFRS equivalents for the first time in 2007, more information on its implementation is needed. The EC intends to review Chinese implementation in the future. The report also concludes that an exemption until 2011 should be granted to Canada and South Korea in view of their ongoing efforts to move to IFRSs in the near future. The Commission will soon present legislative proposals to reflect the foregoing conclusions.
  • United States acceptance of IFRSs as adopted by the EU: For the few EU companies using the EU's IAS 39 carve-out, the US is requiring a reconciliation to IFRSs. The EC seeks removal of the US reconciliation requirement for all European issuers using IFRSs as adopted by the EU. "Efforts need to continue to resolve the issue of the carve-out of IAS 39. In this context the paper calls on the IASB to play a full role."
  • Australia, Hong Kong, New Zealand, Singapore, South Africa, Israel: Australia, Hong Kong, New Zealand, Singapore, and South Africa are already applying IFRS equivalents. Israel has made IFRSs mandatory for all listed companies except banks and dual listed companies starting January 2008. In these cases the paper calls for an explicit and unreserved statement of such a compliance with IFRSs to be included in the audited financial statements.
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23 April 2008: Notes from day 2 of the IASB-FASB meeting
The International Accounting Standards Board and the US Financial Accounting Standards Board held a joint meeting on Monday and Tuesday 21-22 April 2008 in London. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

23 April 2008: New PCAOB rules on auditor independence
The US Public Company Accounting Oversight Board (PCAOB) has voted to adopt a new rule on Communication with Audit Committees Concerning Independence and to amend its existing rule on Tax Services for Persons in Financial Reporting Oversight Roles:
  • Communication with Audit Committees. This rule will require a registered public accounting firm, before accepting an initial engagement pursuant to the standards of the PCAOB and annually thereafter, to describe in writing to the audit committee all relationships between the firm or any of its affiliates and the issuer or persons in a financial reporting oversight role at the issuer that may reasonably be thought to bear on the firm's independence. Registered firms will also be required to discuss with the audit committee the potential effects of any such relationships on the firm's independence.
  • Tax Services. This amendment excludes from the scope of the rule tax services provided during the portion of the audit period that precedes the beginning of the professional engagement period. As originally adopted by the Board, the rule provided that a registered public accounting firm is not independent of its audit client if it or any of its affiliates provides any tax service to a person in a financial reporting oversight role or an immediate family member of such a person during the audit and professional engagement period. The Board determined that providing tax services to such a person during the portion of the audit period preceding the beginning of the professional engagement period does not necessarily impair a firm's independence.
These rules must be approved by the SEC. Click for PCAOB Press Release (PDF 20k). As of 4 April 2008, 1,850 public accounting firms have registered with the PCAOB to be allowed to audit the financial statements of US public companies. Of those, approximately 850 (over 45%) are non-US audit firms from more than 86 jurisdictions.

22 April 2008: Updated EFRAG endorsement status report
The European Financial Reporting Advisory Group (EFRAG) 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 Report as of 20 April 2008 (PDF 33k). Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:
  • IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
  • IFRS 3 Business Combinations (2008)
  • IAS 1 Presentation of Financial Statements (revised September 2007)
  • IAS 23 Borrowing Costs (revised March 2007)
  • IAS 27 Consolidated and Separate Financial Statements (2008)
  • IAS 32 and IAS 1 Amendments for Puttable Instruments and Obligations Arising on Liquidation
  • IFRIC 12 Service Concession Arrangements
  • IFRIC 13 Customer Loyalty Programmes
  • IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction

22 April 2008: Notes from day 1 of the IASB-FASB meeting
The International Accounting Standards Board and the US Financial Accounting Standards Board held a joint meeting on Monday and Tuesday 21-22 April 2008 in London. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

22 April 2008: SEC Member would let markets choose IFRSs or US GAAP
In Remarks before the American Chamber of Commerce in Brazil last week (PDF 66k), US SEC Commissioner Paul S Atkins discussed regulatory effectiveness and efficiency, including a number of steps that the SEC has taken to reduce regulatory burdens in US financial markets. He suggests that the choice between US GAAP and IFRSs should be left to market participants, not regulators:

A second step that the SEC took to address concerns about the capital markets was the elimination, last December and effective immediately, of the reconciliation requirement for foreign companies that file using International Financial Reporting Standards (IFRS), as promulgated by the International Accounting Standards Board. Previously, companies had to restate their financial statements according to US generally accepted accounting principles (US GAAP). This action comes in response to a move by much of the rest of the world to shift to IFRS. Brazilian companies, which are scheduled to adopt IFRS by 2010, will be able to benefit from this change. This change also should benefit US investors who seek to invest in non-US companies. The rationale is that US investors are already investing directly abroad in IFRS-reporting companies and have become accustomed to relying on it. At any rate, reconciliations to US GAAP are published only months after the companies' financial statements are released. Thus, performing reconciliations is costly for companies, and reconciliations appear to be of limited use to those who look at financial statements.

Meanwhile, the SEC is considering whether to permit US companies to file using IFRS. If IFRS is good enough for non-US companies, then why not for American companies as well? Making this change would leave the choice between US GAAP and IFRS to the markets. If investors prefer one set of accounting standards over another, they may well reward with premium pricing those issuers who use the preferred set. You can easily see the utility of IFRS for multi-national U.S. companies that access international capital markets and have non-U.S.-based competitors.

IFRS, of course, is still a work in progress, and there are areas in which IFRS has no applicable standards. The US Financial Accounting Standards Board (FASB) and the IASB have much still to do in converging US GAAP and IFRS, but both are committed to this work. Other issues that remain concern the funding and governance of the IASB, supporting the further development and consistent implementation of IFRS, encouraging education of accountants in IFRS, and working towards continued convergence.

21 April 2008: New Deloitte Audit Committee Brief on FEI 'Top Challenges'
In our News Story of 29 Dec 2007, we posted the list of the Top Challenges for Financial Executives for 2008, prepared by the CEO of Financial Executives International. Number two on the list was convergence of US GAAP and International Financial Reporting Standards: "Are the US markets ready for principles-based standards?" Deloitte has prepared the 2008 Special Edition of the Audit Committee Brief (PDF 120k) to summarise each of the 11 FEI challenges and provide resources relevant to each topic.

21 April 2008: New Global Offerings Services newsletter
We have posted the March 2008 Edition of the Deloitte Global Offerings Services Newsletter (PDF 211k). 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. The GOs Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications, with hyperlinks to source material. Past GOs Newsletters are Here.

21 April 2008: IASB and FASB will meet today and tomorrow
The International Accounting Standards Board will hold a joint meeting with the US Financial Accounting Standards Board on Monday 21 April (starting 11:45am) and Tuesday 22 April (morning only) 2008. The meeting venue is Painters' Hall, 9 Little Trinity Lane, London EC4V 2AD. We previously posted the Agenda, which includes discussion of updates to the Memorandum of Understanding between the IASB and FASB and standard setters' responses to credit crisis. The meeting will be webcast.

21 April 2008: CFAs continue to support fair value for financial instruments
The Centre for Financial Market Integrity of the CFA Institute, which represents the views of professional investors, has released the following statement in light of the earnings reports from banks and other financial intermediaries that reflect changes in the market value of financial instruments:
We would like to reiterate our strong support of FASB and IASB and their discussion paper endorsing the broad use of fair value measurement for financial instruments. We believe that the widespread use of fair value measurement will ultimately play an important role in improving market discipline and transparency, as well as assist in making more informed risk management decisions. The CFA Institute Centre believes that current chatter about the need to 'roll-back' or revisit fair value is a misguided effort on behalf of preparers that would ultimately result in less transparency and market integrity. Maintaining the current mixed attribute model for reporting financial assets and liabilities has enabled more complacent risk management and has contributed to the lack of market discipline identified by regulators.
The Institute's Statement (PDF 57k) says that "fair value 'smoothing' will mask the reality of market conditions and allow companies to hide risk". The CFA Institute conducted a Survey of its Members regarding fair value requirements for financial institutions. Here is a summary of the responses of 2,006 CFA Institute members:

Do fair value requirements for financial institutions improve transparency and contribute to investor understanding of the risk profiles of these institutions?
  • Yes – 79%
  • No – 21%
Are fair value requirements aggravating the global credit crisis?
  • Yes – 55%
  • No – 45%
What is the overall impact of fair value requirements on market integrity?
  • Improve – 74%
  • Hurt – 19%
  • No impact – 7%

21 April 2008: IFRSs in your Pocket 2008
We have published the seventh edition of our popular guide to IFRSs – IFRSs In Your Pocket 2008 (PDF 777k). This 112-page guide includes information about:
  • IASB structure and contact details.
  • IASB due process.
  • Use of IFRSs around the world, including updates on Europe, Asia, USA, and Canada.
  • Summaries of each IASB Standard (through IFRS 3 and the amendment to IAS 27) and Interpretation (through IFRIC 14), as well as the Framework and the Preface to IFRSs.
  • Background and current status of all current IASB projects.
  • IASC and IASB chronology.
  • Update on IFRS-US GAAP convergence.
  • 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.

20 April 2008: Additional postings to IAS Plus 'Credit Crunch' page
We are continuing to add documents to our new page dedicated to tracking recommendations and resources relating to the Credit Crunch. By 'credit crunch' we mean the recent turmoil in the world's financial markets and responses to it from various international, regional, and national agencies. Two new documents posted are:
  • Observations on Risk Management Practices During the Recent Market Turbulence from the Senior Supervisors Group (PDF 2,334k, March 2008). The seven 'senior supervisors' participating in this project are the French Banking Commission, the German Federal Financial Supervisory Authority, the Swiss Federal Banking Commission, the UK Financial Services Authority, and, in the United States, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Reserve.
  • Policy Statement on Financial Market Developments from the President's Working Group on Financial Markets (PDF 1,428k, March 2008). The policy statement sets out recommendations to improve the future state of US and global financial markets. Those recommendations cover improved transparency and disclosure, better risk awareness and management, and stronger oversight.

20 April 2008: Deloitte Canada Countdown IFRS transition newsletter
Deloitte Canada has released the third issue of their Countdown IFRS transition newsletter, to provide a snapshot of where we are now as far as Canada's transition to IFRSs is concerned – both in Canada and in Deloitte. This Special Edition of Countdown focusses on comments from the chair of the Canadian Accounting Standards Board (AcSB); information about AcSB's new omnibus exposure draft Adopting IFRSs in Canada; an interview with Ian Hague of the AcSB staff regarding the transition to IFRSs; and IFRS events. Click for:

19 April 2008: Reminder about comment deadlines on IFRIC D23 and D24
We remind you that 25 April 2008 is the deadline for responding to two IFRIC Draft Interpretations:

19 April 2008: FASB will host an IFRS Forum
The US Financial Accounting Standards Board (FASB) and its oversight body, the Financial Accounting Foundation (FAF), will host a forum entitled High-Quality Global Accounting Standards: Issues and Implications for US Financial Reporting. The event will take place Monday, 16 June 2008, at Baruch College in New York City. The purpose of the forum is for the FAF and the FASB to open a dialogue with constituents about whether and how to continue to move the United States toward high-quality global accounting standards. Panelists will include users of financial statements, representatives of small and large companies both public and private, auditors, regulators, educators, and others representing facets of the US economy that would be affected if there were a move from US GAAP to IFRSs. The Forum will also be webcast live on FASB's website. To register, or for more information, log on to www.fasb.org/forms/Convergence_forum.shtml. Click for FASB News Release (PDF 28k).

19 April 2008: Notes from day 4 of the April 2008 IASB meeting
The International Accounting Standards Board held its April 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 15-18 April 2008. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

18 April 2008: Notes from day 3 of the April 2008 IASB meeting
The International Accounting Standards Board held its April 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 15-18 April 2008. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

17 April 2008: EC consultation on bank capital requirements directive
The European Commission has launched a public consultation on possible changes to the Capital Requirements Directive (CRD) (2006/48/EC and 2006/49/EC). Comments are invited by 16 June 2008. The review of the CRD is, in part, a response to the recent recommendations of the G-7 Financial Stability Forum. Opinions are sought on (a) large exposures, (b) hybrid capital instruments, (b) supervisory arrangements, (d) the waivers for banks organised in networks, and (e) adjustments to certain technical provisions. We have more information and links on our New Credit Crunch Page.

17 April 2008: IAS Plus quarterly newsletter for April 2008
The April 2008 IAS Plus Quarterly Newsletter has been published. The newsletter reports on the 1st quarter 2008 activities of the IASB, the IFRIC, and the IASC Foundation, and also on worldwide issues and events relating to international financial reporting:

17 April 2008: Notes from day 2 of the April 2008 IASB meeting
The International Accounting Standards Board held its April 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 15-18 April 2008. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

16 April 2008: IASB and FASB plan for completion of MOU projects
An agenda paper for the joint meeting of the IASB and the FASB on 21 and 22 April 2008 proposes a plan for completion of a number of projects that are part of the convergence agenda set out in the February 2006 Memorandum of Understanding between the two boards. The goal of the paper is 'to outline the improvements to existing IFRS that are needed to facilitate mandatory adoption of IFRS in all major capital markets'. The plan proposed in the paper is based on the following two assumptions:
  1. For capital markets not yet adopting IFRSs, which would include the United States, the target date of mandatory adoption is no later than 2013.
  2. A 'quiet period' of at least a year before that date is provided.
If the plan is agreed, an updated Memorandum of Understanding between the two Boards will be published. The agenda paper notes:

The IASB agenda priorities should limit the possibility that a company adopting IFRS in 2013 would undergo two changes in a relatively short period (the first change being the adoption of IFRSs and the second change being a major revision of an IFRS standard). Thus, work completed by 2011 should be designed to remain in place for three or more years after completion; any other changes to IFRS during the 3-year period after 2011 should be modest. Under this view:
  • Significant, fundamental weaknesses in existing IFRS need to be prioritised for completion by mid-2011.
  • Worthwhile improvements to IFRS can be deferred beyond 2011 if the existing IFRS and US standards are similar (leasing would be an example of this).

The agenda paper concludes that achieving a mid-2011 completion goal will require revisions to scopes and objectives of some projects. The paper states: 'For their part the IASB directors intend to make the projects in this memorandum their primary staffing priority. If necessary, they will remove staff from other projects to serve the projects addressed in this memorandum and will not staff other projects unless and until staff become available.'

Here are some of the specific proposals in the agenda paper as they relate to IASB projects:
Projects that address areas where fundamental improvement in IFRS and possibly US GAAP are needed:
  • Revenue recognition. The Boards should develop a standard based on the 'customer consideration approach' to measuring the performance obligation, by which the amount paid or payable by the customer is allocated to the components of a transaction. The alternative is a 'fair value model' by which the performance obligation is measured at its current fair value.
  • Fair value measurement. The IASB project would be limited to defining exit price identically to Statement 157; defining a comparable entry price; amending existing IFRSa to replace the various measurement terms used with either entry price or exit price based on the intent of the existing standards; and providing disclosures about entry and exit price measurements. Project would not address measurement concepts.
  • Consolidation, including special purpose entities. Develop a consolidation standard based on effective control.
  • Derecognition. Publish a staff research paper and, in October 2008, decide on an accelerated approach to replacing the derecognition portions of IAS 39.
Projects that address areas for which there is a significant need for improvement in both IFRS and FASB standards:
  • Financial statement presentation. Project would not try to resolve (a) whether a sub-total of net income/profit or loss should be reported, (b) which items should be included or excluded in determining that sub-total, or (c) recycling. Instead, limit the focus to presentation on the face of the financial statements and a limited number of disclosures directly related to presentation issues. Thus, current IFRS-US GAAP differences regarding which items are included in profit or loss and recycling would continue.
  • Postretirement benefits. The IASB would continue its work on phase 1 of the project – limited amendments to IAS 19 (see our News Story of 27 March 2008 regarding the recent IASB Discussion Paper). Consider dropping cash balance plans from the current project. Suspend work on phase 2 (comprehensive employee benefits standard).
  • Leasing. Address only lessee accounting and focus on an approach that results in on-balance-sheet presentation of rights inherent in leases – the right to use an asset. Do not address definition of a lease or contingent rentals.
  • Financial instruments. The IASB would not pursue full fair value measurement for all financial instruments. "The obstacles that exist lie in the area of presentation and the Boards' willingness to deal with the political outcry that would no doubt accompany such a move." Possibly, improvements to hedge accounting or measurement classification could be made.
  • Liabilities and equity. High priority project. IASB should consider FASB's narrow view of equity proposed in its 30 Nov 2007 discussin paper (see our News Story of 5 Dec 2007. Under FASB's 'basic ownership' approach, only the instrument that represents the lowest residual interest in an entity is classified as equity. All other instruments represent either liabilities or assets. Also to be considered: Would a standard based on the narrow view of equity preserve the solution to puttable shares recently published by the IASB?
Projects that address areas in which IFRSs currently do not provide guidance:
  • Insurance. Unlikely to be completed by 2011 ('significant political opposition and demands for field testing').
  • Extractive industries. Cannot be completed by 2011.
Conceptual Framework:
  • Conceptual Framework. The agenda paper presents divided views on the Framework project but does not make a recommendation. One view is that between now and 2011 IASB and FASB should devote their resources to standards-level projects. The other view is that work on measurement and a disclosure framework could be completed by 2011.
Short-term Convergence Projects:
  • Earnings per share. The agenda paper notes divided views on whether this current project should be completed now or await progress on liabilities and equity.
  • Joint ventures. Focus only on eliminating proportionate consolidation.
  • Income taxes. IASB should complete its current project to reconsider IAS 12. While the IASB's upcoming exposure draft does not take the same approach on uncertain tax positions as did the FASB, it is nonetheless important to US adoption that IFRSs address this issue.
  • Other projects. Defer work on impairment, research and development, and fair value option.

16 April 2008: Editorial corrections to 2008 BV and IAS 32 amendment
The IASB has posted a list of editorial corrections and changes to the 2008 International Financial Reporting Standards Bound Volume and the Amendments to IAS 32 Financial Instruments: Presentation, and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation published in February 2008. You can access them Here.

16 April 2008: New IAS Plus page devoted to the 'Credit Crunch'
We have created a new page on IAS Plus dedicated to tracking recommendations and resources relating to the Credit Crunch – the recent turmoil in the world's financial markets and responses to it from various international, regional, and national agencies. There's also a new permanent link in the left column on our Home Page.

Starting in the summer of 2007, accumulating losses on US subprime mortgages triggered widespread disruption to the global financial system. Large losses were sustained on complex structured securities. Institutions reduced leverage and increased demand for liquid assets. Many credit markets became illiquid, hindering credit extension. Balance sheets of financial institutions became burdened by assets that have suffered major declines in value and vanishing market liquidity.

To re-establish confidence in the soundness of markets and financial institutions, national authorities have taken exceptional steps with a view to facilitating adjustment and dampening the impact on the real economy. These have included monetary and fiscal stimulus, central bank liquidity operations, policies to promote asset market liquidity and actions to resolve problems at specific institutions. Financial institutions have taken steps to rebuild capital and liquidity cushions. And both national and international organizations have developed recommendations and resources aimed at reducing the likelihood that this situation would recur. Some of those recommendations and resources relate to financial reporting and disclosure.

16 April 2008: Notes from the first day of the April 2008 IASB meeting
The International Accounting Standards Board held its April 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 15-18 April 2008. Click to go to the preliminary and tentative Notes taken by Deloitte Observers at the Meeting.

16 April 2008: Best practices in the hedge fund industry
Two blue-ribbon private-sector committees in the United States have released separate yet complementary sets of best practices for hedge fund investors and asset managers. The committees, selected in September 2007 and comprising well-respected asset managers and investors, were asked to develop a set of best practices for their respective groups of stakeholders. Click here for:

15 April 2008: New Deloitte Practice Fellow at the IASB
Michael D Mueller, a Senior Manager in the Accounting Consultation Department of Deloitte & Touche LLP (USA)'s National Office in Wilton, Connecticut, has joined the staff of the IASB as a Practice Fellow for a 24-month term starting 14 April 2008. In that role, he will be working on the Derecognition Project and other financial instruments-related projects.

15 April 2008: Chinese translation of Deloitte Guide to IFRS 2
Deloitte & Touche in Taiwan has published the Chinese translation of A Guide to IFRS 2 Share-based Payment. As with the English Language Version, the guide not only explains the detailed provisions of IFRS 2 but also deals with its application in many practical situations. In addition, it includes a summary of accounting for share-based payment under Taiwan GAAP and an comparison against IFRS 2. The Chinese translation of A Guide to IFRS 2 Share-based Payment can be purchased by email to fltsai@deloitte.com.tw or On Line (Chinese).

15 April 2008: Deloitte Australia Podcast and Alert on IFRS 7
Deloitte (Australia) has released a new Insights Podcast discussing AASB 7 Financial Instruments: Disclosures – which is identical to IFRS 7. They have also published an Accounting Alert that summarises some of the key practical, commercial, and technical considerations in applying the standard. Click here for:

15 April 2008: IASB reorganises its technical leadership team
Sir David Tweedie, Chairman of the International Accounting Standards Board, has announced a reorganisation of the technical leadership team of the IASB following the resignation of Liz Hickey, Director of Technical Activities, who will return to her native New Zealand. The following changes will come into effect from July 2008. All six directors will report directly to the Chairman of the IASB. The IASB Announcement (PDF 53k) said:
  • Wayne Upton, Director of Research, will become Director of International Activities - a vital role that better reflects both his current responsibilities and extensive experience in assisting major economies in making the transition to IFRSs and in meeting the growing volume of requests from around the world for assistance in implementing IFRSs. He will also be available for special projects.
  • Tricia O'Malley, a former IASB member, will take on the enhanced role of Director of Implementation Activities, combining her existing responsibilities as Co-ordinator of IFRIC activities with the management of post-implementation reviews and annual improvements projects.
  • Paul Pacter will retain his existing responsibilities as Director of Standards for SMEs. Paul has shown tremendous energy and leadership driving the SME project forward, which is all the more remarkable given the part-time nature of the role.
  • Peter Clark will be promoted to Director of Research, responsible for identifying and managing issues that affect a range of IASB projects, and for overseeing technical quality.
  • Gavin Francis will be promoted to Director of Capital Markets and will be responsible for the development of IFRSs, with particular emphasis on financial instruments and related areas.
  • Alan Teixeira will become Director of Technical Activities and will be responsible for the development of IFRSs.

14 April 2008: Joint Forum paper on credit risk transfer
The Joint Forum – a consortium of the Basel Committee, IOSCO, and IAIS – has published a paper on Credit Risk Transfer (CRT) – Developments from 2005 to 2007 (PDF 628k). Here is the Press Release (PDF 30k). The paper updates a 2005 paper to reflect the continued growth and rapid innovation in the CRT markets. The main findings of the paper are:
  • Some of the more complex CRT instruments developed since 2004 are associated with increased leverage and a high variance of loss or high vulnerability to the business cycle.
  • A failure to understand some of these risks contributed to the market turmoil of 2007.
  • Despite these shortcomings, the structured credit market is likely to survive, but will remain weak for a period of time.
  • Supervisors remain concerned about several aspects of the CRT market: its complexity; valuation issues; liquidity, operational and reputational risks; and the broader effects of the growth of CRT. Supervisors believe that market participants must better understand the structure and risks of the CRT products in which they invest, as well as how the rating agencies assign ratings to specific instruments and what circumstances would lead them to downgrade ratings.
  • With continued innovation in the CRT markets, the effort and resources that firms and regulators will need to expend to properly understand these instruments increases significantly.
  • There are steps that the industry and regulatory community can take to enhance the robustness of their risk management and oversight of these products. The paper includes recommendations in this regard.

14 April 2008: IPSASB conforms its foreign currency standard to IAS 21
The International Public Sector Accounting Standards Board (IPSASB)updated its International Public Sector Accounting Standard 4 The Effects of Changes in Foreign Exchange Rates to form it to the latest version of IAS 21. The revised IPSAS 4 can be downloaded without charge from the IFAC's Website. Click for Press Release (PDF 27k).

13 April 2008: IASC Foundation launches 2008 Constitution Review
The Trustees of the International Accounting Standards Committee Foundation, under which the IASB operates, have announced the process for the 2008 Constitution Review. They also completed proposals, to be published shortly, to:
  • Create a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities
  • Expand the IASB to 16 members from the present 14, and provide for geographical balance
The remaining issues will be dealt comprehensively beginning with a consultation document in the second half of 2008. The Trustees expect to complete the review by the end of 2009. The Trustees have formed a Constitution Committee to guide the review, though decisions rest with the Trustees as a whole. That committee includes: Gerrit Zalm, Chairman of the Trustees; Philip Laskawy, Vice Chairman of the Trustees; Bertrand Collomb; Samuel DiPiazza; Aki Fujinuma; Pedro Malan; and Antonio Vegezzi. Click for Press Release (PDF 63k).

Timeline for the 2008 Constitution Review
April 2008Publication of proposals concerning public accountability and IASB size/geographical diversity – the first track of the Constitutional Review. Comment period to end on 31 July.
April-August 2008Trustees to meet interested parties to discuss proposals on the first track
September 2008Constitution Committee to develop proposals to present to full Trustees, based upon analysis of comment letters and other input on the first track proposals.
October 2008Trustees to conclude the first track of Constitution Review at their Beijing meeting. Changes to take effect for 1 January 2009.
October or November 2008Trustees to publish a discussion document inviting views on other issues to be incorporated as part of the Constitutional Review – the second track of the Constitution Review.
October 2008-January 2009Trustees to meet interested parties to discuss the second track of the Constitution Review.
February 2009Trustees to develop list of issues and the Constitution Committee to develop proposals.
April 2009Trustees to publish other constitutional proposals on issues identified.
April 2009-October 2009Trustees to hold a series of meetings on proposals, possibly including public round-table discussions.
October-November 2009Conclusion of the Constitutional Review.

13 April 2008: IASC Foundation Chairman speech to EU Parliament committee
On 8 April 2008, Gerrit Zalm, Chairman of the International Accounting Standards Committee Foundation, under which the IASB operates, spoke before the Economic and Monetary Affairs Committee of the European Parliament. Among other things, his presentation outined the Trustees' plans to create:
  • A new Monitoring Group that would end the practice of self-appointment of IASCF Trustees, and
  • A formal link to public authorities, including the European Commission.
He also outlined the Trustees' plans to expand the IASB to 16 members. Click for Mr Zalm's Prepared Statement (PDF 52k).

13 April 2008: Report from 'convergence meeting' of IASB and ASBJ
The IASB met with representatives of the Accounting Standards Board of Japan (ASBJ) in Tokyo on 8 and 9 April 2008. This was their second meeting in Tokyo since the announcement of the initiative to accelerate convergence between Japanese GAAP and IFRSs in August 2007. Technical issues discussed included consolidation, revenue recognition, insurance contracts, liabilities and equity, and financial statement presentation. The groups also exchanged views on the recent international credit crisis. Click for IASB News Release (PDF 52k).

12 April 2008: 'Leading-Practice Disclosures for Selected Exposures'
The Senior Supervisors Group of financial regulators from major countries has published a set of recommendations for Leading-Practice Disclosures for Selected Exposures. The report responds to the Financial Stability Forum's request that the Senior Supervisors Group undertake a review of disclosure practices regarding exposures to certain instruments that the marketplace now considers to be high-risk or to involve more risk than previously thought, including:
  • collateralised debt obligations,
  • residential mortgage-backed securities,
  • commercial mortgage-backed securities,
  • other special purpose entities, and
  • leveraged finance.
Click to Download the Senior Supervisors' Report (PDF 358k).

12 April 2008: G-7 ministers seek 'urgent action' by the IASB
The G-7 Finance Ministers and Central Bank Governors, meeting in Washington, have strongly endorsed the recommendations in the FSF report highlighted in our news story immediately below. Regarding the IASB, the G-7 said:
We have identified the following recommendations among the immediate priorities for implementation within the next 100 days: The International Accounting Standards Board (IASB) and other relevant standard setters should initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities and enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.
Click for the Statement of G-7 Finance Ministers and Central Bank Governors (PDF 23k).

12 April 2008: FSF urges IASB to improve accounting for off-balance sheet entities
The Financial Stability Forum, a global organisation of regulators and central bankers, has submited a report on Report on Enhancing Market and Institutional Resilience to the G7 Ministers and Central Bank Governors. The IASB participated in preparing the report. The report analyses the causes and weaknesses that have produced the recent turmoil in financial markets worldwide and makes recommendations for correcting those weaknesses. The report addresses the following areas:
  • Strengthened prudential oversight of capital, liquidity and risk management
  • Enhancing transparency and valuation
  • Changes in the role and uses of credit ratings
  • Strengthening the authorities' responsiveness to risks
  • Robust arrangements for dealing with stress in the financial system
Regarding accounting and disclosure standards for off-balance sheet entities, the report concludes:
The IASB should improve the accounting and disclosure standards for off-balance sheet vehicles on an accelerated basis and work with other standard setters toward international convergence. The report notes:
Off-balance sheet treatment in financial reports can arise as a result of the standards for derecognition (e.g., removing assets from balance sheets through securitisations) and consolidation (e.g., special purpose entities). The standards of the IASB and the US Financial Accounting Standards Board (FASB) differ for both topics and with respect to the required disclosures about off-balance sheet vehicles. The IASB and FASB have projects underway to converge their standards in these areas and this work should be accelerated so that high-quality, consistent approaches can be achieved. In doing so, and consistent with their required due process, the IASB and the FASB should consider moving directly to exposure drafts on off-balance sheet issues, rather than discussion papers, to meet the urgent need for improved standards. Standards should require the risk exposures and potential losses associated with off-balance sheet entities to be clearly identified and presented in financial disclosures. The IASB and FASB should consult investors, regulators, supervisors and other stakeholders for their views during this process, and should take note of issues that have come to light during the current market turmoil and the progress reflected in 2007 annual reports and other disclosures.
Regarding valuations, the report concludes that:

International standard setters should enhance accounting, disclosure and audit guidance for valuations. The report states that:
  • The IASB will strengthen its standards to achieve better disclosures about valuations, methodologies and the uncertainty associated with valuations.
  • The IASB will examine its principles and requirements for disclosures about the valuation of financial instruments to identify areas for enhancement in light of lessons learned from the market turmoil. This effort will assess disclosures in year-end 2007 annual reports and draw on the views of investors, firms, auditors, supervisors and regulators about the quality of valuation disclosure practices.
  • The IASB will enhance its guidance on valuing financial instruments when markets are no longer active. To this end, it will set up an expert advisory panel in 2008.
Click to download:

10 April 2008: Study of financial statement restatements in the US
The United States Treasury Department has published a study of financial statement restatements by US companies during the period 1997-2006: The Changing Nature and Consequences of Public Company Financial Restatements (PDF 1,558k). The study, part of Treasury's efforts to encourage US capital markets competitiveness, was conducted by University of Kansas Professor Susan Scholz. Its purpose is "to understand characteristics and consequences of financial statement restatements for violations of US Generally Accepted Accounting Principles (GAAP) over this decade". The study analyzes 6,633 restatements over this period.
These are the broad findings of the restatements study:
  • Over the 1997-2006 decade, restatements grew nearly eighteen-fold, from 90 in 1997 to 1,577 in 2006. However, the increase is largely driven by companies that do not trade on the major stock exchanges. Non-exchange-listed companies account for only 23% of all restatements in 1997, but increase to 62% by 2006.
  • Restatement frequencies begin to accelerate in 2001 – well in advance of the passage of the Sarbanes-Oxley Act of 2002. Th is acceleration is likely due in part to the economic downturn about this time.
  • The average market reaction to restatement announcements is negative throughout the study period. However, beginning in 2001, the magnitude of market reactions declines notably. This decline coincides with an increase in the number of restatements between 2001 and 2006.
  • In particular years, restatement frequencies and market reactions are associated with several disparate factors. These include overall market returns and volatility, regulatory activities, and changes in the mix of underlying accounting issues. Regarding the shift in accounting issues:
    • Restatements attributed to fraud and those affecting revenues tend to have more negative market reactions. However, the percentages of both fraud and revenue restatements decline over the decade. Fraud is a factor in 29% of all 1997 restatements, but only 2% of 2006 restatements. The proportion of revenue restatements also decreases, from 41% in 1997 to 11% in 2006.
    • On the other hand, restatements related to accounting for non-operating expenses, non-recurring events, and reclassifications typically do not have discernibly negative market reactions. Together, these groups represent about 24% of all 1997 restatements, increasing to nearly half at the end of the study period.
  • Across the decade, the average restating company increases in size, but remains similar to a comparison group of non-restating companies. Companies of differing sizes tend to restate different accounting issues, and several of the distinctions are consistent with expected variations in the activities of larger versus smaller companies.
  • Finally, restating companies are typically unprofitable even before the restatement. In the year prior to announcing a restatement, more than half of restating companies report a net loss.

9 April 2008: New process for endorsing IFRSs in the European Union
The European Union has formally published Commission Regulation (EC) No 297/2008 (PDF 33k) of 11 March 2008 amending the EU 'IAS Regulation' with respect to the Process for Endorsing IFRSs for Use in the EU. The procedure requires the Commission staff to submit their recommendations for endorsement to both the European Parliament Committee on Economic and Monetary Affairs and the Council for approval. The regulation calls on the Commission, the Council, and the European Parliament to act speedily to ensure that IFRSs and interpretations are adopted in a timely manner.

8 April 2008: Deloitte Australia Insights Podcast on the 'IFRS experiment'
Deloitte (Australia) has released a new Insights Podcast discussing IFRS-related issues. In this podcast, Bruce Porter, leader of Deloitte's Accounting Technical group in Australia and member of the AASB, talks with Stig Enevoldsen, Chairman of the Technical Expert Group of the European Financial Reporting Advisory Group (EFRAG) and a partner of the Deloitte practice in Denmark, about the experience with IFRSs in Europe and Australia and the key IFRS challenges moving forward. Click here to Access the Deloitte Australia Insights Podcast.

8 April 2008: Concern about banks' disclosures in Europe
At a hearing conducted by the Economic and Monetary Affairs Committee of the European Parliament, Kerstin af Jochnick, Chair of the Committee of European Banking Supervisors Expressed Some Concerns (PDF 40k) about current financial statement disclosures by European banks:
We are concerned that the lack of disclosure on banks' business models and on their role in structured finance activities could make it difficult for market participants to properly assess the banks' risk profile. While the coming into force of the Pillar 3 requirements of the CRD [EU Capital Requirements Directive] and of new accounting disclosure requirements (IFRS 7) should contribute to the quality, granularity and comparability in the disclosure of exposures, the disclosures seem in many cases to be aimed at banks' immediate stakeholders – i.e. at their shareholders – and not so much at market participants in the wider sense. It may be necessary for banks to reconsider their disclosure policies and the principle they build on, especially in times of stress.

8 April 2008: Accounting Roundup – first quarter 2008 review
We have posted Accounting Roundup: First Quarter in Review–2008 (PDF 1,101k, 55 pages), prepared by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (USA). This newsletter provides brief descriptions of pronouncements affecting accounting, financial reporting, and corporate governance issued during 1Q-2008 by standard setters and regulators including FASB, EITF, AICPA, SEC, FASAB, PCAOB, GASB, IASB, and IFRIC. It also outlines other third-quarter regulatory and professional developments. This quarterly review consists of articles, adapted as necessary, from issues of Accounting Roundup published in January and February 2008, as well as new articles for the month of March. You will find past issues Here. International developments covered in this edition of Accounting Roundup are:
  • IASB Amends Financial Instruments Standard for Puttable Instruments and Obligations Arising on Liquidation
  • IASB Revises Accounting for Business Combinations and Noncontrolling Ownership Interests
  • IASB Amends IFRS 2 on Share-Based Payments
  • IFRIC Proposes Guidance on Distributions of Noncash Assets to Owners
  • IFRIC Proposes Guidance on Accounting for Customer Contributions
  • IASB Publishes Discussion Paper on Employee Benefits
  • IASB Publishes Discussion Paper on Reducing Complexity in Financial Instrument Reporting
  • FASB Proposes to Narrow Definition of Equity; IASB Issues Discussion Paper Seeking Constituents' Views
  • IASC Foundation Releases 2008 IFRS Taxonomy

7 April 2008: FASB adds SEC content into its standards codification
In January, the US Financial Accounting Standards Board began a one-year verification phase of its codification of US GAAP. During the verification period, constituents are encouraged to use the online Codification Research System free of charge to research accounting issues. The FASB has now added portions of Securities and Exchange Commission and SEC staff content into the Codification. The Codification does not change the SEC content; instead it reorganises the content into roughly 90 accounting topics to more closely align with the non-SEC content. The SEC sections relate only to matters within the basic financial statements; they do not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. Click for:

7 April 2008: Agenda for the joint IASB-FASB meeting
The International Accounting Standards Board will hold a joint meeting with the US Financial Accounting Standards Board on Monday and Tuesday 21 and 22 April 2008. The meeting venue is Painters' Hall, 9 Little Trinity Lane, London EC4V 2AD. The agenda is below.
AGENDA FOR THE JOINT MEETING OF THE IASB AND THE FASB
21-22 April 2008, London

Monday 21 April 2008 (starting 11:45am)

Tuesday 22 April 2008 (morning only)

  • Meeting of IASB, FASB and Corporate Reporting Users' Forum (CRUF)
  • FASB and IASB – Standard setters' responses to credit crisis

4 April 2008: Agenda for April 2008 IASB meeting
The International Accounting Standards Board will hold its April 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 15-18 April 2008. The meeting is open to public observation and will be webcast. The tentative agenda is shown below. The IASB will also hold a joint meeting with the US Financial Accounting Standards Board on 21-22 Aprilo 2008 in London.

15-18 April 2008, London

IASB Meeting Agenda

Tuesday 15 April 2008 (afternoon only)

Wednesday 16 April 2008

Thursday 17 April 2008

Friday 18 April 2008 (morning only)

4 April 2008: 34 IFRS e-Learning modules are updated
We are pleased to announce that 34 of our 35 IFRS e-Learning modules have just been updated to reflect recent changes in IFRSs. The modules that changed most significantly are those for IASs 16, 17, 23, 28, 36, and 37 and IFRSs 1 and 2. The one remaining module, IAS 32/39 (Part 1), is under final review, and we expect to release it by the end of April 2008. The updates make the modules technically accurate for the IFRSs in force at 31 December 2007. As always, to access them click on the light bulb icon. Development of new modules for IFRS 8 and IFRIC 12 has been completed. We expect to release them in the next week or two.

3 April 2008: Two new IFRIC members are appointed
The IASC Foundation has appointed two additional members of the International Financial Reporting Interpretations Committee (IFRIC). In November 2007 the IASCF Trustees increased the number of IFRIC members from 12 to 14 to broaden IFRS expertise on the committee. The new members are:

  • Margaret M. (Peggy) Smyth, Vice President, Controller, United Technologies Corp., United States
  • Scott Taub, Managing Director, Financial Reporting Advisors, LLC, United States, and former Acting Chief Accountant and Deputy Chief Accountant, US Securities and Exchange Commission
The appointments are for three-year terms ending 30 June 2011. The two members will be eligible for reappointment. Click for Press Release (55k). A complete list of IFRIC members is Here.

3 April 2008: US PCAOB strategic plan 2008-2013
The United States Public Company Accounting Oversight Board (PCAOB) has published a Strategic Plan (PDF 112k) to guide the Board's programs and operations during the period 2008-2013. The Sarbanes-Oxley Act of 2002 created the PCAOB as the independent nonprofit overseer of the auditors of public companies. PCAOB has four primary responsibilities:
  • registration of accounting firms (including non-US firms) that audit public companies (including non-US issuers) trading in US securities markets;
  • inspections of registered public accounting firms;
  • establishment of auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms; and
  • investigation and discipline of registered public accounting firms and their associated persons for violations of specified laws or professional standards.

2 April 2008: European responses to financial markets turmoil
In his report yesterday to the European Parliament's Committee on Economic and Monetary Affairs, Charlie McCreevy, the European Commissioner for Internal Market and Services, discussed the Latest Developments on Policy Response to Financial Turmoil (PDF 82k). He addressed a range of issues, including supervisory convergence across Europe, changes to the bank Capital Requirements Directive, and some accounting-related issues. Here are excerpts:
The issues [causing the turmoil] are known: weak internal valuation models, opaque securitization process, business models that were built upon disproportionate maturity mismatches between assets and liabilities, weak internal controls and poor disclosure standards, to name but a few.

Improving valuation standards, in particular for illiquid assets. This work is done at international level. It has recently intensified. We are happy to hear that the International Accounting Standards Board (IASB) will present a discussion paper including considerations on fair value measurement this month. In May, a task force of the International Organisation of Securities Commissions (IOSCO) will also present its findings. This is good news. We will continue to closely monitor progress. There is a growing debate on whether fair value and mark to market measurements may have aggravated the crisis by bringing pro-cyclicality in financial statements. I want to make it clear that I believe that there are some real accounting issues and anomalies to examine, including the interface with the Capital Requirements Directive, such as the consolidation of special purpose entities or the measurement and information disclosed on risk exposures. Clearly, these and other issues – such as the impact of mark to market valuation when markets generally become illiquid and irrational – must be thoroughly analysed.

2 April 2008: CESR report on GAAP equivalence to IFRSs
The Committee of European Securities Regulators has published its advice to the European Commission on the equivalence of Chinese, Japanese, and US GAAPs to International Financial Reporting Standards. CESR's recommendations are:
  • CESR recommends the Commission find US GAAP equivalent to IFRS for use on EU markets.
  • CESR recommends the Commission consider Japanese GAAP equivalent, unless there is no adequate evidence of the Accounting Standards Board of Japan (ASBJ) achieving to timetable the objectives set out in the Tokyo Agreement.
  • CESR recommends the Commission postpone a final decision on Chinese GAAP until there is more information on the application of the New Chinese Accounting Standards by Chinese issuers. CESR points out that the first complete reporting period under the new Chinese standards will only be for 2007 accounting periods. Consequently there is as yet no evidence available concerning the concrete implementation of the standards by companies and auditors. CESR believes that evidence of adequate implementation is important in the context of an outcome-based definition of equivalence. However, if the Commission were minded to allow Chinese issuers to use Chinese GAAP when accessing EU markets, CESR would recommend the Commission consider accepting Chinese GAAP according to article 4 of the Commission Regulation on the mechanism, until such time as there is adequate evidence to enable a decision to be made under article 2 thereof.
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2 April 2008: Comparison of Hong Kong Financial Reporting Standards and IFRSs
We have posted a comparison of Hong Kong Financial Reporting Standards and IFRS as of 1 January 2008 (PDF 36k), prepared by the Hong Kong Institute of CPAs. There's a permanent link on our Hong Kong Page. You'll find Other GAAP Comparisons Here.

1 April 2008: IFRS 2008 XBRL taxonomy is published
The International Accounting Standards Committee Foundation's XBRL Team has released the near final version of the IFRS XBRL Taxonomy 2008. The Taxonomy 2008 is a complete translation of IFRSs as published in the IFRS Bound Volume 2008 into XBRL, a computer language that is used to communicate information between businesses. The near final version of the IFRS Taxonomy 2008 may be downloaded without charge from the IFRS XBRL Website on www.iasb.org/xbrl/taxo.asp. The IASCF expects to release the final version at the end of June 2008. Click for Press Release (PDF 44k) and for IAS Plus XBRL Info.

1 April 2008: AAA study of accounting faculty trends in US universities
The American Accounting Association has released a new report Accounting Faculty in US Colleges and Universities: Status and Trends, 1993-2004 (PDF 198k). The study, co-sponsored by the American Institute of CPAs, provides data about the perceived shortage of doctoral candidates in accounting in the United States and the implications for accounting education. Among the findings:
  • The number of accounting faculty declined 13.3 percent over the period 1988-2004.
  • However, undergraduate student enrollment in accounting increased 12.3 percent over the same period.
  • Most of the faculty decline occurred at four-year, non-doctoral-granting institutions (decline of 31 percent since 1993). The number of full-time accounting faculty at research/doctoral universities and at community colleges changed little between 1993 and 2004. No change, also, in the total number of accounting faculty holding PhDs.
  • The number of accounting faculty over the age of 55 increased while the number of accounting faculty under the age of 40 declined by half during the 1993-2004 period. The study estimates that the number of retirements is likely to exceed the number of qualified replacements in the immediate future.
  • One result has been a salary inversion observed in the 2004 data: faculty under age 41 averaged higher pay than faculty over age 41.
  • Workload for accounting faculty has increased markedly, especially at research and doctoral universities, where the bulk of enrollment increases has also occurred.

1 April 2008: Proposal to overhaul US regulation of financial markets

Mr Paulson
 US Secretary of the Treasury Henry M Paulson Jr has released a Blueprint for a Modernized Financial Regulatory Structure that proposes a series of 'short-term' and 'intermediate-term' reforms of the structure for reglating financial institutions and markets in the United States. The changes are of a magnitude not seen since the current regulatory system was set up in response to the 1929 stock market crash and subsequent Great Depression.
  • The short-term recommendations focus on taking action now to improve regulatory coordination and oversight in the wake of recent events in the credit and mortgage markets.
  • The intermediate recommendations focus on eliminating some of the duplication of the US regulatory system and try to modernise the regulatory structure applicable to certain sectors in the financial services industry (banking, insurance, securities, and futures) within the current framework.
The report also includes a conceptual model for an 'optimal' regulatory framework. The optimal structure envisions the Federal Reserve as the 'market stability regulator', a new 'prudential financial regulator' for banks and savings institutions, and a new business conduct and corporate finance regulator. The latter would assume the SEC's current responsibilities over corporate disclosures, corporate governance, and accounting oversight.

Among the short-term recommendations:
  • President's Working Group on Financial Markets (PWG). This existing inter-agency coordinating body should be expanded, and its role as policy-maker should be enhanced.
  • Mortgage origination. Create a six-member federal Mortgage Origination Commission (MOC) that would establish uniform minimum licensing qualification standards for state mortgage market participants. The MOC would also evaluate, rate, and report on the adequacy of each state's system for licensing and regulation of participants in the mortgage origination process.
  • Liquidity provisioning by the Federal Reserve. First, the current temporary liquidity provisioning process during those rare circumstances when market stability is threatened should be enhanced to ensure that: the process is calibrated and transparent; appropriate conditions are attached to lending; and information flows to the Federal Reserve through on-site examination or other means as determined by the Federal Reserve are adequate. Key to this information flow is a focus on liquidity and funding issues.
Among the intermediate-term recommendations:
  • Federal thrift institutions. Federally chartered savings and mortgage institutions should become national banks. The Office of Thrift Supervision would be closed, and its operations assumed by the Office of the Comptroller of the Currency (the federal bank regulator). This transition would take place in two years.
  • Federal banking supervision. There should be direct federal supervision of state-chartered banks. A number of proposals are set out in this regard.
  • Payment and settlement systems oversight. There should be direct federal oversight of all systems used to transfer funds and financial instruments between financial institutions and between financial institutions and their customers.
  • Insurance. A federal system for chartering, licensing, regulating, and supervising insurers should be created. Insurers, reinsurers, agents, and broers would elect to be regulated under the federal system or to continue under the current state-based regulation. A new Office of Insurance Oversight would be established within the Treasury Department to take the lead role in federal insurance regulation.
  • Futures and securities. The Commodity Futures Trading Commission (CFTC, which regulates futures and options) and the Securities and Exchange Commission (SEC, which regulates securities, mutual funds, stock markets, and broker/dealers) should be merged to provide unified oversight and regulation of the futures and securities industries.
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1 April 2008: FASB invites comments on IASB's financial instruments paper
The US Financial Accounting Standards Board has issued an Invitation to Comment (ITC) on Reducing Complexity in Reporting Financial Instruments. The ITC incorproates the IASB's Discussion Paper on Reducing Complexity in Reporting Financial Instruments, which the IASB issued for comment on 20 March 2008. FASB's ITC asks whether there is a need for the FASB to add a project aimed at simplifying and improving standards for measurement of financial instruments and, if so, what kind of projects or approaches should be considered. It also requests feedback on the issues in the IASB's Discussion Paper. FASB requests comments by 19 September 2008 (same comment deadline as the IASB). Click for:


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