31 July 2008: IAS Plus Newsletter on IAS 39 - eligible hedged items
31 July 2008: Corporate reporting - trends and tensions in convergence
Jeff Willemain, Global Managing Partner, Regulatory & Risk, Deloitte Touche Tohmatsu, recently contributed to the International Corporate Governance Network (ICGN) 2008 Yearbook, which was distributed at the ICGN Conference in Seoul, June 2008. The paper Corporate Reporting: Trends and Tensions in Convergence (PDF 39k) focuses on the evolution of accounting standards and the issues associated with convergence and adoption of International Financial Reporting Standards (IFRSs).
31 July 2008: SEC roundtable on performance of IFRSs and US GAAP
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The US Securities and Exchange Commission will host a roundtable on 4 August 2008 to analyse the performance of IFRSs and US GAAP during the recent period of market turmoil. The roundtable, which will be webcast, will consist of two panels that will include investors, issuers, auditors, and various other parties with experience in financial reporting. Representatives from the FASB and the IASB will be present as observers. US SEC Chairman Christopher Cox said:
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This roundtable will provide the Commission with valuable insights from investors, issuers, auditors, and others about the way that both IFRS and US GAAP performed in the context of the current pressures on the marketplace. We are particularly interested in how the two sets of standards dealt with the key accounting issues in the subprime crisis, including off-balance sheet entities and fair value.
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Written submissions are invited. Click for More Information on the SEC's website.
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30 July 2008: Amendment to IAS 39 for eligible hedged items
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On 30 July 2008, the IASB published amendments to IAS 39 Financial Instruments: Recognition and Measurement to clarify two hedge accounting issues:
- Inflation in a financial hedged item
- A one-sided risk in a hedged item
The amendments are based on the September 2007 exposure draft Exposures Qualifying for Hedge Accounting, but focus more narrowly only on the two foregoing areas. The amendment does not address either (a) what can be designated as a hedged portion under IAS 39 or (b) the European carve-out option used by a few European companies. These issues will be addressed separately.
Inflation in a financial hedged item
Inflation may only be hedged if changes in inflation are a contractually specified portion of cash flows of a recognised financial instrument. Therefore, where an entity acquires or issues inflation-linked debt, it has a cash flow exposure to changes in future inflation to which cash-flow hedge accounting may be applied. However, the amendment clarifies that an entity may not designate an inflation component of issued or acquired fixed-rate debt in a fair value hedge because such a component is not separately identifiable and reliably measurable. The amendments also clarify that a risk-free or benchmark interest rate portion of the fair value of a fixed-rate financial instrument will normally be separately identifiable and reliably measurable and, therefore, may be hedged.
A one-sided risk in a hedged item
IAS 39 permits an entity to designate purchased options as a hedging instrument in a hedge of a financial or non-financial item. The entity may designate an option as a hedge of changes in the cash flows or fair value of a hedged item above or below a specified price or other variable (that is, a one-sided risk). The amendments make clear that the intrinsic value, not the time value, of an option reflects a one-sided risk and, therefore, an option designated in its entirety cannot be perfectly effective. The time value of a purchased option is not a component of the forecast transaction that impacts profit or loss. Therefore, if an entity designates an option in its entirety as a hedge of a one-sided risk arising from a forecast transaction, hedge ineffectiveness will arise. Alternatively, an entity may choose to exclude time value as permitted by IAS 39 to improve hedge effectiveness.
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The amendments to IAS 39 are effective for annual periods beginning on or after 1 July 2009, with earlier application permitted, and must be applied retrospectively. Therefore, if an entity has a hedge accounting relationship that is no longer considered qualifying under the amended IAS 39, the entity must restate its comparative prior period(s). Click for Press Release (PDF 52k).
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30 July 2008: PCAOB adopts rules for succeeding to registration of audit firm
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The US Public Company Accounting Oversight Board has adopted rules govern when an audit firm would be allowed to succeed to the registration status of a predecessor firm following a merger or other change in the registered firm's legal form, without the new legal entity needing to apply for registration. The PCAOB will submit the rules to the Securities and Exchange Commission for approval. The rules will take effect 60 days after Commission approval. Click for More Information on the PCAOB's website.
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29 July 2008: МСФО в кармане.
2008 год – IFRSs in your Pocket in Russian
26 July 2008: Agenda project pages updated for July 2008 meeting
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We have updated the following agenda project pages to reflect the discussions and decisions at the July 2008 meeting of the International Accounting Standards Board:
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25 July 2008: Notes from day 4 of the July 2008 IASB meeting
25 July 2008: Notes from day 3 of the July 2008 IASB meeting
25 July 2008: New Global IFRS and Offerings Services newsletter
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We have posted Deloitte's US Reporting Newsletter for Non-US Based Companies June-July 2008 Edition (PDF 372k). The newsletter is developed by Deloitte's Global IFRS and Offerings Services (GIOS) team – Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US GAAP and IFRSs and in complying with the SEC's financial reporting rules. The GIOS Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications, with hyperlinks to source material. Past GIOS Newsletters are Here. |
25 July 2008: Deloitte Canada Countdown IFRS transition newsletter
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Deloitte Canada has released the July 2008 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. Among the topics covered in this issue of Countdown are the Canadian Securities Administrators' release of additional guidance relating to early adoption of IFRSs; the release of the IASB revised work plan and implications for Canadian companies; and how to cope with the changes in changeover to IFRSs. As always, there is also an update on current IFRS events. Click below for:
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24 July 2008: Notes from day 2 of the July 2008 IASB meeting
24 July 2008: Deloitte achieves sixth year of double-digit revenue growth
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Deloitte Touche Tohmatsu's fiscal year 2008 aggregate member firm revenue increased by 18.6% in US dollars, and 13.0% in local currencies, to US$27.4 billion. This is Deloitte's sixth consecutive year of US dollar double-digit revenue growth from continuing operations. Every service line and every geographic region delivered strong growth. Deloitte aggregate revenues were US$23.1 billion in FY2007. Also, in fiscal 2008:
- Deloitte grew by approximately 15,000 people with considerable growth in the emerging markets.
- Globally, Deloitte now has approximately 165,000 people operating in approximately 140 countries.
- Deloitte's firms in Brazil, Russia, India, and China have experienced 90% growth in the number of professionals in the past three years.
For more information, please see our Press Release (PDF 26k).
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23 July 2008: Public consultation on EFRAG enhancement
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The Supervisory Board of the European Financial Reporting Advisory Group (EFRAG) has invited public comment on a proposal for the enhancement of EFRAG. The proposal is in response to calls for strengthening the European contribution to the work of IASB. EFRAG is seeking input on:
- enhancing the EU's pro-active input to the IASB by building on EFRAG's structures and experience;
- further involvement of National Standard Setters and coordination of European resources and the creation of a Planning and Resource Committee
- enhanced governance, transparency of EFRAG and accountability to European organisations and institutions;
- balanced involvement of European stakeholders in EFRAG;
- a significant increase in EFRAG's human and financial resources.
The proposal envisions a new EFRAG structure as shown in the diagram below.
The structure would include:
- A new General Assembly (GA) with a Governance and Nominating Committee. The GA would consist of representatives of major European organisations. It would meet annually to approve the budget and appoint Supervisory Board (SB) members. The Governance and Nominating Committee would make recommendations on appointments to the SB.
- The Supervisory Board (17 members) would have responsibilities for oversight, financing, and some external liaisons (including IASCF, EC, and EP). It would also appoint members of the Technical Expert Group (TEG) and Planning and Resource Committee (PRC).
- The PRC would coordinate EFRAG's pro-active work with the IASB agenda and EFRAG technical surveys.
- There would be a new Consultative Group, similar to SAC, to advise TEG, PRC, and SB. It would meet annually.
- Regarding TEG, no major changes are proposed to the existing structure (9 to 12 voting members plus 3 non-voting members from major EU standard-setters).
The proposal envisions a budget for EFRAG of €3 million in 2009. That would double to €6 million in 2010, with the European Commission contributing half. EFRAG would have a technical staff of 20. The proposal envisages that the new structure will be put in place during the first half of 2009. Click to download EFRAG Enhancement Proposal (PDF 352k). Comment deadline is 22 September 2008.
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23 July 2008: Notes from day 1 of the July 2008 IASB meeting
23 July 2008: IASB will hold a 'Global Preparers Forum' on 28 July 2008
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The IASB will meet with representatives of companies that use IFRSs at a Global Preparers Forum on Monday 28 July 2008 from 10:00am to 16:30pm at the Board's offices, 30 Cannon Street, London. The meeting is open to public observation.
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The agenda for the Global Preparers Forum, 28 July 2008:
Morning (10:00-12:30):
- IASB Work Plan
- Financial Statements Presentation
Afternoon (13:15-16:30):
- Leasing
- Financial Instruments - Consolidation and Derecognition
- Income taxes
- Post-employment benefits
- Revenue Recognition
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22 July 2008: EFRAG letter to IASB on work programme and MOU
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The European Financial Reporting Advisory Group (EFRAG) has written to the IASB expressing support and also some concerns and the IASB's work programme and the IASB/FASB memorandum of understanding. The EFRAG Letter (PDF 39k) states:
| We have noted that in recent months the IASB has been working on an update of the existing IASB/FASB Memorandum of Understanding to incorporate new milestones covering the period to 2011.... As Europe is currently by far the biggest user of IFRS (in terms of companies), we are very interested in those priorities and in the IASB's work programme in general. We therefore thought it important to let you know our views on the issues discussed. Those views are set out in the numbered paragraphs that follow.
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Issues discussed in EFRAG's letter include:
- Getting IFRS ready for the US and other countries transitioning to IFRS: The need for stability.
- The credit crunch: EFRAG recognises that, as a result of the current market turmoil, the IASB is carrying out a lot of work over a very short space of time and that this work has to be given a high priority.
- Balance the work programme between needs of Europe and other jurisdictions: 'The key issue for jurisdictions like Europe in these circumstances is whether an appropriate balance has been achieved between the interests of those jurisdictions using IFRS and those that are currently not using IFRS. There are several aspects of the work programme that concern us in this respect.' EFRAG is concerned about:
- De-emphasis of the insurance project
- Placing 'US views above the views of other jurisdictions'
- Implementing views on fair value measurement 'without even being redebated'
- The IASB limiting its consideration of the distinction between liabilities and equity to the three approaches mentioned in the recent FASB Preliminary Views document.
- Cross cutting issues: The IASB should allocate resource to addressing cross-cutting issues and should not cut back its work on the Conceptual Framework. These must be resolved before the IASB can decide on measurement, the difference between equity and liabilities, and revenue recognition.
- Discontinue work on the projects formerly known as the short-term convergence projects: 'In our view the projects will achieve relatively little but will be resource-hungry because they are relatively controversial'.
- Special-purpose entities: The IASB should look beyond FASB's FIN 46R for principles that can be used to account for SPEs.
- IASB comment documents: 'It is clear from the revised Technical Plan that the IASB will need to issue consultative papers and final documents at an almost unprecedented rate over the next few years. This will undoubtedly place a strain on the IASB's constituents. We would encourage the IASB to do all that it can to help constituents cope with that
burden. Advance warning about publication dates and careful selection of comment deadlines and effective dates will all help ease that burden.'
- Public consultation on the IASB's agenda decisions: IASB should consult.
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22 July 2008: 2008 Ken Spencer Memorial Lecture is posted
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Prof. Stephen A. Zeff of Rice University recently delivered the 2008 Ken Spencer Memorial Lecture, titled IFRS Developments in the USA and EU, and Some Implications for Australia. The lecture is available on the Australia Financial Reporting Council Website or as a PDF Download from that site (PDF 105k). |
22 July 2008: IASB posts 'near final' amendments to IAS 39 on hedge accounting
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The IASB has made available to its Subscribers a near final draft of amendments to IAS 39 relating to eligible hedged items. The amendments will clarify two hedge accounting issues:
- identifying inflation as a hedged risk, and
- hedging with options.
The amendments are based on the September 2007 exposure draft Exposures Qualifying for Hedge Accounting, but focus more narrowly only on the two foregoing areas.
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22 July 2008: IAS Plus quarterly newsletter for July 2008
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The July 2008 IAS Plus Quarterly Newsletter has been published. The newsletter reports on the 2nd quarter 2008 activities of the IASB, the IFRIC, and the IASC Foundation, and also on worldwide issues and events relating to international financial reporting:
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22 July 2008: EFRAG report – 13 IASB pronouncements await EU endorsement
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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 21 July 2008 (PDF 40k). Currently, there are 13 IASB pronouncements that have not yet been endorsed for use in Europe, as follows:
- IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity, or Associate
- 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
- IFRIC 15 Agreements for the Construction of Real Estate
- IFRIC 16 Hedges of a Net Investment in a Foreign Operation
- Improvements to IFRSs – 2007 (affects various standards)
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21 July 2008: IASCF publishes constitution review proposals for comment
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The Trustees of the IASC Foundation have published, for public comment, proposals arising from the first part of their 2008 review of the IASC Foundation's Constitution. The proposals address two issues – a new Monitoring Group for the IASCF and the size and geographical composition of the IASB:
| The IASCF Has Invited Comment on These Proposals: |
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- Monitoring group. The IASCF Constitution would be amended to establish a formal link between the IASCF and a new Monitoring Group comprising representatives of public authorities and international organisations that have requirements for accountability to public authorities. The Monitoring Group would have the responsibility of approving the selection of IASCF Trustees. The Trustees would also report to the Monitoring Group regularly to enable it to address whether and how the Trustees are fulfilling their role set out in the Constitution. A Memorandum of Understanding will be agreed between the Monitoring Group and the Trustees
describing the interaction of the Monitoring Group with the Trustees. Under the proposal, the initial members of the Monitoring Group would be:
- the responsible member of the European Commission,
- the managing director of the International Monetary Fund,
- the chair of the IOSCO Emerging Markets Committee,
- the chair of the IOSCO Technical Committee,
- the commissioner of the Japan Financial Services Agency,
- the chairman of the US Securities and Exchange Commission, and
- the president of the World Bank.
- IASB size and composition. The proposal would expand the IASB from 14 to 16 members by not later than 1 July 2012. Up to three members could be part-time. Approval of IFRSs and EDs would require 10 affirmative votes (9 if there are fewer than 16 IASB members serving). The proposal would also adopt new guidelines regarding the geographical diversity of the members of the IASB. The required geographical split of the IASB would be:
- four members from the Asia/Oceania region,
- four members from Europe,
- four members from North America,
- one member from Africa,
- one member from South America, and
- two members appointed from any area, subject to maintaining overall geographical balance.
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Comment deadline is 20 September 2008. The Trustees expect to reach final decisions on this part of the Constitution Review at their meeting in Beijing on 9-10 October 2008. The changes would take effect from 1 January 2009. Click for Press Release (PDF 52k). You can download the proposal from www.iasb.org. The second part of the Constitution Review, covering other aspects of the IASC Foundation's Constitution, will begin after the Trustees' October 2008 meeting. The Trustees will publish a further discussion document inviting respondents to suggest topics for consideration by the Trustees. Consultations will be held during the course of 2009, with changes taking effect from 1 January 2010.
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20 July 2008: Upcoming Deloitte dBriefs webcast on IFRSs
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Deloitte (United States) will present a dBriefs webcast relating to IFRSs as follows:
- Topic: International Financial Reporting Standards: Opportunities and Challenges Facing Consumer Businesses
- Date: 24 July 2008
- Time: 11:00 AM EDT (15:00 GMT)
- Host: Stacy Janiak, Partner - Deloitte LLP
- Register: Click Here
By 2010 or 2011, it is expected that US companies will have the option of using IFRSs for their financial reporting. What can leading consumer business and retail companies do to position themselves for such a transition? We'll discuss:
- Regulatory updates, including recent SEC activity.
- Benefits, challenges, and the broader implications of IFRSs.
- Approaches and strategies for adopting IFRSs.
Learn more about how consumer businesses can effectively respond to the global movement toward IFRSs.
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You can get Information about All dBriefs Webcasts Here, including program guide, calendar, CPE information, and sign-up to be notified of future webcasts.
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20 July 2008: ARC okays endorsement of 5 IFRSs, defers on IFRIC 12
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The European Commission's Accounting Regulatory Committee (ARC) met on 11 July 2008. Here are meeting highlights:
- By formal votes, it agreed to recommend endorsement of the following pronouncements for use in the European Union: IAS 1 (revised 2007), IAS 23 (revised 2007), IFRS 2 (revised 2008), IFRIC 13, and IFRIC 14. EFRAG has also recommended that those pronouncements be adopted. They will now continue through the next step in the adoption process – the European Parliament's Regulatory Procedure with Scrutiny Committee. IFRIC 14 is effective for calendar 2008 financial years, IFRIC 13 for years beginning 1 July 2008, and the others starting in 2009.
- IFRIC 12, which is effective for annual periods beginning on or after 1 January 2008, was discussed, but discussions will continue at the ARC's October meeting.
- The ARC discussed the equivalence of third country GAAPs and EU-endorsed IFRSs, IASB governance, and EFRAG enhancement, but no decisions or recommendations were made.
- Draft proposals for reorganising EFRAG were agreed and will be issued as a consultation document in third quarter 2008.
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18 July 2008: IASCF announcement on constitution review proposals
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The Trustees of the IASC Foundation have announced the conclusions reached at their meeting in Washington, DC on 8 and 9 July. The main conclusions include:
- Constitution Review Part 1. The Trustees decided to publish for public comment proposals on the first part of their review of the IASC Foundation's Constitution. The proposals would:
- Monitoring group. Establish a link between the organisation and a Monitoring Group comprising representatives of public authorities and international organisations that have requirements for accountability to public authorities
- IASB size and composition. Expand the IASB from 14 to 16 members and adopt new guidelines regarding the geographical diversity of the members of the IASB.
The proposals will be released shortly and have a 20 September 2008 comment deadline. The Trustees expect to reach final decisions on this part of the Constitution Review at their meeting in Beijing on 9-10 October 2008. The changes would take effect from 1 January 2009.
- Credit crunch. The Trustees supported the IASB's efforts to respond expeditiously to the report of the Financial Stability Forum relating to the current Credit Crunch.
- Advisory Council. The membership structure of the Standards Advisory Council will be changed so that members would serve primarily as representatives of organisations. To accomplish this, the terms of all SAC will expire at the end
of 2008. The Trustees will invite interested organisations to put forward candidates for membership. They will also seek qualified candidates to serve as chairman of the SAC (the current chairman's three-year term ends at the end of this year).
- Review of working groups. The Trustees' Due Process Oversight Committee and the IASB have agreed to launch a review of the effectiveness of existing IASB working groups. The review will survey working group members.
- Trustee appointments. Nine Trustees have terms expiring on 31 December 2008. Six will be reappointed for a second term – Marvin Cheung, Sam DiPiazza, Robert Glauber, Liu Zhongli, Sir Bryan Nicholson, and Mohandas Pai. Max Dietrich Kley, David Shedlarz, and Junichi Ujiie are not seeking a second term or have served a second term already. Therefore, the Trustees will advertise for one Trustee each from Asia-Oceania, Europe and North America.
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Click for IASCF Press Release (PDF 56k). The Deloitte observers' report on the public part of the meeting is Here (Part 1) and Here (Part 2).
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18 July 2008: IFRS Insights newsletter from Deloitte (United States)
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Deloitte & Touche LLP (United States) has published the second issue of its new publication, IFRS Insights. IFRS Insights provides news on the latest developments on IFRSs, practical suggestions for companies addressing IFRSs, updates on the regulatory environment, and references to relevant tools and resources. This issue features a regulatory update and summary of the June FASB forum, High-Quality Global Accounting Standards: Issues and Implications for US Financial Reporting, as well as articles on the tax implications of IFRSs, IAS 27, and XBRL taxonomy for IFRS. Click to download the July 2008 Edition of IFRS Insights (PDF 205k). We have Permanent Links to IFRS Insights on our USA country page. |
18 July 2008: 2008 Strategy matrix for global transfer pricing
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Deloitte's Strategy Matrix for Global Transfer Pricing continues to be the most comprehensive and authoritative guide of its kind. The 2008 edition contains essential information on transfer pricing regimes in 46 jurisdictions around the world and the Organisation for Economic Co-operation and Development (OECD). This booklet provides guidance for planning for transfer pricing methods, documentation, penalties, and other issues. Click to download Deloitte's 2008 Transfer Pricing Guide (PDF 8,886k, 73 pages).
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18 July 2008: Why you need to know about XBRL
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Here are the questions. Download Deloitte's new booklet Why You Need to Know About XBRL (PDF 153k) for answers. The booklet is written from the point of view of a US SEC registrant, but most of the answers are relevant in a global context as well.
Why you need to know about XBRL
- What is XBRL or 'interactive data'?
- How does XBRL make data interactive?
- What if a registrant reports a financial statement line item that is unique to it (i.e., other companies would not use this line item)? Will the registrant be forced to use one of the predefined tags?
- What are the principal elements of the SEC proposed rules?
- What is the phase-in schedule?
- What filings and other financial information are subject to the proposed rules?
- At what level of detail must the footnotes be tagged in the first year and subsequent years?
- Under the proposed rules, when must the interactive data (XBRL-based information) be submitted to the SEC?
- Will XBRL replace the EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system? Will current filing formats in the EDGAR system be replaced by XBRL (i.e., will registrants be required to file XBRL documents rather than conventional financial statements, or will they be required to file both)?
- What steps can a registrant take now to prepare for the SEC's XBRL mandate?
- What implementation options are available to a registrant for preparing XBRL-based financial statements?
- Will XBRL documents submitted to the SEC be subject to an audit requirement? What might assurance on XBRL-formatted financial statements include?
- Do the current proposed rules apply to mutual funds?
- Where can I find more information about XBRL?
- How can Deloitte help companies prepare for and make the most of XBRL?
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Our XBRL page is Here.
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17 July 2008: Comparison of Brazilian GAAP and IFRSs
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Brazil's two professional accountancy bodies – Conselho Federal de Contabilidade (CFC) and Instituto dos Auditores Independentes do Brasil (IBRACON) – have jointly published a comparison of Brazilian accounting standards and IFRSs. Sumário da Comparação das Práticas Contábeis Adotadas no Brasil com as Normas Internacionais de Contabilidade - IFRS presents a side-by-side comparison as of January 2006, in Portuguese. All Brazilian listed companies will be required to switch to IFRSs starting in 2010 (optional from 2007), as will most banks and other financial institutions. The accountancy bodies and government in Brazil are considering whether to extend the IFRS requirement to unlisted companies. We are grateful to the CFC and IBRACON for allowing us to post this comparison on IAS Plus. Click to:
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16 July 2008: IFRIC agenda pages are updated
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We have updated the following IFRIC agenda issues pages to reflect the discussions and decisions at the meeting of the International Financial Reporting Interpretations Committee on 10-11 July 2008:
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16 July 2008: Proposed comprehensive revision of IFAC Code of Ethics
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The International Ethics Standards Board for Accountants (IESBA) has published for comment a complete rewrite of the IFAC Code of Ethics for Professional Accountants. The changes are intended to enhance the clarity of the Code by:
- making clear the specific requirements that are contained in the Code, and
- explaining the application of the Code's conceptual framework.
The proposed changes resulted from the IESBA's project to improve the drafting conventions of the Code. Comments are requested only on the proposed changes to the Code that are the result of its drafting conventions project, not on the Code itself.
Types of changes to the IFAC Code of Ethics Proposed in the Exposure Draft:
- Revised wording to indicate clearly what are the requirements
- Guidance on when a temporary departure from a requirement in the Code is allowed, and how to do it
- Description of five categories of threats to compliance with the fundamental principles, and examples of situations in which those threats might be created
- Guidance on how to assess whether a threat to compliance with the fundamental principles is 'clearly insignificant', which is defined in the Code as 'a matter that is deemed to be both trivial and inconsequential'
- Clarification of the 'conceptual framework approach' to emphasise the need for a professional accountant to apply the framework in the Code to any situation that is not explicitly addressed in the Code
- Clarify that examples in the Code must be followed.
- Drafting changes consistent with the following principles:
- 'Consider' is used where the accountant is required to think about several matters
- 'Evaluate' is used when the accountant has to assess and weigh the significance of a matter
- 'Determine' is used when the accountant has to conclude and make a decision
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The IESBA proposes that the revised Code be effective on 15 December 2010, with earlier adoption encouraged. That date will be approximately 18 months after the planned issuance of the document (currently projected to be June 2009). Comments on the exposure draft are requested by 15 October 2008. The exposure draft may be downloaded at www.ifac.org/EDs. Click for Press Release (PDF 35k).
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15 July 2008: We comment on two proposed International Standards on Auditing
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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.
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15 July 2008: IAASB publishes four new ISAs and 2009-2011 strategic plan
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The International Auditing and Assurance Standards Board (IAASB) has published:
- The IAASB's Strategy and Work Program for the period 2009-2011.
- Four final International Standards on Auditing (ISAs) as part of the IAASB's Clarity Project.
The IAASB's 2009-2011 strategy focuses on three areas:
- The development of standards;
- The facilitation and monitoring of adoption of those standards; and
- Responding to concerns about the implementation of the standards by activities designed to improve the consistency with which they are applied in practice.
The IAASB's Strategy and Work Program 2009-2011 can be downloaded without charge from www.ifac.org/store.
The four final ISAs are:
- ISA 250 (Redrafted) Consideration of Laws and Regulations in an Audit of Financial Statements
- ISA 510 (Redrafted) Initial Audit Engagements–Opening Balances
- ISA 550 (Revised and Redrafted) Related Parties. The revision of this ISA clarifies the meaning of 'related party' and explains the auditor's responsibility to obtain sufficient evidence about the required accounting and disclosure of
related party relationships and transactions and to understand how such relationships and transactions affect the view given by the financial statements.
- ISA 570 (Redrafted) Going Concern
The four new ISAs, along with all of the other 'clarified' ISAs, will be effective for audits of financial statements for periods beginning on or after 15 December 2009.
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15 July 2008: Summary of issues not added to IFRIC agenda is updated
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We have updated our Summary of Issues Not Added to IFRIC's Agenda to reflect the IFRIC's final decision at its July 2008 meeting not to add the following topic to its agenda. Our summary now includes over 135 issues:
- IAS 39: Application of the effective interest rate method
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15 July 2008: Commentary on the proposed IASCF Monitoring Group
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The European 'think tank' Breugel has published a policy note Empower Users of Financial Information as the IASC Foundation's Stakeholders (PDF 172k). This commentary, by Mr Nicolas Veron, a research fellow at Bruegel, analyses the draft proposal for reforms to the IASB's governance that was the subject of Roundtable Discussions conducted by the Trustees of the IASC Foundation on 19 June 2008. The proposal would, among other things, create a Monitoring Group to oversee the activities of the IASC Foundation. Mr Veron argues that investors and other users of financial statements should be directly represented on the new group:
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The creation of a new body with authority over Trustee appointments and reappointments is a crucial step for the IASC Foundation. This body is likely to be granted more authority in the future over other key governance functions, including the Foundation's funding.
In this respect, the proposed Monitoring Group contains significant flaws, the primary one being its inability to credibly represent at global level the investors and other capital market users which should be considered the Foundation's key stakeholders.
Moreover, the very short timetable proposed for the first part of the Foundation's Constitution Review is not warranted by the circumstances. The Foundation's Trustees should take a step back and consider a revised concept of oversight body as part of a one-phase Constitution Review to be completed in 2009.
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Mr Veron concludes that "This governance reform will have a significant impact on the future shape of IFRS standards and should not be rushed without due public debate. As primary users of accounting information, investors and capital-markets participants should be granted direct representation in the future governance framework." Policy note posted on IAS Plus with the kind permission of Breugel.
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14 July 2008: CESR draft statement on fair value in illiquid markets
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The EU Committee of European Securities Regulators has invited comment on a draft statement titled Fair Value Measurement and Related Disclosures of Financial Instruments in Illiquid Markets. The statement, when finalised, will provide guidance to preparers and auditors in the current financial market situation when preparing the next financial statements. "CESR acknowledges that the competence of setting standards, formally interpreting standards and issuing general interpretation of existing standards lies with the IASB/IFRIC. The work conducted by CESR remains under the domain of the application of current IFRS, as CESR Members' role regarding IFRS is the enforcement of financial information." CESR requests comments by 12 September 2008. CESR intends to consider the comments received and publish a final guidance statement in October 2008. Click for:
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The starting point for the measurement of financial instruments is the assessment of whether the financial instrument is traded on an active or a non active market. The measurement of financial instruments on active markets is conducted with the reference to quoted prices. If an active market does not exist, the measurement is determined by using valuation techniques that incorporate all factors that market participants would consider in setting a price, minimising entity-specific inputs.
The distinction between active and non active markets is therefore important in the application of the measurement of financial instruments.
On the identification of active and non active markets the statement stresses:
- As judgment is required, a well-documented valuation policy is needed. It should be consistent across time and across financial instruments;
- Even if the number of transactions is relatively low compared to other markets or to the past, the market could still be active;
- The size of the holdings of instruments is not a criterion to decide whether a market should be considered active;
- Different pricing sources can be available in an active market, such as prices for actual transactions or for binding quotes;
- Market quotes can only be disregarded if there is sufficient evidence that they do not constitute a reliable reference for valuation.
On the use of valuation techniques CESR highlights that:
- It entails a significant amount of judgment;
- The issuer should document the criteria, the assumptions and the inputs to the valuation techniques to ensure consistency;
- Transactions conducted in a market that is not considered active can often provide the most relevant input for valuation techniques;
- Liquidity risk and correlation risk could also be relevant in addition to the inputs to valuation techniques listed in the accounting standards;
- The use of indices (e.g. the ABX HE index) should be approached with caution.
The draft statement then proposes some disclosure guidance.
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14 July 2008: New comparison of IFRSs and Indian GAAP
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Deloitte Touche Tohmatsu India Private Limited has published IFRSs and Indian GAAP: A Comparison (PDF 288k, 48 pages). This booklet summarises the strategy of the Institute of Chartered Accountants of India (ICAI) for converging Indian Accounting Standards and IFRSs and presents a comparison of current Indian GAAP and IFRSs in issue at 31 March 2008. We will have a permanent links to this publication on our:
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Summary of IFRS Convergence Strategy of Indian Institute of Chartered Accountants
Will all entities be required to follow IFRS?
Keeping in view the complex nature of IFRSs, the ICAI in its Concept Paper has expressed the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities, and large-sized entities from the accounting periods beginning on or after 1 April 2011.
Accounting standards for small and medium-sized entities
The ICAI has indicated that a separate standard may be formulated based on the IFRS for SMEs (an exposure draft of which has been issued recently) when finally issued by the IASB after making any modifications necessary. In order to be an IFRS-compliant country, it is not necessary to adopt the IFRS for SMEs to be issued by the IASB.
Format of converged Accounting Standards (ASs)
The ICAI, in its Concept Paper, has expressed the view that the format of standards to be adopted for public interest entities should be the same as IFRSs including their numbers. The numbers of existing ASs may be given in brackets for the purpose of easier identification. India-specific regulatory or legal aspects may be included in a separate section, where appropriate.
Date of adoption of IFRSs for public interest entities: whether stage-wise or all at once from a specified future date?
The ICAI, in its Concept Paper, has expressed the view that it would be more appropriate to adopt all IFRSs from a specified future date as has been done in many other countries rather than doing so stage-wise. After considering the current economic environment, expected time to reach the satisfactory level of technical preparedness and the expected time to resolve the conceptual differences with the IASB, the ICAI has decided that IFRSs should be adopted for public-interest entities for accounting periods commencing on or after 1 April 2011. This should give enough time for all the participants in the financial reporting process to help in building the environment supporting the adoption of IFRSs.
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14 July 2008: Agenda for July 2008 IASB meeting
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The International Accounting Standards Board will hold its July 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 22-25 July 2008. The meeting is open to public observation and will be webcast. The tentative agenda is shown below.
22-25 July 2008, London
Tuesday 22 July 2008
Wednesday 23 July 2008
Thursday 24 July 2008
Friday 25 July 2008
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12 July 2008: Notes from day 2 of the July 2008 IFRIC meeting
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The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 10 July and Friday 11 July 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting:
Notes from the IFRIC Meeting
11 July 2008 |
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 Review of Tentative Agenda Decisions published in May IFRIC Update
IAS 39: Application of the Effective Interest Rate Method
The IFRIC confirmed its tentative decision taken in May 2008 not to provide guidance on the application of the effective interest rate method to a financial instrument whose cash flows are linked to changes in an inflation index.
In doing so, the IFRIC referred the issue to the IASB. A Board observer noted that the IASB would most likely decide to address the issue as part of the project on 'reducing complexity' in financial instrument accounting. Consequently, it is unlikely that the issue would be resolved in the short term.
Staff Recommendations for Tentative Agenda Decision
Recognition of Lease Expense under an Operating Lease
The IFRIC considered a request that it provide guidance on how a lessee should determine an appropriate pattern of recognition of expense for an operating lease with non-level payments.
The IFRIC agreed that it should not add the issue to its agenda. The tentative agenda decision will compare and contrast guidance in IAS 16 paragraph 60 and IAS 38 paragraph 97 (which refer to a depreciation/amortisation method reflecting 'the pattern in which the asset's future economic benefits are expected to be consumed by the entity') with that in IAS 17 paragraphs 33 and 34, which refer to a method being 'representative of the time pattern of the user's benefit'. In an operating lease no asset is recognised in the financial statements, and thus cannot be consumed; thus it is the access or right to use the asset that determines the appropriate accounting.
Accounting for Trailing Commissions
The IFRIC considered a request that it provide guidance on how an entity should account for ongoing commission arrangements, referred to as trailing commissions. The submission was made in the context of investment funds, but IFRIC members noted that such arrangements exist in other contexts, for example, telecommunications.
The IFRIC agreed that it should not add the item to its agenda. However, the IFRIC disagreed with the preliminary staff analysis that suggested that diversity in practice should not arise. Instead, IFRIC members noted that diversity already exists, across industries and across jurisdictions. There was agreement that IAS 32 provided sufficient guidance for the financial asset (although there were measurement challenges) but that revenue recognition was more challenging. However, to address this issue effectively, the IFRIC would have to interpret several different IFRSs, including IAS 18, 32, 27, and 39. As such, the IFRIC was probably the wrong forum to decide the accounting and was unlikely to achieve consensus in a reasonable period of time.
Transaction Costs Deducted from Equity
The IFRIC considered a request that it provide guidance on the extent of transaction costs to be accounted for as a deduction from equity in accordance with IAS 32 paragraph 37. In addition the submission requests guidance on how the requirements of IAS 32.38 to allocate transaction costs that relate jointly to more than one transaction should be applied.
The IFRIC agreed that it should not add the item to its agenda as it could be addressed more conveniently within the Annual Improvements process. In making this recommendation to the IASB, the IFRIC may suggest that the action of listing on a recognised exchange without issuing new equity (that is, a secondary offering of existing shares) was not an equity transaction because no new equity is introduced to the entity.
Compliance Costs for REACH
REACH is an EU regulation on the Registration, Evaluation, Authorisation, and Restriction of Chemicals.
The IFRIC considered a request that it provide guidance on the treatment of costs incurred to comply with the requirements of the European Commission Regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The Regulation came into force in part on 1 June 2007, is binding immediately on Member States, and companies have begun to account for the first costs incurred to comply.
The staff noted that they had not completed their information gathering and analysis of this issue, but that their preliminary assessment was to recommend tentatively adding the issue to the agenda. IFRIC members agreed, noting that the retrospective cost of new regulation was a generic issue faced by entities in a variety of jurisdictions. The staff noted that scoping the issue would be critical, and that the costs of implementing the REACH Regulation could be used as examples, rather than scope the issue to address REACH specifically.
The staff will return with scope recommendations at the September 2008 IFRIC meeting.
Administrative Session – IFRIC work in progress
The IFRIC reviewed the status and progress made on issues on its agenda and new issues referred to it but not yet brought to the IFRIC. In particular, the chairman noted two new issues (customer related intangible assets and valuation of restricted securities) for which the staff will present its agenda decision recommendations at the September 2008 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.
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12 July 2008: Notes from day 1 of the July 2008 IFRIC meeting
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The International Financial Reporting Interpretations Committee (IFRIC) is meeting at the IASB's offices in London on Thursday 10 July and Friday 11 July 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the first day of the meeting:
Notes from the IFRIC Meeting
10 July 2008 |
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Introduction of New IFRIC Members
The chairman began the meeting with an introduction of the two new IFRIC members that were appointed due to the increase of IFRIC from 12 to 14 members (a constitutional change approved by the IASCF trustees in November 2007). The new IFRIC 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.
Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11: IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis
The IFRIC commenced its detailed redeliberation of the proposed amendments to IFRS 2 and IFRIC 11. The exposure draft (ED) proposes to include cash-settled group share-based payment transactions within the scope of IFRS 2 and would provide guidance on the appropriate accounting. In May 2008 the IFRIC had been presented with a preliminary analysis. The staff structured the session as follows:
- Scope
- Accounting for transactions within the scope
Scope
Regarding the topic of scope the staff highlighted that even with the scope definition as proposed there would still be group share-based payment transactions that would not be covered by IFRS 2 and that the proposals aggravate that issue. One reason for that seemed to be that the proposals would amend the scope, not the defined terms. The staff therefore presented the following recommendations:
- To amend the related definitions in Appendix A of IFRS 2;
- Paragraph 2 of IFRS 2 be amended to mirror the revised defined terms;
- Paragraph 3 of IFRS 2 be amended to more clearly articulate the principle of IFRS 2 when a party other than the entity receiving the goods or services settles the group share-based payment transaction.
One IFRIC member asked whether this is something the Board should deliberate. The chairman answered that the issue originally came from the IFRIC, but the Board formally issued the ED as it included amendments to existing Standards and that once IFRIC concludes its redeliberations it recommends its conclusions to the Board.
Some IFRIC members expressed concerns over the view the ED takes – group or entity view, that is, is the group accounting relevant for the accounting in the subsidiary? One IFRIC member questioned whether separate financial statements of joint ventures or associates would be addressed by the amendments. It was stated that only subsidiaries would be covered and that this would be made clear by referring to the definitions in IAS 27.
The IFRIC agreed to the staff recommendations subject to editorial changes.
Accounting for transactions within the scope
The staff then turned to the accounting for the transactions within the scope of IFRS 2 in a group situation. Many commentators had argued that if an entity (the subsidiary) has no obligation to make a payment, it would not be sound to require the subsidiary in the its financial statements to recognise a liability. This would also conflict with the Framework. The IFRIC had a lengthy debate about whether the accounting in the parent and in the subsidiary should be symmetrical. Some IFRIC members were of the view that there should be some relationship – which would often result in some form of push-down accounting. Others followed the entity route and concluded that the subsidiary should account for the transaction as an equity-settled share-based payment. One of the Board members present highlighted the structuring opportunities that would result if the subsidiary would account for such a transaction as an contribution by the parent under an equity-settled accounting model.
One IFRIC member highlighted that the solution should be in line with the conclusions reached during the redeliberation of D23.
There was a lengthy debate about whether, when a transaction is accounted for as equity-settled, it should reflect any true-ups when value and/or vesting changes which would be important in some scenarios (for example, if the share-based payments are granted to employees of the subsidiary) should be considered.
The IFRIC coordinator highlighted that the staff wanted to avoid introducing an additional accounting model and tried to be as close to IFRS 2 as possible.
In the end, there seemed to be agreement over a model that would true-up for vesting of the share-based payments, but not for other changes in value. This would effectively be the accounting for equity-settled share-based payments as per current IFRS 2.
The chairman summed up the discussions and highlighted that any conclusion reached would be reported back to the Board including any strong minority views. The IFRIC coordinator reemphasised that the general approach to the accounting model was not to increase complexity.
The chairman than took a vote on the staff recommendations reflecting the outcome of the discussions as suggested by one of the Board members present. The IFRIC accepted the recommendations with two dissents.
Next steps
The modified staff recommendations will be presented to the Board in one of the next Board meetings.
D23 Distributions of Non-cash Assets to Owners – First redeliberations
D23 is aimed to provide guidance on the accounting for non-cash distributions to owners. The purpose of this session was to present to the IFRIC a comment letter analysis along with recommendation of the staff on how to proceed with D23. The issues addressed were:
- General approach in D23
- Applicability of IFRS 5 for the asset to be distributed and timing of recognition of the liability
General approach in D23
The staff highlighted in its overview of the comment letter analysis that the following significant concerns were expressed by commentators:
- The scope is too narrow by excluding common control transactions
- Fair value measurement of the liability and reference to IAS 37 is not appropriate
- The difference between book value of the asset distributed and the distribution liability should not be recognised in profit or loss
Based on those concerns the staff proposed the following:
- Continue with the project
- Include common control transactions
- Provide an consistently applicable accounting policy choice to measure the dividend liability at either fair value or book value of the assets to be distributed
- Keep the disclosures proposed in D23
The staff noted that under the fair value approach taken in D23 most respondents would support recognition of the difference in profit or loss. One IFRIC member asked if the staff analysed whether those respondents would accept recognising the difference directly in equity. The staff answered it did not analyse this.
The IFRIC coordinator explained that most of the transactions that the draft Interpretation attempts to address arise in common control situations. However, some IFRIC members expressed their concerns about the dramatic change in scope. The chairman proposed first to answer the question if common control transactions should be within the scope of the draft Interpretation before proceeding to the remaining issues. Some of the IFRIC members said that in the case of inclusion of common control transactions this would trigger re-exposure.
The IFRIC discussed at length whether common control transactions should be within the scope. Some IFRIC members noted that while the scope should not be extended it should be made clear, possibly in the Basis for Conclusions, what transactions IFRIC considers to be within the scope of the draft Interpretation.
The staff highlighted that even with a scope excluding common control transactions, constituents consider an Interpretation useful. There seemed to be agreement around the table that the scope should not be broadened, but that the scope should be clarified.
Most IFRIC members were against providing an accounting option as proposed by the staff although it might be appropriate if the scope would be extended to include common control transactions.
However some IFRIC members had difficulties with the proposed measurement of the liability and acknowledged that this was shared by commentators. Notably, the reference solely to IAS 37 caused concern. One IFRIC member highlighted that often the liability recognised would be a financial liability as defined in IAS 32 and hence, in the scope of IAS 39. Others proposed to prescribe the measurement attribute 'fair value' instead of referring to IAS 39 which requires applying the best estimate which some considered not to be equal to fair value.
The chairman noted that the IFRIC rejected the staff proposal to provide for an accounting option.
Applicability of IFRS 5 for the asset to be distributed and timing of recognition of the liability
The staff then presented the comment letter analysis regarding the proposed amendment to IFRS 5 resulting from the deliberation of D23. Both the IFRIC and the Board concluded that IFRS 5 should apply to non-cash distributions although this is not a sales transaction. The staff noted that the majority of commentators agreed.
The IFRIC discussed whether IFRS 5 should also be amended to allow fair value measurement above the carrying amount that would avoid creating a mismatch between the measurement of the dividend liability and the asset to be distributed in settlement of that liability.
The IFRIC reaffirmed its position that the assets (groups) should be within the scope of IFRS but that allowing measurement above the carrying amount would be a big change to the principle of IFRS 5.
The staff then asked the IFRIC when the assets should be reclassified in accordance with IFRS 5. The possible options would be commitment date or obligation date, notably in jurisdictions where shareholder approval is necessary. After a short discussion, the IFRIC agreed that the principles of IFRS 5 should apply and that any shareholder approval would be included in the assessment of high probability (one IFRIC member dissented).
The staff then brought to IFRIC's attention the question when to recognise the liability, which is not addressed by the draft Interpretation. The staff recommended that this should be covered by the final Interpretation. It further proposed that this should be dependent on the requirement of shareholders' approval in a jurisdiction. If shareholder approval of a distribution declared by management is required, the liability would be recognised on the date of shareholders' approval. Otherwise, it would be recognised on the date of declaration by management.
There seemed to be agreement with the staff recommendations.
The staff was asked to provide a redraft of D23 based on these conclusions and to prepare a paper on possible ways of addressing the accounting mismatch between dividend liability and asset to be distributed in extinguishment of the liability.
It was noted by some IFRIC members on that occasion that when businesses are distributed there might be unrecognised assets and that there could be a difference between the liability and the assets recognised even if they were measured at fair value.
D24 Customer Contributions – First redeliberations
The IFRIC discussed comments received on the draft Interpretation D24 Customer Contributions published in April 2008. The staff noted that of the 58 comment letters received a majority supported IFRIC's proposal to develop an Interpretation. However, almost all comment letters expressed concern regarding certain aspects of D24.
The discussion focussed on the key concern raised by constituents being whether the entity receiving the customer contributions always has an obligation to provide ongoing access to a supply of goods or service.
Some respondents pointed out that when, for example, a utility company is required by law or regulation to provide access to a supply of goods or services to all customers at the same price, the access provider does not have any further obligation once the connection has been made.
The IFRIC discussion was based on the following example relating to customer contributions for connection to a price-regulated network:
A real estate company is developing a residential real estate in a remote area that is not connected to the electricity network. In order to have access to the electricity network, the real estate company is required to construct an electricity substation that is then contributed to the utility company operating the electricity network. The contributed electricity substation becomes an asset of the utility company that it must maintain or replace at its cost. The utility company uses the contributed asset to connect each house of the residential real estate development to its electricity network. The developer then sells the connected houses to customers at a price that includes a share of the costs of the electricity substation. By law or regulation, the utility company has an obligation to provide ongoing access to the electricity network to all connected customers at the same price, regardless of whether they have contributed an asset. Customers can choose to purchase their electricity from suppliers other than the utility company, but the utility company always provides the distribution. In that event, the electricity supplier charges the customers quarterly for the consumption of electricity and collects an ongoing access fee on behalf of the utility company.
The staff was of the view that in contrast to paragraph 16 of D24 in such scenario revenue should be recognised once the connection services have been performed since providing initial access would be the only service provided in exchange for the contributed asset. The staff pointed out that generally speaking they could not see why there is an ongoing obligation arising from the customer contribution when the entity that receives the contribution from a customer has no obligation to this customer that is different from its obligation to other customers who did not contribute.
Some IFRIC members agreed to the staff with regard to this particular (simple) fact pattern but noted that there may be other scenarios where an ongoing obligation may exist.
Other IFRIC members stated that the answer should be given from an IAS 18 Revenue standpoint, that is, whether the service in return for the customer contribution has been provided or not. In doing so the guidance in paragraph 13 of IAS 18 regarding separately identifiable components should be applied. In addition, one IFRIC member noted that the obligation arising from the customer contribution should be considered separately from obligations to other customers.
The IFRIC had a thorough debate on when an ongoing obligation to provide access exists but could not agree on a principle. There seemed to be a consensus that the answer depends on facts and circumstances and that judgement may be required. However, the chairman pointed out that simply referencing to facts, circumstances, and judgement would not be appropriate in an Interpretation but that specific guidance should be given.
The chairman noted that at the September 2008 meeting a decision whether the IFRIC would be able to reach a consensus on this matter on a timely basis should be made.
The IFRIC decided to proceed with the project for the time being and directed the staff to further elaborate this issue by:
- Developing further examples to enable establishing a principle under which circumstances a performance obligation exists. The staff was asked to also address the concerns of constituents raised in respect of analogous application in this context.
- Develop indicators regarding the existence or non-existence of performance obligations.
The IFRIC will discuss the staff's analysis on performance obligations and an analysis of the other issues raised by constituents at the September 2008 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.
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11 July 2008: European joint statement on the current market turmoil
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EFRAG and the accounting standard setters in France, Germany, and the United Kingdom have discussed the current turmoil in the world's capital markets and have issued a Joint Statement (PDF 65k). Here as an excerpt:
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The ASB, CNC, EFRAG and GASB take very seriously the questions that are being asked about financial reporting as a result of the current market turmoil. While we do not believe that financial reporting has caused the crisis as some have claimed, we do believe it is essential that a comprehensive review is carried out of existing external financial reporting
requirements to determine whether any of those requirements has intensified some or all of the problems that have arisen. It is also essential that any weaknesses identified in the financial reporting requirements are addressed and improvements made as a matter of priority.
A number of bodies have carried out work on this subject and have suggested that the main areas worth exploring further are:
- The consolidation model, particularly in the context of SPEs.
- Derecognition and the disclosures provided about off-balance sheet items, particularly those items that were near to being recognised.
- The requirement to measure many financial instruments at fair value, how that requirement should be applied particularly in illiquid markets.
- The disclosures that should be provided to support the measure used.
In response to the credit crisis, the IASB has undertaken to carry out and complete in a timely fashion work on all these areas. It has also undertaken to consider whether other improvements in IFRSs are necessary in the light of recent experience.
In our view, the IASB should be the body that first responds to the accounting issues arising as a result of the current market turmoil. However, if the IASB is to be able to move quickly and with confidence, it is important that it receives timely and high quality advice from bodies such as ourselves. Therefore, we will follow closely the IASB's work and on a timely basis provide advice and other comments to help the IASB complete its work effectively and quickly, and evaluate and
respond to any other relevant proposals on the subject that might affect financial reporting.
In this situation we recognise and accept that it might be necessary for the IASB to adopt some sort of modified due process in developing its response.
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You will find much related information on our Credit Crunch Page.
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11 July 2008: Notes from the IASC Foundation Trustees' meeting - Part 2
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The Trustees of the IASC Foundation (IASCF) met in Washington on 8 and 9 July 2008. The portion of the meeting on 8 July 2008 was open to public observation. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting on discussions relating to matters other than the Constitution Review. Our notes of discussions about the Constitution Review were presented separately in an earlier news story (scroll down).
IASCF Trustees Meeting, Washington, 8 July 2008
Matters Other Than the Constitution Review |
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Proposals Regarding the Future of the Standards Advisory Council (SAC)
Proposals for the future of the SAC are part of the second part of the Constitutional Review. The Chairman noted that because the term of the current Chairman of the SAC, Nelson Carvalho, is ending, a subgroup was created to form ideas on the future of the SAC so that the incoming Chairman of the SAC would be aware of the responsibilities that may change in light of these proposals.
Phil Laskawy, IASCF Vice-Chair and the chair for the SAC subgroup, presented the subgroup's recommendations. The focus was to enhance the role of the SAC, integrate it better into the overall IASCF organisation, and to make the process more effective. The recommendations include what the SAC should do, who should be participants, and the number of meetings. The sub-group recommended that:
Regarding the last recommendation on composition, the IASCF Director of Operations commented that the vision is that the representative of an organization would serve as a liaison between the SAC and the organization. Therefore, the representative would not necessarily be an employee or member of that organisation, but that the organisation would participate to help select their appropriate liaison. It was also noted that all these recommendations were acceptable within the language of the current Constitution, so amendment of the Constitution is not needed.
Current SAC Chairman Nelson Carvalho offered the following comments, which he had previously communicated to the subgroup and which are incorporated in the subgroup's paper provided to the Trustees:
- Proper mix between representatives of organisations versus individuals.
- Introductory session to get new members involved and aware of their responsibilities.
- The need for action against non-performers.
- Breakout sessions in the plenary sessions should be maintained.
- Keep voting by the SAC rare.
- Enhance feedback from the IASB and the Trustees regarding the SAC's advice.
- Supportive of regional meetings.
- Future SAC Chairman should come from the existing SAC members because their experience will make the transition easier. Also suggested that the identified new Chairman can assist in the November 2008 meeting.
The IASCF Chairman asked the Trustees for comments on their views on regional SAC meetings, since this remained an open question in the subgroup's recommendations. He clarified that there would be two plenary meetings and then several open regional meetings which would allow the SAC members, Trustees, and others within the region outside of SAC to discuss regulatory or practical issues specific to the region. Several Trustees agreed with having regional meetings. One Trustee noted that regional meetings require substantial time and effort for the Chairman. Therefore, he also suggested keeping an option open for a SAC vice-chairman to provide an additional resource to conduct further regional activities, thereby enhancing the understanding of the regional issues. One Trustee had concerns with cutting down the plenary meetings from three to two, particularly because of the long time gap between meetings. Therefore, he suggested retaining the three plenary meetings, in addition to conducting regional meetings.
Regarding the size and composition of the SAC, some Trustees said that it would be difficult to have fewer than the current 40 members and continue to be inclusive, even though this larger size may affect efficiency. However, other Trustees noted that the quality of the members is more important to efficiency, which will come through the selection process of these organisations. In general, there was support for the suggestion of more representatives of organisations.
Based on the discussions, the Trustees concluded that:
- There was support for a structure containing primarily representatives of organisations, with some individuals.
- There was support for more regional activities, but the frequency of the plenary and regional meetings will be discussed at a later time when the new Chairman of the SAC is decided.
- Regarding feedback to the SAC, both the following options could be undertaken:
- The IASB staff could note where SAC expressed a particular view on a topic in the IASB meeting papers, and the IASB could address the views during the public meeting.
- The IASC could also dedicate a portion of their public meetings to discuss the views received at the last SAC meeting and determine items to raise at the next SAC meeting.
Review of Long-term Funding of the IASC Foundation
The IASC Foundation Director gave a very brief report on the current state of the ongoing efforts to secure a stable long-term funding base for the Foundation.
Several processes are being undertaken in countries to achieve this. In India, Spain, and potentially Israel, the stock exchanges are organising a levy collection process on registered entities. In Canada, a levy collection system is also underway organised by the securities regulator and the accounting standards body.
Currently, the IASCF had secured approximately £13.7 million of the £16 million annual funding it is seeking. The levy systems have been working since they have been successful in the collection of the committed funds, receiving approximately half of the budget.
Report of the IASB Chairman
The IASB Chairman reported on IASB activities. He highlighted the projects relating to the MOU between the IASB and FASB, noting that the goal is to complete those projects by 2011. The two Board's met in April to consider how best to meet that deadline. They did not change the projects but rather recognised that they will need to carefully consider the scope of each project and stop increasing the issues to address within each project. Regarding the convergence projects, he noted that the most urgent in light of the credit crisis are (1) fair value measurement and (2) derecognition of financial instruments. Some questions were asked for more information on the fair value measurement project, the interaction between the conceptual framework project and the liabilities and equity project, the some other projects not related to the MOU, including the IFRS for Private Entities (formerly IFRS for Small and Medium Entities).
The IASB Chairman noted the priority of several projects was raised to respond to the credit crisis. He noted that the three issues central to the issues are (1) valuation of collaterised debt, for which an valuation expert advisory panel has been created, (2) consolidation, for which a draft of an exposure draft will be presented to the Board in July, and (3) derecognition of financial instruments, for which the Board is proposing to move to the active agenda. The IASB Directors on the consolidation and derecognition projects responded to several Trustees' questions regarding these projects.
The IASCF Chairman asked the Trustees if they agree that the two research agenda items, (1) Liabilities and Equity and (2) Derecognition of Financial Instruments, should be put on the active agenda. The Trustees agreed that they should be added.
In response to a Trustee's comment regarding whether there should be some sort of emergency procedures to respond quickly to urgent matters (such as the credit crisis), the IASCF Chairman noted that they should consider incorporating emergency procedures in part two of the Constitutional Review. The IASB Chairman noted that they also plan to conduct roundtables around the consolidation and derecognition projects to expedite these topics.
Report of the SAC Chairman
The SAC Chairman presented the views of SAC members at the June 2008 meeting on several IASB agenda items.
- There was general support for the IASB agenda items although SAC members recommended that the due process not be sacrificed to appease the pressure by regulators for completion.
- There is support for the consolidation project.
- They recommended that the derecognition project be coordinated with the consolidation project since they are interrelated.
- There was no objection to the projects on the active agenda, but recommended that lower priority is given to non-MOU items in order to meet the 2011 timeline for the MOU.
- There was general support for the liabilities and equity project but SAC members recommended that the conceptual framework issues also affecting this project be considered.
Regarding the Constitutional Review, concerns were already voiced in the previous discussion.
Items suggested by the SAC Agenda Committee to be on the agenda in November for a revisit by the Board are revenue recognition, conceptual framework, consolidations, financial instruments and the expert panel, financial statement presentation, and private entities. Also non-technical matters related to those adopting IFRSs, particularly what are the issues when initially adopting and how those issues have been resolved in particular jurisdictions. SAC would also like to invite the new coordinator of the IFRIC to the November SAC meeting to share views on how IFRIC will address implementation activities. SAC would also like to take that opportunity to share experiences on post-implementation reviews.
Regarding the SAC minutes, one Trustee asked if, in light of the proposals on the future of SAC made previously, there should be more of an attempt to come to a majority agreement which would represent the SAC advice to the Board (in other words, take a vote on issues). To capture the views, the SAC Chairman suggested that one or more Board members summarise what they have observed as key issues by SAC. Then a SAC member would ensure that the summary of views is complete. He noted that the SAC has tried to avoid voting to prevent a bias of the views of those that speak during the meeting over those that do not. He also commented that improvement of their procedures could also be tackled in the discussions on the future procedures of the SAC.
Report of the Due Process Oversight Committee
IASB will conduct a review of the effectiveness of IASB working groups. The objective will be to determine how to make working groups better and to obtain feedback from current members of all working groups. Regarding timing, they originally were targeting the last IASCF Trustee meeting for the year (October 2008), but because the Constitutional Review is a higher priority, they are now targeting a completion date of January 2009.
The IASCF staff provided Trustees with a first effort to amend the Due Process Handbook to reflect all the activities that are performed. During that process, it sparked discussion on how far to define impact assessment (also known as an Effect Analysis) and whether these assessments are consistent with the Framework. Some discussion ensued among the Trustees on impact assessments, particularly whether the IASB was comfortable doing the assessment and if it was more appropriate for an economic analysis firm to do. Some noted that an impact analysis is important since the macro-economic consequences are relevant to supporting the standard-setters' accounting decisions. Since a further discussion is needed on impact assessments, the Due Process Handbook will be revisited at a later date.
Finally, the Trustees were asked if there were any additional topics to put on the agenda for the next joint meeting with the IASB in September. No additional topics were provided.
This summary is based on notes taken by observers at the IASCF meeting and should not be regarded as an official or final summary.
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11 July 2008: Notes from the IASC Foundation Trustees' meeting - Part 1
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The Trustees of the IASC Foundation (IASCF) met in Washington on 8 and 9 July 2008. The portion of the meeting on 8 July 2008 was open to public observation. The 2008 Constitution Review was a key topic for discussion. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting on discussions relating to the Constitution Review.
IASCF Trustees Meeting, Washington, 8 July 2008
Constitution Review Proposals |
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Background and Observations on the Roundtables
The objective of the discussion was to determine whether the trustees are prepared to publish and invite comment on the first part of the Constitution Review proposals. To facilitate the discussion, the IASCF Director of Operations introduced a paper that summarised the comments made at the 19 June 2008 Roundtables on the draft document Proposals and Issues for the Constitutional Review, as well as a revised version of those proposals after consideration of comments made at the roundtables.
The two principal changes being proposed would be:
- Creation of a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities.
- Expansion of the IASB to 16 members from the present 14, with a specified geographical mix.
In summary, there appeared to be support for the concept of creating a Monitoring Group (MG). However, several concerns were raised regarding the independence of the IASC Trustees and IASB and the absence of investor representation on the MG. The proposals on the IASB size and composition generated fewer concerns than the proposal on the MG. However, some comments included concerns around the geographical criteria diluting the other technical competence criteria of IASB membership and the omission of a specific mention of Africa and South America in the geographical spread.
Some comments made during the roundtables may not have been reflected in the revised version brought before Trustees at meeting, but the expectation is to consider them with the other written comments received on the proposals. Several Trustees noted that they received positive feedback on the use of roundtables.
Regarding the composition of the MG, Trustees asked if the initial composition should also include banking supervisors, since they have a strong influence in emerging markets. The Chairman suggested adding a specific question to the proposals on whether banking supervisors should be represented on the MG.
Regarding the geographical composition of the IASB, the Chairman also noted that there was language in the revised proposals that suggests that of the seats appointed from any area, the Trustees would normally appoint at least one member from South America and Africa, but this language had not been added to the marked Constitution changes. He suggested specifically requiring this in the Constitution.
Revisions to the draft proposals discussed at the Roundtables
The discussion moved to the revisions made to the proposals. The IASCF Director explained the rationale for the revisions from the initial draft provided during the roundtables. Some minor revisions were made for better readability of the document. Other revisions were made to better clarify the concepts or arguments behind the proposal for the MG (for instance, to draw a better link between creation of a Monitoring Group and the objective for public accountability) or to address some of the recurring concerns noted at the roundtables.
The more significant revisions include:
- An added line in the Introduction, noting that Constitution Review must be completed by June 2010.
- A paragraph was added under the section titled 'Enhancing Public Accountability' that states that the Trustees will continue active engagement of stakeholders through SAC and formal discussion with interested parties. This paragraph was added to address a concern frequently raised at the Roundtables about why investor groups are not included on the MG. The reason is that there already are other avenues available to investors for interfacing with the IASCF and the IASB.
- New paragraphs were added to clarify the relationship between the Trustees and the MG, particularly that the MG will be a group outside of the IASCF's formal organisational framework. Accordingly, the MG will be an autonomous entity. For purposes of the Constitutional Review, the proposal is for the Constitution to recognise a relationship with a Monitoring Group. However, the actual working relationship between the MG will be further defined in a Memorandum of Understanding (MOU) between the Trustees and the MG.
- Regarding the proposal on the geographical composition of the IASB, language has been added to the proposed Constitution revisions that the Trustees 'should normally appoint at least one member each from Africa and South America'.
- A paragraph has been added to explain that geographical component of IASB membership should not dilute the importance of the other criteria for Board membership. The proposals emphasised that members shall act in the public interest, not as representatives of constituencies of geography.
- The voting majority under the larger IASB would rise to 10 out of 16 members or nine if there are fewer than 16 serving members.
Relationship Between the Trustees and the Monitoring Group
A discussion started regarding the relationship between the Trustees and the Monitoring Group. One Trustee asked for more information regarding the MOU between the Trustees and the MG. The IASCF Chairman noted that the details of what is in the MOU would not be established in the Constitution amendments. Rather, the proposals recognise that an MOU between the parties must be created and agreed upon by both parties. The MOU is intended to be another public document that will be negotiated between the MG and Trustees after this first part of the Constitution Review is completed. The same Trustee asked if the MOU, as a public document, will also be exposed for a comment period. The Chairman was in favour of a comment period for the MOU.
Several Trustees raised concerns around the independence of the IASCF and whether the MG responsibilities will conflict or overlap with Trustee responsibilities. The IASCF Chairman recognised that the negotiation of a reasonable MOU will be central to easing these concerns. He also noted that the MOU cannot change the requirements in the Constitution itself.
Before the proposals are published for comment, they will be revised to clarify that adoption of the MOU will require agreement of 'the MG and the Trustees' rather than 'members of the MG and the Trustees'. This is to clarify that each member of the MG is not required to agree with the MOU before it can be effective.
The Chairman noted that the proposals as drafted intend to view the MG as a monitoring group akin to an audit committee, not an oversight committee. Any wording in the proposals suggesting that the MG would have oversight capacity would be removed.
Several Trustees were also concerned about future disputes between the Monitoring Group and the Trustees and what 'safety mechanism' would be available if the parties are unable to agree. This concern related both to overall disputes and to disagreements on the future composition of the MG since the proposals only define the composition at initial formation. Echoing those concerns, other Trustees highlighted the conflict between independence and the need to obtain sustainable long-term funding, particularly when the proposed members of the MG are also the public authorities organising the funding for that jurisdiction. The IASCF Chairman was hesitant to add a 'safety mechanism' to the Constitution language because it could be perceived to contradict the MG as an independent external group. The intent is that the future composition of the MG would be at their discretion going forward, potentially under guidance written in the MOU.
The discussion moved to the reporting requirements between the IASCF and the Monitoring Group. One Trustee suggested that the MG as an external group should also have public accountability and, therefore, should consider providing its own annual report on its activities. The IASCF Chairman noted it was a good suggestion, but would be one that the MG would need to decide when its sets up its operating procedures. Since the MG's operations are outside of the IASCF, it would not be appropriate to incorporate reporting requirements in the Constitutional proposals. Regarding the reporting from the IASCF to the Monitoring Group, another Trustee suggested the IASCF Annual Report should serve this purpose, to ensure IASCF independence and transparency to the public. The IASCF Director of Operations hoped that the IASCF Annual Report would be sufficient reporting to MG due to its extensive disclosures. The Chairman agreed that there should be one public report for the public and Monitoring Group, and the Trustees would incorporate any additional requests from the MG into the annual report.
Consistency with Governance Recommendations of European Council
One Trustee asked for clarification on how the European Council's suggestions on the governance of the IASCF provided in the materials reconcile with the Trustees' proposals. [See IAS Plus News Story of 9 July 2008 The IASCF Director noted that it is broadly aligned with the Trustee proposals, and meetings with the European Council have confirmed that. Although the language is different, the broad concepts are consistent. Any additional points relating to issues outside of the proposals suggested in part one of this Constitutional Review will be considered in the second part of the review.
Changes to the Proposals Agreed by the Trustees
Based on these discussions, the following additions would be incorporated to the proposals before issuance for public comment:
- An additional question asking if other parties should be considered in the initial composition of the MG, specifically banking supervisors.
- Adding language to the Constitution marked text to specifically require that of the seats appointed from any area, the Trustees would appoint at least one member from South America and one from Africa.
- Language noting that the MOU between the Trustees and the MG would be issued for public comment.
- The wording that states 'A Memorandum of Understanding will be agreed between the members of the Monitoring Group and the Trustees describing' will be revised to 'A Memorandum of Understanding will be agreed between the Monitoring Group and the Trustees describing'. This change is to clarify that not all individual members of the Monitoring Group have to agree for it to be considered agreed upon.
- Agreed that the IASCF Annual Report would be the one deliverable sufficient for purposes of public reporting and reporting to the MG. Any additionally requested disclosures required by the MG would also be incorporated in the Annual Report.
Approval and Timing of Proposals
The Trustees approved these revisions and approved issuance of the proposals for public comment shortly after the meeting. Comments received will be reviewed at the October IASCF Trustees meeting.
Due to timing (August holiday season), a Trustee said that a 15 September 2008 comment deadline seemed aggressive. The IASCF Director noted that there is a clear expectation by regulators that this part will be done by year-end. Therefore, the date cannot be extended much further. Regulators need to make decisions based on completion of this process. Examples of those decisions include:
- SEC decisions on domestic use of IFRS, and
- EU equivalency assessment.
To meet that timing, staff need to assess the comments in time for 9-10 October 2008 Trustees' meeting. As a compromise, Trustees agreed to push the comment deadline for these proposals to 20 September 2008.
Regarding second part of Constitution Review, October is the goal for an initial draft of the second part of the Constitution Review proposals. The Constitution Committee will have an interim meeting before October to draft part two proposals to meet the October timing. Additional roundtables will be held for this second part also since there was positive feedback on the roundtable process.
This summary is based on notes taken by observers at the IASCF meeting and should not be regarded as an official or final summary.
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10 July 2008: SEC advisory committee proposals on financial reporting
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The US SEC's Advisory Committee on Improvements to Financial Reporting will meet on 11 July 2008 to consider a draft of its final report. The five main themes of the committee's draft recommendations, and examples of specific proposals, are presented below. Click to Download the Draft Report (PDF 5mb). You can get more information on the Advisory Committee's Page on the SEC's website.
SEC Advisory Committee on Improvements to Financial Reporting
Examples of draft proposals
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A. Increasing the usefulness of information in SEC reports
- Put executive summaries at the beginning of annual and quarterly financial reports.
- The private sector should develop key performance indicators (KPIs), on an activity and industry basis, that would capture important aspects of a company's activities that may not be fully reflected in its financial statements or may be non-financial measures.
B. Enhancing the accounting standards-setting process
- Recognise the pre-eminence of the perspective of investors as the primary users of financial reports by increasing investor representation on the FASB and FAF.
- FASB should increase the field work for proposed standards, formalise post-adoption reviews, and make periodic assessments of existing standards.
- Create a Financial Reporting Forum (FRF) to coordinate the efforts of FASB with the SEC, the Public Company Accounting Oversight Board, investors, auditors, and other parties. The FRF would meet regularly to evaluate the current pressures on the financial reporting system, set priorities for projects, and discuss how to carry out these projects.
C. Improving the substantive design of new accounting standards
- Redesign accounting standards to clearly articulate their objectives and principles. Use simple language. Avoid detailed rules, all-or-nothing bright-line tests (which sometimes make similar circumstances look different and which are susceptible to manipulation), and numerous exemptions.
- The SEC should recommend that the FASB be judicious in issuing new standards and interpretations that expand the use of fair value until FASB completes a measurement framework and the infrastructure for measuring fair values is strengthened.
- Because the current mixed attribute system of historic cost and fair value is likely to continue, the draft report supports the FASB's efforts to divide the income statement into two or more sections that would, among other things, help investors distinguish cash receipts from unrealised changes in fair value.
- Move away from industry-specific guidance in authoritative literature.
- Formally promulgated alternative accounting policies should not exist.
D. Delineating authoritative interpretive guidance
- All authoritative accounting standards and interpretive implementation guidance of general significance should come from a single standard-setter – the FASB.
- The SEC should codifying its existing accounting guidance in a format consistent with that used by FASB.
- "If the convergence of US GAAP and IFRSs does not occur within a few years, FASB and the SEC should consider a systematic rethinking of US GAAP."
E. Clarifying guidance on financial restatements and accounting judgments
- The SEC and PCAOB should adopt policy statements to provide more transparency into how these regulators evaluate the reasonableness of judgements.
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10 July 2008: First six national action plans under IFAC compliance programme
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The IFAC Member Body Compliance Program, launched four years ago, has reached a major milestone in its mission to encourage accountancy organizations worldwide to work together with their members, regulators, standard setters, and other key stakeholders to strengthen the profession. The Compliance Program is a three-part process:
- A member organisation's assessment of its country's regulatory and standard-setting framework.
- A self-assessment of the extent to which a member body has committed to international convergence of standards and promoted the implementation of strong quality assurance and enforcement regimes as specified in IFAC membership requirements.
- Development of action plans to further the convergence process and meet other IFAC membership requirements.
The Compliance Program is now in this third phase and the action plans of IFAC members from six countries have recently been publicly released on the IFAC Website. The six countries with action plans are Argentina, Botswana, China, Czech Republic, Kenya, and Romania. Click for IFAC Press Release (PDF 17k).
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9 July 2008: SEC launches re-examination of the way regulated entities report
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The US Securities and Exchange Commission has launched an 'ambitious effort' to examine to examine how the SEC acquires information from public companies, mutual funds, brokers, and other regulated entities, and how it makes that information available to investors and the markets. They are calling the project the 21st Century Disclosure Initiative. The first phase of the study will be to outline the attributes of the disclosure system for a future that incorporates technology, the new ways in which investors get their information, and recent developments in how companies compile and report the information in their SEC-mandated disclosures. That phase will be completed by the end of 2008, when a follow-on advisory committee will be appointed to consider the questions in more detailed fashion through a public and consultative process. Click for SEC Announcement (PDF 28k).
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21st Century Disclosure Initiative
The study will be a fundamental rethinking of financial disclosure, beginning with the basic purposes of disclosure from the perspective of investors and markets. The inquiry will be aimed at identifying the objectives of the ideal disclosure system at the architectural level. Essential to the study will be the determination of how to match the capabilities of today's information technology with the SEC's regulatory aims and the needs of investors.
The study will include a review of all existing SEC forms and reporting requirements, as well as the manner in which information is provided to the Commission, with a special focus on needless redundancy. It will also include consideration of various alternative strategic approaches to acquiring and publishing disclosure information. In addition, the study will consider ways that regulatory requirements for the collection of information might be tailored to get the best real-time distribution of financial and narrative disclosure to investors. Finally, the study will examine how best to integrate public disclosure with the SEC's proposed new post-EDGAR architecture for investor search, assembly, and comparison of data.
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9 July 2008: IAESB paper on measuring continuing professional development
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The International Accounting Education Standards Board (IAESB) has published an information paper to assist IFAC member bodies and others in developing effective continuing professional development (CPD) programs for professional accountants. Titled Approaches to Continuing Professional Development (CPD) Measurement, the paper explains the elements of an effective CPD program, examines current practices by accountancy and other professional associations, and discusses approaches to measure a program's effectiveness.
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A fundamental theme of this paper is the debate between input and output-based CPD measurement. Input-based measurement has recently been brought into question by many professional bodies. These bodies recognize that simply recording the time spent on CPD does not necessarily indicate that anything has been learned, or that CPD will lead to any change in practice. In a climate of increased accountability and external pressures, professional bodies are turning to output-based measurement techniques that can measure exactly what input-based measurement cannot: the impact of CPD on the professionalism of practitioners.
There is some resistance to the implementation of output-based measures, including perceived cost, and professionals feeling as if they are being 'tested'. The aim of this paper is to find out what professional bodies are currently doing in terms of CPD measurement, and to understand the success of different types of systems. This will result in an informed analysis of the arguments for and against input and output-based measurement systems. We discovered that there are many steps along the way
to a fully output-based system, and that successful output measurement is not as far from reach as many professional bodies may suspect.
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You can Download the Paper from IFAC's website. Here's the Press Release (PDF 14k).
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9 July 2008: Accounting Roundup – second quarter 2008 review
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We have posted Accounting Roundup: Second Quarter in Review–2008 (PDF 872k, 54 pages), prepared by the Accounting Standards and Communications Group of Deloitte LLP (USA). This newsletter provides brief descriptions of pronouncements affecting accounting, financial reporting, and corporate governance issued during 2Q-2008 by standard setters and regulators including FASB, EITF, AICPA, SEC, FASAB, PCAOB, GASB, IASB, and IFRIC. This quarterly review consists of articles, adapted as necessary, from issues of Accounting Roundup published in April and May 2008, as well as new articles for the month of June. There's also information about upcoming Dbriefs Webcasts. You will find past issues Here. International and IFRS-related developments covered in this edition of Accounting Roundup are:
- AICPA Recognizes IASB as Standard Setter
- IASB Issues Annual Improvements to International Standards
- IASB and FASB Issue Two Conceptual Framework Documents
- IASC Foundation Publishes 2008 IFRS Taxonomy
- IASB Forms Advisory Panel for Financial Instruments
- IASC Foundation Constitution Review
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9 July 2008: ECOFIN resolution on IASB governance
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The European Union's Economic and Financial Affairs Council (ECOFIN) met in Brussels on 8 July 2008. Among other things, they discussed governance of IASB and adopted ECOFIN Conclusions on IASB Governance (PDF 133k). An excerpt is below.
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The Council adopted the following conclusions:
The Council welcomes the proposals that have been made in this direction by the IASCF and considers that the further reform of the IASCF and IASB's governance and public accountability should be made according to the following key principles:
- the public accountability of the IASCF should be enhanced through the creation of an effective Monitoring Board, which should have sufficient powers to provide the necessary oversight of the IASCF; it should first ensure that Trustees effectively discharge their oversight role towards the IASB, play an active role in the selection of Trustees and approve their final selection. The members of the Monitoring Body should be able to further refer issues of public interest, including those related to financial stability and prudential requirements, and matters of overall strategy for consideration by the IASB. The Monitoring Board should thus remain in close relation with the Chairman of the Board of Trustees, who should be put in charge, under the IASC constitution, to ensure that all views and concerns of public interest representatives are fully addressed by the IASB Board;
- the Monitoring Board should be composed of relevant authorities responsible for public interest related to the adoption and endorsement of accounting standards in their respective jurisdictions, including the global body representing authorities responsible for financial stability or key authorities involved in financial stability. The European Commission shall propose mechanisms to ensure that it represents the co-ordinated position of all relevant European institutions and bodies, and Member states;
- the IASB must achieve greater transparency and legitimacy of its standard-setting and agenda-setting processes, in particular through more systematic public consultations about the IASB's work programme, including the IASB-FASB convergence agenda and more field testing. The effectiveness of the Standards Advisory Council should be enhanced; the role of impact assessments as a mandatory part of the IASB's due process should be formalised; and, possible changes to the terms of service of IASB members should be considered, including a possible term limitation for the chairman of the IASB. The views of public authorities, in particular those charged with financial stability and prudential regulation, should be adequately reflected in the IASB's standard-setting process.
- members of the IASB should reflect an appropriate balance of practical and technical expertise, as well as a diversity of geographical experience in order to contribute to the development of high quality, global accounting standards. The role of the EU as the largest jurisdiction applying IFRS should be properly reflected.
- The Council emphasises the urgency of enhancing the EU's ability to contribute in a timely and consistent manner to the international accounting debate. It therefore welcomes efforts to enhance the role of the European Financial Reporting Advisory Group (EFRAG), especially in relation to timely upstream input to the IASB's agenda-setting process. EFRAG's governance arrangements should ensure a balanced representation of all European stakeholders. EFRAG should establish effective and transparent procedures ensuring that it operates in the public
interest and in a manner consistent with the EU's financial reporting policy. The Council welcomes recent progress to reform EFRAG's structure of governance in this direction.
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8 July 2008: Korean language guide to IFRS 5
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Deloitte (Korea) has published a 74-page Korean language guide to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. It is a translation of the English language version, which is available Here. Click to download the Guide to IFRS 5 in Korean Language (PDF 706k). Our Korea Page includes a number of other Korean language IFRS publications and information about financial reporting in Korea. |
8 July 2008: New Deloitte IFRS 3 and IAS 27 Guide is now available
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The Deloitte IFRS Global Office has published Business Combinations and Changes in Ownership Interests: A Guide to the Revised IFRS 3 and IAS 27. In January 2008, the IASB issued a revised IFRS 3 Business Combinations and a revised IAS 27 Consolidated and Separate Financial Statements. In doing so, the Board completed phase II of its business combinations project, and achieved substantial convergence between IFRSs and US GAAP on these topics. This new 164-page guide deals mainly with accounting for business combinations under IFRS 3(2008). Where appropriate, it deals with related requirements of IAS 27(2008) – particularly as regards the definition of control, accounting for non-controlling interests, and changes in ownership interests. Other aspects of IAS 27 (such as the requirements to prepare consolidated financial statements and detailed procedures for consolidation) are not addressed.
Chapters in Deloitte's new 164-page guide to IFRS 3 and IAS 27:
- Introduction
- Principles underlying the revised Standards
- Acquisition method of accounting
- Scope
- Identifying a business combination
- Identifying the acquirer
- Determining the acquisition date
- Recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree
- Identifying and measuring consideration
- Recognising and measuring goodwill or a gain from a bargain purchase
- Post-combination accounting
- Step acquisitions and partial disposals
- Business combinations with no transfer of consideration
- Reverse acquisitions
- Effective date and transition
- Disclosure
Appendices:
- Appendix 1 Comparison of IFRS 3(2008) and IFRS 3(2004) and Comparison of IAS 27(2008) and IAS 27(2003)
- Appendix 2 Continuing differences between IFRSs and US GAAP
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8 July 2008: Arnold Schilder will succeed John Kellas as IAASB chair
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The Board of the International Federation of Accountants (IFAC) has appointed Prof. Dr. Arnold Schilder, RA, as chairman of the International Auditing and Assurance Standards Board (IAASB) a three-year term beginning 1 January 2009. Prof. Schilder is currently Executive Director of the prudential supervisor of financial institutions in the Netherlands. He is a member of the Basel Committee on Banking Supervision and served as Chairman of its Accounting Task Force from 1999 to 2006. He is also past President of the Royal NIVRA, IFAC's member body in the Netherlands. He will replace John Kellas, who has served on the IAASB and its predecessor since 2000 and as its chairman since 2004. Click for IFAC News Release (PDF 23k).
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7 July 2008: Six new IAS Plus newsletters in Chinese
5 July 2008: IAS Plus Newsletters on IFRIC 15 and IFRIC 16
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Deloitte's IFRS Global Office has published special edition IAS Plus Newsletters on the two Interpretations issued on 3 July 2008 by the International Financial Reporting Interpretations Committee:
You will find all Past IAS Plus Newsletters Here. You can sign up for Free Subscription by Email. |
5 July 2008: ECOFIN will discuss IASB governance and 'credit crunch'
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The European Union's Economic and Financial Affairs Council (ECOFIN) will meet in Brussels on 8 July 2008. Their agenda includes discussion about IASB governance, and also about accounting and disclosures by financial institutions. Click for the Background Paper (PDF 166k). Here is are two excerpts:
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International accounting standards – IASB Governance
The Council should adopt the conclusions on the reform currently taking place in the International Accounting Standards Board (IASB), following the public consultation launched at the end of May (11183/08). It has already considered the governance and financing of the IASB, and adopted conclusions on this subject in July 2006 and July 2007.
There are two reasons why conclusions must again be adopted this year:
- the IASCF, the foundation responsible for appointing the members and the financing of the IASB, launched a process of constitutional review last May with a view to enhancing its own governance and that of the IASB; it proposes inter alia to set up a Monitoring Committee within the IASCF which would be responsible for ensuring that the public interest and prudential concerns are better taken into account when accounting standards are being drawn up;
- recent financial turbulence has demonstrated the need for a reliable mechanism for drawing up international accounting standards.
Against this background, the Council aims to express a firm European position, focused in particular on the principles identified by the draft conclusions.
Financial markets – Implementation of current initiatives
The Council will review developments on current initiatives, in accordance with a 'road map' adopted at its meeting last October in order to deal more effectively with the turmoil on financial markets since August 2007.
The Council should adopt conclusions on two issues in particular:
- progress in the transparency of banks and other financial institutions regarding the valuation
of their risk assets;
- the line to be followed in Europe and at world level regarding rating agencies (11229/08).
The draft conclusions stress that prompt and full disclosure by financial institutions of their
exposure to distressed assets and off-balance sheet vehicles and of their write-downs and losses is
essential to bring back confidence in the markets.
The Committee of European Banking Supervisors recently drew up recommendations to give
guidance to banks in evaluating their assets. According to the draft conclusions, this is a very
important factor in ensuring greater consistency in the practices of financial institutions, which is
essential for restoring confidence in the real situation of the market.
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4 July 2008: Panelists for SEC roundtable on fair value accounting
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The US Securities and Exchange Commission has announced the names of the participants in its public roundtable on fair value accounting standards. Board member James J Leisenring will represent the IASB. The roundtable will be held from 9:00am to 12:30pm US EDT on 9 July 2008 at the Commission's headquarters in Washington, D.C. The roundtable will be webcast live and later archived on the SEC's Website. Click for the Announcement of Participants (PDF 59k). There is more information in our News Story of 29 June 2008. |
4 July 2008: Global Accounting Alliance launches online journal
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The Global Accounting Alliance (GAA) has established a bi-monthly online journal called GAA Accounting. The URL is www.gaaaccounting.com. Issue 1 of Volume 1 is now available. The journal will cover a range of topical issues in accounting and finance, focussing mainly on auditing, financial accounting, accounting education, management accounting, small business, social and environmental issues, and taxation.
Two of the four main articles in the first issue of GAA Accounting deal with IFRSs:
- Auditor Liability
- Significantly Stronger Corporate Governance under SOX: Survey
- The collapse of the US sub-prime mortgage market: Understanding the impacts under IFRS
- IFRS for SMEs
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The GAA is a consortium of nine national professional accountancy bodies with a goal of promoting quality services, sharing information, and collaborating on important international issues, while operating in the interest of a quality accounting profession and the public interest. The GAA's website is www.globalaccountingalliance.com/. Current members are:
- The American Institute of Certified Public Accountants (AICPA)
- Institute of Chartered Accountants in Australia
- Canadian Institute of Chartered Accountants (CICA)
- Institute of Chartered Accountants in England and Wales (ICAEW)
- Institute of Chartered Accountants in Ireland (ICAI)
- Institute of Chartered Accountants of Scotland (ICAS)
- New Zealand Institute of Chartered Accountants (NZICA)
- Hong Kong Institute of Certified Public Accountants (HKICPA)
- South African Institute of Chartered Accountants (SAICA)
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4 July 2008: Commissioner McCreevy discusses the 'credit crunch'
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EU Commissioner for Internal Markets and Services Charlie McCreevy spoke about The Financial Turmoil – The Role of the EU-Commission (PDF 75k) at a meeting of the The Centre for European Policy Studies in Brussels. Among other things, he discussed the IASB's current efforts to address the valuation of illiquid financial assets. He said that the solution lies in improved valuation techniques and not in disregarding fair value changes entirely. An excerpt:
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There have been calls to temporarily disregard fair value accounting in order to neutralise possible pro-cyclical effects and avoid having to write-down assets. Intervention right now risks adding to the confusion and create even greater distrust in companies' accounts. What is needed is additional guidance on the valuation of complex and illiquid financial instruments. This has also been underscored in a report published by the Committee of European Banking Supervisors (CEBS) last month. It highlighted a number of accounting issues that may require further attention of accounting standards setters in order to improve consistency, comparability and transparency of valuation practices.
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Here's a link to our Credit Crunch Page.
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3 July 2008: IFRIC guidance on hedge of an investment in a foreign operation
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The International Financial Reporting Interpretations Committee has issued an Interpretation, IFRIC 16 Hedges of a Net Investment in a Foreign Operation. Currently, practice has diverged as a result of differing views on which risks are eligible for hedge accounting under IAS 39.
IFRIC 16 clarifies three main issues:
- Whether risk arises from (a) the foreign currency exposure to the functional currencies of the foreign operation and the parent entity, or from (b) the foreign currency exposure to the functional currency of the foreign operation and the presentation currency of the parent entity's consolidated financial statements.
IFRIC 16 concludes that the presentation currency does not create an exposure to which an entity may apply hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation.
- Which entity within a group can hold a hedging instrument in a hedge of a net investment in a foreign operation and in particular whether the parent entity holding the net investment in a foreign operation must also hold the hedging instrument.
IFRIC 16 concludes that the hedging instrument(s) may be held by any entity or entities within the group.
- How an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item when the entity disposes of the investment.
IFRIC 16 concludes that while IAS 39 must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 must be applied in respect of the hedged item.
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IFRIC 16 is effective for annual periods beginning on or after 1 October 2008 and may be applied prospectively. Earlier application is permitted. Click for the Press Release (PDF 59k).
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3 July 2008: IFRIC issues Interpretation on construction of real estate
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The International Financial Reporting Interpretations Committee has issued an Interpretation, IFRIC 15 Agreements for the Construction of Real Estate. IFRIC 15 standardises accounting practice across jurisdictions for the recognition of revenue by real estate developers for sales of units, such as apartments or houses, 'off plan' – that is, before construction is complete.
Observations about IFRIC 15:
- Fundamental issue. The fundamental issue is whether the developer is selling goods – the completed apartment or house – or is selling a service – a construction service as a contractor engaged by the buyer. Revenue from selling goods is normally recognised at delivery. Revenue from selling services is normally recognised on a percentage-of-completion basis as construction progresses. IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and, accordingly, when revenue from the construction should be recognised.
- IAS 11 or IAS 18? An agreement for the construction of real estate is a construction contract within the scope of IAS 11 only when the buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress (whether it exercises that ability or not). If the buyer has that ability, IAS 11 applies. If the buyer does not have that ability, IAS 18 applies.
- If IAS 18, service or goods? Even if IAS 18 applies, the agreement may be to provide construction services rather than goods. This would likely be the case, for instance, if the entity is not required to acquire and supply construction materials. If the entity is required to provide services together with construction materials in order to perform its contractual obligation to deliver real estate to the buyer, the agreement for the sale of goods under IAS 18.
- Implications of IFRIC 15. The main expected change in practice is a shift for some entities from recognising revenue as construction progresses to recognising revenue at a single time – at completion upon or after delivery. Agreements that will be affected will be mainly those currently accounted for in accordance with IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not transfer to the buyer control and the significant risks and rewards of ownership of the work in progress in its current state as construction progresses.
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IFRIC 15 is effective for annual periods beginning on or after 1 January 2009 and must be applied retrospectively. Earlier application is permitted. Click for the Press Release (PDF 55k).
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3 July 2008: Agenda for 10-11 July 2008 IFRIC meeting
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The International Financial Reporting Interpretations Committee (IFRIC) will meet at the IASB's offices in London on Thursday and Friday 10-11 July 2008. The meeting is open to the public and will be webcast. The tentative agenda is shown below.
10-11 July 2008, London
Thursday 10 July 2008 (10:00-17:00)
Friday 11 July 2008 (9:00-Noon)
- Review of Tentative Agenda Decisions published in May IFRIC Update
- IAS 39: Application of the Effective Interest Rate Method
- Staff Recommendations for Tentative Agenda Decision
- Administrative Session
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3 July 2008: New Global IFRS and Offerings Services newsletter
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We have posted the May-June 2008 Edition of the Deloitte Global IFRS and Offerings Services Newsletter (PDF 155k). Global IFRS and 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 GIOS Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications, with hyperlinks to source material. Past GIOS Newsletters are Here. |
2 July 2008: Deloitte LLP will construct US$300 million learning centre in Texas
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Deloitte LLP (United States) will invest approximately $300 million in the creation of a state-of-the-art learning and leadership development center in the Dallas-Ft. Worth area in Westlake, Texas. Construction on the new facility will begin in 2009, and the center is expected to open in 2011. The facility will serve as a central destination for all of Deloitte's talent, including everyone from new hires to senior leadership to partners, principals, and directors. The 750,000-square-foot campus will have 800 guest rooms. Click for News Release (PDF 53k). |
2 July 2008: Canadian companies will be able to elect early IFRS adoption
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The Canadian Securities Administrators (representing Canada's 13 provincial and territorial securities regulators) have issued a Staff Notice setting out CSA staff views on possible changes to securities rules relating to Canada's transition to IFRSs for publicly accountable entities in 2011. The CSA Staff Notice is No. 52-321 titled Early Adoption of International Financial Reporting Standards, Use of US GAAP, and Reference to IFRS-IASB (PDF 46k). The CSA staff's three principal conclusions are:
- CSA staff are prepared to permit, on a case by case basis, a domestic issuer to prepare its financial statements in accordance with IFRS-IASB for financial periods beginning before 1 January 2011. Permission would depend on the regulator's assessment of how well prepared the company is to deal with the change.
- CSA staff propose retaining the existing option for a domestic issuer that is also a US SEC issuer to use US GAAP.
- It is preferable for securities rules to require a domestic issuer to prepare its financial statements in accordance with IFRS-IASB after the mandatory changeover date, rather than Canadian GAAP, and require an audit report on such annual financial statements to refer to IFRSs as issued by the IASB.
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1 July 2008: IASCF trustees will meet 8-9 July 2008 in Washington
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The Trustees of the IASC Foundation, under which the IASB operates, will meet in Washington, DC on 8 and 9 July 2008. The session on 8 July is open to public observation 09:30am to 17:00pm. The agenda for the public session is as follows:
Washington, DC, 8 July 2008 (Public Session)
- Review of the Constitution Review Proposals
- Report of 19 June 2008 Roundtables and analysis of comments
- Review and possible approval of proposals for formal publication
- Proposals regarding the future of the Standards Advisory Council
- Report of the IASB
- Report of the joint IASB-FASB meeting and proposed strategy to complete the Memorandum of Understanding
- Response to the credit crisis and the Financial Stability Forum report
- Report on ongoing discussions aimed at eliminating the IAS 39 'carve out'
- Update on the IASB's work programme and other convergence initiatives
- New agenda items
- Report of the SAC Chairman
- Report of the Due Process Oversight Committee
- Establishment of a review of IASB working groups
- Update to the IASB Due Process Handbook
- Topics for the Committee's next joint meeting with the IASB (September)
- Funding Update
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