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31 May 2008: IASB and FASB issue two Conceptual Framework proposals
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The IASB and the US FASB have published similar consultative documents on two of the eight phases of their joint project to develop an improved conceptual framework. The framework will provide a foundation for developing future accounting standards. The two consultative documents are:
- Exposure Draft: Chapters 1 and 2 of the Conceptual Framework (Objective and Qualitative Characteristics)
- Discussion Paper: Preliminary Views – The Reporting Entity
Exposure Draft (ED): Chapters 1 and 2 of the framework (Objective and Qualitative Characteristics)
This ED addresses the objective of financial reporting, the qualitative characteristics of information provided by financial reporting, and constraints on the provision of that information. The draft reflects the boards' updated proposals in the light of comments received on an initial consultation document published in July 2006. The ED proposes the following objective of financial reporting:
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers. Capital providers are the primary users of financial reporting. To accomplish the objective, financial reports should communicate information about an entity's economic resources, claims on those resources, and the transactions and other events and circumstances that change them. The degree to which that financial information is useful will depend on its qualitative characteristics.
The ED also presents an improved description of 'faithful representation' – one of the qualitative characteristics that financial information should possess if it is to provide a useful basis for economic decisions:
To be useful in financial reporting, information must be a faithful representation of the economic phenomena that it purports to represent. Faithful representation is attained when the depiction of an economic phenomenon is complete, neutral, and free from material error. Financial information that faithfully represents an economic
phenomenon depicts the economic substance of the underlying transaction, event or circumstances, which is not always the same as its legal form.
Discussion Paper: Preliminary Views – The Reporting Entity
The second document published sets out the boards' preliminary views on the reporting entity concept and related issues. Although the reporting entity concept determines some important aspects of financial reporting, the boards' existing frameworks do not address it specifically. The boards' preliminary views are:
- A reporting entity is a circumscribed area of business activity of interest to present and potential equity investors, lenders and other capital providers.
- Control is the basis for determining the composition of a group reporting entity.
- Consolidated financial statements should be prepared from the perspective of the
group reporting entity.
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The IASB and the FASB invite comments on both documents by 29 September 2008. Click for Joint Press Release (PDF 46k).
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28 May 2008: IASC Foundation publishes 2007 annual report
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The IASC Foundation, under which the IASB operates, has published its annual report for 2007. The 63-page report includes an overview of the Trustees' oversight activities for 2007, as well as reports of the Chairman of the IASC Foundation Trustees and the IASB Chairman, and audited financial statements. Click here to Download from IASB Website (PDF 2,075k). |
27 May 2008: IAS Plus Newsletter on improvements to IFRSs
27 May 2008: European Commission recommends endorsement of revised IAS 23
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The European Commission has published the Effect Study Report: Endorsement of IAS 23 Borrowing Costs (PDF 151k). The Commission did this study under its agreement with the European Parliament that 'effect studies' should be prepared for new accounting standards and interpretations up for endorsement in the European Union. The study is a combination of a survey of opinions expressed to the IASB, EFRAG, and the Commission and a staff analysis of the costs and benefits of applying the capitalisation model that is mandated by the revised IAS 23.
With respect to preparer opinions the report states:
- A majority of respondents prefer the capitalisation method and/or support the endorsement of the standard.
- Even among capital intensive companies that would be affected most by the revised IAS 23, the EC's consultation and other reports reveal that these companies generally prefer to apply the capitalisation method.
Benefits of the capitalisation model include:
- Increased comparability because one of the current options is eliminated
- Including borrowing costs in the cost of the assets is a better conceptual approach than expensing
Costs of adopting IAS 23 Revised:
- For those European companies currently expensing borrowing costs, the revised IAS 23 will impose an added cost and complexity.
- However, this affects a relatively small percentage of companies because most do not have any qualifying assets. 'The capitalisation of borrowing costs is of relevance only for those companies that are asset capital-intensive.' And 'the main part of these costs will be related to the first implementation of the revised standard and therefore not recurring.'
Commission conclusion and recommendation:
- The revised IAS 23 should be endorsed in the European Union as the benefits of its endorsement will outweigh the costs.
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26 May 2008: SEC proposes to require XBRL data for 8,000 mutual funds
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The US Securities and Exchange Commission has voted unanimously to propose that more than 8,000 mutual funds trading in the United States be required to label data in their public filings using XBRL computer tags. This would let "investors get access to key information about fees, performance, and strategies through interactive data, which would permit comparison shopping among thousands of funds with all the ease of conducting an Internet search". Some mutual funds already have been filing interactive data on a voluntary basis. The SEC's rule proposal would require all mutual funds to provide data-tagged information beginning with registration statement filings that become effective after 31 December 2009. A mutual fund also would be required to post the interactive data on its website, if it maintains one.
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25 May 2008: SEC signs IFRS info-sharing protocols with four countries
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The US Securities and Exchange Commission has signed protocols enabling it to share information with financial regulators in four European countries on the application of International Financial Reporting Standards. The four countries are Belgium, Bulgaria, Norway, and Portugal. These agreements are based on a prototype agreement previously adopted by the SEC and the Committee of European Securities Regulators (CESR) – among many others. As capital markets globalise, securities regulators are developing information-sharing arrangements to enable cross-border regulation. Click for SEC Press Release PDF 47k). Here is a link to the SEC Web Page detailing their cooperative arrangements with foreign regulators.
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24 May 2008: Agenda project pages updated
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We have updated the following IASB agenda project pages to reflect the discussions and decisions at the IASB's meeting on 20-23 May 2008:
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24 May 2008: Plan for adoption of IFRSs in Argentina
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The Federacion Argentina de Consejos Profesionales de Ciencias Economicas (professional accountancy body in Argentina) has developed a plan for implementing International Financial Reporting Standards (IFRSs) for all companies whose securities are publicly traded. The plan has been presented to the Argentinian Securities Commission, which would have to approve the plan. The plan calls for adoption of IFRSs in annual financial statements of public companies by first quarter 2011. Starting first quarter 2010, companies would have to disclose the expected impact of IFRSs on their operating results and equity. Click to Download the Argentina IFRS Plan (PDF 313k in Spanish).
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23 May 2008: Notes from day 4 of the IASB's May 2008 meeting
23 May 2008: IFRS Insights newsletter from Deloitte (United States)
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Deloitte & Touche LLP (United States) has launched a new publication, IFRS Insights, in response to the growing need among US companies for current information on IFRS developments, and the increasing demand for insights regarding IFRS implementation. Today, there is a heightened sense of urgency around the use of IFRS in the United States. As companies await further action from the Securities and Exchange Commission (SEC), including an anticipated announcement about when public companies will have the option of using IFRSs for SEC reporting purposes, financial executives in the US are now asking more questions about IFRS and its far-reaching effects on their companies. Our new publication IFRS Insights address those issues by providing 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. Click to download the Inaugural Edition (May 2008) of IFRS Insights (PDF 427k). We will have Permanent Links to IFRS Insights on our USA country page. |
23 May 2008: Deloitte (United States) 2008 IFRS Survey: Where Are We Today?
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Deloitte & Touche LLP (United States) has published 2008 IFRS Survey – Where Are We Today? (PDF 850k). This brief but informative report discusses the results of approximately 200 responses by US-company senior finance professionals to Deloitte's 2008 survey on IFRSs. The primary goal of the survey was to ascertain US
companies' level of awareness about and interest in IFRSs. Some findings:
- 30% of the respondents said that, if given the choice now, they would consider adopting IFRSs. Another 10% percent felt they needed more information. 18% were undecided.
- Even among those companies that indicated they would not adopt IFRSs, if given the choice now, 45% would still consider adopting IFRSs within the next seven years.
- The industries with the most interest in adopting IFRSs were financial services, health services, and consumer and industrial products.
- Overall, more than 50% of respondents believe that at least a quarter of all US issuers will be using IFRSs within the next seven years, with approximately 85% of respondents indicating that at least 10% of US issuers will be using IFRSs.
- Of those US companies that would consider adopting IFRSs, 53% said they would adopt within three years.
- Of those companies considering IFRSs, 64% say they lack skilled resources in their US operations while 34% believe they lack skilled resources in their non-US operations. These results indicate that more training in IFRSs is required.
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22 May 2008: Notes from day 3 of the IASB's May 2008 meeting
22 May 2008: Determining cost of an investment in separate financial statements
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The IASB has amended two standards to change the way the cost of an investment in the separate financial statements is measured on first-time adoption of IFRSs. The amended standards are IFRS 1 First-time Adoption of IFRSs and IAS 27 Consolidated and Separate Financial Statements. The Board made the amendments because retrospectively determining cost and applying the cost method in accordance with IAS 27 on first-time adoption of IFRSs cannot, in some circumstances, be
achieved without undue cost or effort.
The amendments to IFRS 1 and IAS 27:
- Allow first-time adopters to use a 'deemed cost' of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities, and associates in the separate financial statements
- Remove the definition of the cost method from IAS 27 and replace it with a requirement to present dividends as income in the separate financial statements of the investor
- Require that, when a new parent is formed in a reorganisation, the new parent must measure the cost of its investment
in the previous parent at the carrying amount of its share of the equity items of the previous parent at the date of the reorganisation.
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The amendments to IFRS 1 and IAS 27 are effective for annual periods beginning on or after 1 January 2009, with earlier application permitted. Click for Press Release (PDF 47k).
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22 May 2008: IASB issues improvements to 20 IFRSs
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The IASB has published final amendments to 20 IFRSs, and the related Bases for Conclusions and guidance, resulting from the Board's Annual Improvements Project for 2007. Some amendments, in turn, cause consequential amendments to other IFRSs. The amendments are based on proposals in an Exposure Draft published in October 2007. The IASB's annual improvements project provides a vehicle for making non-urgent but necessary minor amendments to IFRSs. The effective date for most amendments is annual periods beginning on or after 1 January 2009. Click for IASB Press Release (PDF 57k). The improvements are of two broad types:
- Amendments that result in accounting changes in presentation, recognition, or measurement. The topics for these are listed in the table below.
- Terminology or editorial changes that have no or minimal effect on accounting. These affected IFRS 7, IAS 8, IAS 10, IAS 18, IAS 20, IAS 29, IAS 34, IAS 40, and IAS 41.
| Improvements of IFRSs for Presentation, Recognition, or Measurement |
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| IFRS | Topic of Amendment |
| IFRS 5 Non-current Assets Held for Sale and Discontinued Operations |
- Plan to sell the controlling interest in a subsidiary
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| IAS 1 Presentation of Financial Statements |
- Current/non-current classification of derivatives
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| IAS 16 Property, Plant and Equipment |
- Recoverable amount
- Sale of assets held for rental
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| IAS 19 Employee Benefits |
- Curtailments and negative past service cost
- Plan administration costs
- Replacement of term 'fall due'
- Guidance on contingent liabilities
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| IAS 20 Accounting for Government Grants and Disclosure of Government Assistance |
- Government loans with a below-market rate of interest
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| IAS 23 Borrowing Costs |
- Components of borrowing costs
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| IAS 27 Consolidated and Separate Financial Statements |
- Measurement of subsidiary held for sale in separate financial statements
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| IAS 28 Investments in Associates |
- Required disclosures when investments in associates are accounted for at fair value through profit or loss
- Impairment of investment in associate
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| IAS 29 Financial Reporting in Hyperinflationary Economies |
- Description of measurement basis in financial statements
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| IAS 31 Interests in Joint Ventures |
- Required disclosures when interests in jointly controlled entities are accounted for at fair value through profit or loss
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| IAS 36 Impairment of Assets |
- Disclosure of estimates used to determine recoverable amount
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| IAS 38 Intangible Assets |
- Advertising and promotional activities
- Units of production method of amortization
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| IAS 39 Financial Instruments: Recognition and Measurement |
- Reclassification of derivatives into or out of the classification of at fair value through profit or loss
- Designating and documenting hedges at the segment level
- Applicable effective interest rate on cessation of fair value hedge accounting
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| IAS 40 Investment Property |
- Property under construction or development for future use as investment property
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| IAS 41 Agriculture |
- Discount rate for fair value calculations
- Additional biological transformation
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21 May 2008: Notes from day 2 of the IASB's May 2008 meeting
21 May 2008: Several issues in CESR's updated prospectus FAQ relate to IFRSs
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The Committee of European Securities Regulators (CESR) has issued the fifth updated version of Frequently Asked Questions Regarding Prospectuses: Common Positions Agreed by CESR Members (PDF 289k). Several of the questions involve IFRS issues, including the following issues:
- Issue 15. Interaction between the prospectus Regulation and IAS 8: When an issuer changes an accounting policy in its financial statements (for instance, on initial application of a new IFRS) and applies that policy retrospectively, does this mean that the issuer has to restate comparative figures in the prospectus that would be affected by the retrospective application of the new accounting policy?
- Issue 48. Pro forma financial information: illustrative examples: Several of the issues relate to IFRS 3 and IFRS 5
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21 May 2008: Notes from day 1 of the IASB's May 2008 meeting
21 May 2008: FASB webcast on the crisis in the credit markets
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The US Financial Accounting Standards Board will present a live webcast on the current crisis in the credit markets. The panelists will discuss factors impacting the credit markets, financial accounting and reporting issues facing participants in the credit markets, and actions taken to respond to those issues. Viewers will have the opportunity to email questions.
Details of FASB Webcast on Credit Crisis:
- Title of Webcast: The Crisis in the Credit Markets: Causes, Reporting Issues, and Responses.
- Date and Time: Monday, 2 June 2008, 2:00 PM to 3:00 PM (US EDT).
- Cost: Free of charge.
- Panelists: Robert Herz, Chairman of the FASB; Matt Schroeder, Managing Director and Global Head of Accounting Policy, Goldman Sachs; Raymond Beier, Partner at PricewaterhouseCoopers; and Jack Ciesielski, Publisher of The Analyst's Accounting Observer.
- Moderator: Wall Street Journal reporter David Reilly.
- Access: The FASB will archive the live webcast on the FASB website for access by the public. To register for the live or archived webcast, follow the audience URL at: http://w.on24.com/r.htm?e=109185&s=1&k=62D30E7B12E0A3E000FE1155AFB7AAC1.
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20 May 2008: Deloitte's IFRS University Consortium
Deloitte has announced that it is forming an IFRS University Consortium, through which it will contribute its time, experience, and resources as an investment in education to help bring IFRS curricula into college classrooms. Through the Consortium, Deloitte is contributing resources to Ohio State and Virginia Tech universities to assist those schools in developing IFRS curricula. The contributions include drafting course materials such as classroom guides and case studies and providing Deloitte professionals as lecturers. The classroom guides and course materials will be made available to other interested universities. Ohio State and Virginia Tech will discuss their IFRS course materials at the American Accounting Association's annual meeting taking place August 3-6 in Anaheim, California. Deloitte IFRS Consortium details can be accessed here: www.deloitte.com/us/ifrs/consortium. Click for Press Release (PDF 57k).
20 May 2008: CESR publishes summaries of IFRS enforcement decisions
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The Committee of European Securities Regulators (CESR) has published its third batch of extracts from its confidential database of enforcement decisions taken by EU national enforcers of financial information. From time to time, CESR publishes extracts of selected decisions as a source of information to foster appropriate and consistent application of IFRSs in the EU.
Topics covered in batch #3 of CESR's extracts:
- Consolidation of subsidiary
- Step acquisition
- Consolidation of special purpose entities
- Application of the pooling of interest method in a business combination under common control
- Identification of the acquirer in a business combination
- Partial reimbursement and modifications of the term of the contract of a borrowing
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- Impairment of an investment
- Disclosure of the effect of discontinued operations
- Definition of key management personnel
- Internally generated intangible assets
- Allocation of the costs of an acquisition
- Scope of IAS 11
- Barter transaction
- Half-yearly financial statements
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Click to download:
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20 May 2008: AICPA launches www.ifrs.com website
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The American Institute of Certified Public Accountants (AICPA) has launched a new website www.ifrs.com. The website is intended to help AICPA members and financial professionals learn about and stay informed on International Financial Reporting Standards. Resources include a history of convergence, a high-level overview of the differences between IFRS and US GAAP, frequently asked questions, articles, textbooks and CPE courses, helpful links and assistance for audit committee members. Click for Press Release (PDF 46k).
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20 May 2008: AICPA Council designates IASB as a recognised standard setter
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The governing Council of the American Institute of CPAs (AICPA) has voted to designate the International Accounting Standards Board as the recognised accounting standard setter for purposes of establishing international financial accounting and reporting principles – Press Release (PDF 44k). Technically, the Council's vote amends AICPA Ethics Rules 202 and 203, thereby providing AICPA members with the option to use International Financial Reporting Standards (IFRSs) without any need to reconcile to US GAAP figures:
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Under Rule 202, a member who performs professional services shall comply with the standards promulgated by the designated bodies. Additionally, a member may not say that financial statements are in accordance with generally accepted accounting principles unless they follow the standards promulgated by a standard setter listed in Appendix A of Rule 203.
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This designation applies to all IFRSs, including the planned IFRS for SMEs. With the Council's vote to designate the IASB, the AICPA's Auditing Standards Board and Accounting and Review Services Committee will now prepare clarifying language on how to modify audit, review, and compilation reports when reporting on financial statements prepared in accordance with IFRSs. Other bodies designated by Council to promulgate accounting standards under Rules 202 and 203 are:
- The Financial Accounting Standards Board (FASB)
- The Governmental Accounting Standards Board (GASB)
- The Federal Accounting Standards Advisory Board (FASAB)
– all US-based.
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20 May 2008: Updated EFRAG endorsement status report
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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 19 May 2008 (PDF 33k). Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:
- IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
- IFRS 3 Business Combinations (2008)
- IAS 1 Presentation of Financial Statements (revised September 2007)
- IAS 23 Borrowing Costs (revised March 2007)
- IAS 27 Consolidated and Separate Financial Statements (2008)
- IAS 32 and IAS 1 Amendments for Puttable Instruments and Obligations Arising on Liquidation
- IFRIC 12 Service Concession Arrangements
- IFRIC 13 Customer Loyalty Programmes
- IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction
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20 May 2008: Comparison of IFRSs and Dutch GAAP
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The Deloitte IFRS Centre of Excellence in The Netherlands has published IFRSs and NL GAAP: A Pocket Comparison. This 19-page booklet sets out some of the key differences between IFRSs and Dutch GAAP for annual periods beginning on or after 1 January 2008. It also includes new and revised IFRSs issued before 31 March 2008 that are not yet effective for annual periods beginning on or after 1 January 2008. Click to download IFRSs and NL GAAP: A Pocket Comparison (PDF 302k). |
19 May 2008: New Global Offerings Services newsletter
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We have posted the April-May 2008 Edition of the Deloitte Global Offerings Services Newsletter (PDF 211k). Global Offerings Services is a global team of Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US and International accounting standards (that is, US GAAP and IFRSs) and in complying with the SEC's financial reporting rules. The GOs Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications, with hyperlinks to source material. Past GOs Newsletters are Here. |
19 May 2008: Australia illustrative A-IFRS financial reports for 2008
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Deloitte (Australia) has published illustrative financial reports in conformity with Australian equivalents of IFRSs for companies with annual reporting obligations at 30 June 2008. These reports include new requirements such as AASB 7 Financial Instruments: Disclosures. Click to download:
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18 May 2008: We comment on two IAASB proposals
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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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18 May 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 8 May 2008:
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18 May 2008: IASB meeting dates for 2009
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Here is a list of the dates of the International Accounting Standards Board meetings in 2009, including joint meetings with the FASB and meetings with the Standards Advisory Council. You can always find these by clicking on Future Meeting Dates under 'IASB Projects and Meetings' in the right side column of this home page. All are in London except the October 2009 joint meeting with FASB.
| IASB: | Monday-Friday 19-23 January 2009 |
| IASB: | Monday-Friday 16-20 February 2009 |
| Standards Advisory Council: | Monday and Tuesday 23-24 February 2009 |
| IASB: | Monday-Friday 16-20 March 2009 |
| Joint IASB/FASB Meeting: | Monday-Wednesday 23-25 March 2009 |
| IASB: | Monday-Friday 20-24 April 2009 |
| IASB: | Monday-Friday 18-22 May 2009 |
| IASB: | Monday-Friday 15-19 June 2009 |
| Standards Advisory Council: | Monday and Tuesday 22-23 June 2009 |
| IASB: | Monday-Friday 20-24 July 2009 |
| IASB Meeting with World Standard Setters: | Thursday-Friday 10-11 September 2009 |
| IASB: | Monday-Friday 14-18 September 2009 |
| IASB: | Monday-Friday 19-23 October 2009 |
Joint IASB/FASB Meeting
Norwalk, CT, USA: | Monday-Wednesday 26-28 October 2009 |
| IASB: | Monday-Friday 16-20 November 2009 |
| Standards Advisory Council: | Thursday and Friday 12-13 November 2009 |
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16 May 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 May 2008 meeting not to add the following topics to its agenda. Our summary now includes over 135 issues:
- IAS 19: Employee benefits – settlements
- IAS 37: Deposits on returnable containers
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16 May 2008: All SEC registrants (US GAAP and IFRSs) would file XBRL data
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The US Securities and Exchange Commission has proposed to require all public companies in the United States to file their data with the SEC in XBRL format. XBRL is a computer software language that labels companies' financial and other data with codes from standard lists (taxonomies) so that investors and analysts can more easily locate and analyse desired information. XBRL reporting would be required for registrants using either US GAAP or IFRSs as published by the IASB. The transition would take three years:
- Companies with worldwide public float over $5 billion (approximately the 500 largest SEC registrants) using US GAAP would be required to make financial disclosures using XBRL for fiscal periods ending in late 2008. That data would become available in early 2009.
- The remaining companies using US GAAP would provide XBRL data over the following two years (mid-cap accelerated filers in 2009 and small-cap in 2010).
- Companies using IFRSs would provide the disclosure for fiscal periods ending in late 2010.
The XBRL disclosure would be provided as additional exhibits to annual and quarterly reports and registration statements. Companies also would be required to post this information on their websites. Click for:
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15 May 2008: Near-final draft of Amendments to IFRS 1
The IASB has made available to subscribers a PDF version of a near-final draft of Amendments to IFRS 1 and IAS 27 – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate. Here is the IAS Plus Project Summary.
15 May 2008: European Commission recommendation on auditor oversight
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The European Commission has issued a Recommendation on 'external quality assurance for statutory auditors and audit firms auditing public interest entities'. It provides guidance to Member States for establishing an independent and effective system of inspections on the basis of the Directive on Statutory Audit.
The Recommendation suggests:
- Strengthening the role of the public oversight authorities in inspecting audit firms
- Strengthening the independence of the inspection system and inspections teams
- Policies and procedures for ensuring that inspectors, experts, and the management of the quality assurance system are objective and independent
- Enhanced transparency on the outcome of the inspections
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Click for:
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15 May 2008: PCAOB plans round-table on reliance on non-US auditor oversight
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The US Public Company Accounting Oversight Board (PCAOB) will host a public round-table discussion in Washington on 25 June 2008 on a proposal regarding the circumstances in which it could rely fully on non-US auditor oversight bodies in the context of inspections. Representatives of investors, registered accounting firms and foreign regulators will participate in the discussion. The round-table will focus on the PCAOB's proposed Policy Statement: Guidance Regarding Implementation of PCAOB Rule 4012. The comment period closed on 4 March 2008. You can find Information about the Proposal here on IAS Plus. The proposal and the comment letters received are available on the PCAOB's website: www.pcaobus.org.
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15 May 2008: Study on impact of converging to IFRSs in Hong Kong
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The Hong Kong Institute of Certified Public Accountants has published Consultancy on the Impact of HKFRS Convergence Project: A Review of the Hang Seng Index Constituent Stocks. The Hang Seng Index (HSI) is an index currently reflecting 43 leading stocks listed on the Stock Exchange of Hong Kong. Hong Kong Financial Reporting Standards (HKFRSs) were fully converged with IFRSs effective 1 January 2005. The HKICPA commissioned this research to assess the impact on HSI constituent companies of adopting the converged HKFRSs in 2005 and to identify the resulting changes in operating performance and financial position. The study also identified specific standards that contributed the most to those changes. The study focussed on the 32 HSI companies that adopted HKFRSs in 2005 (others had elected earlier adoption). The study is copyright HKICPA, and we are grateful to them for giving us permission to post it on IAS Plus. Click to Download the HKICPA Study (PDF 1,472k). Selected findings:
Impact on profit:
- Average increase in net income was 53.63% (median increase 2.59%) – hence wide disparity in impact.
- The five standards that had the greatest effect on profit were:
- HKAS 32 HKAS 39 (Financial Instruments),
- HKFRS 2 (Share-based Payment),
- HKAS 40 (Investment Property) and Int 21 (Income Taxes – Recovery of Revalued Non-Depreciable Assets),
- HKAS 17 (Leases), and
- HKFRS 3 (Business Combinations) and HKAS 36 (Impairment of Assets)
- On average, HKFRS 2 and HKAS 17 reduced profit, while the others increased it.
- The study did not find any discernible relationships between the magnitude of profit change and company characteristics such as size, debt level, profitability level, or change before the new standards.
Impact on opening equity:
- On average, the new standards decreased opening equity by 2.00% (median decrease 0.92%).
- The five standards that had the greatest effect on opening equity were:
- HKAS 32 and HKAS 39 (Financial Instruments),
- HKAS 40 (Investment Property) and Int 21 (Income Taxes – Recovery of Revalued Non-Depreciable Assets),
- HKAS 17 (Leases),
- HKAS 16 (Property, Plant and Equipment), and
- HKFRS 3 (Business Combinations) and HKAS 36 (Impairment of Assets)
- On average, HKAS 32/HKAS 39 and HKFRS 3/HKAS 36 reduced equity, while the others increased it.
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14 May 2008: FASB's Valuation Resource Group discusses 24 fair value issues
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The US Financial Accounting Standards Board established a Valuation Resource Group (VRG) to provide the FASB staff with information about implementation issues regarding fair value measurements used in financial reporting. The VRG met on 8 May 2008 and discussed four new valuation issues, as well as twenty ongoing issues. Deloitte & Touche LLP (United States) has published the 13 May 2008 edition of the Heads Up Newsletter (PDF 136k) explaining the four new and twenty ongoing issues:
| Four New Valuation Resource Group Issues |
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- VRG Issue No. 2008-7: Observable Versus Unobservable Fair Value Measurements in the Current Credit Environment – Factors Affecting the Reliability of an Observable Input
- VRG Issue No. 2008-8: Determining Whether a Discount Should Be Applied for a Restriction on Sale
- VRG Issue No. 2008-9: Employee Benefit Plans – Fair Value of Participant Loans
- VRG Issue No. 2008-10: Contingent Liabilities – Using an Expected Value Computation
| | Twenty Ongoing Valuation Resource Group Issues |
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- VRG Issues No. 2007-1: Fair Value of Mortgage Loans and No. 2007-2: Unit of Account – Decomposition of an Asset
- VRG Issue No. 2007-3: How to Factor Liquidity Into Fair Value Measurements
- VRG Issue No 2007-4: Elements of Consideration for Determination of 'Active Market'
- VRG Issue No. 2007-5: Determination of Principal Market
- VRG Issues No 2007-6: Highest and Best Use: Defensive Value and No. 2008-1: Accounting for an Asset That the Acquirer Does Not Intend to Use or Intends to Use in a Way Other Than Its Highest and Best Use
- VRG Issue No. 2007-7: Assets Acquired Through an Auction
- VRG Issue No 2007-8: Assets and Liabilities Without Markets
- VRG Issue No. 2007-9: Pension Plan Disclosures
- VRG Issue No 2007-10: Use of Net Asset Value in Fund-of-Funds Investments
- VRG Issue No. 2007-11: Fair Value of a Liability With Third-Party Guarantees
- VRG Issue No 2007-12: Highest and Best Use – Land Example
- VRG Issue No. 2007-13: Definition of 'Significant' in Evaluating Inputs for Fair Value Hierarchy Classification
- VRG Issue No 2007-14: Accounting for Transaction Costs in Determining the Fair Value of an Investment
- VRG Issue 2008-2: Customer Relationships
- VRG Issue 2008-3: Valuation of Intangible Assets Using the 'Current Replacement Cost' Method
- VRG Issue 2008-4: Meaning of 'Legally Permissible' in Assessing the Highest and Best Use
- VRG Issue 2008-5: Fair Value of Inventory
- VRG Issue 2008-6: Allocation of Portfolio-based Credit Adjustments for Hedge Effectiveness Testing
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14 May 2008: ECB's Trichet urges IASB action on off-balance sheet entities
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In a speech at the Corriere della Sera International Forum 2008 in Milan on 12 May 2008, Jean-Claude Trichet, President of the European Central Bank, said that "the International Accounting Standards Board (IASB) and other relevant standard-setters should take urgent action to improve the accounting and disclosure standards for off-balance sheet entities and to enhance guidance on fair value accounting, particularly on valuing financial instruments in periods of stress".
He also called on banks and other financial institutions adopt the recent recommendations of the Financial Stability Forum (FSF), endorsed by the G7 Finance Ministers and Central Bank Governors, in their upcoming half-year financial reports. Those recommendations urge financial institutions to expand their disclosures of qualitative and quantitative information about risk exposures, write downs, fair value estimates for complex and illiquid instruments, and off-balance-sheet entities. Click to download Mr Trichet's Speech (PDF 66k).
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14 May 2008: Two more IFRS e-Learning modules are released
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We are pleased to announce that two new Deloitte IFRS e-Learning modules have been released:
- IFRIC 12 Service Concession Arrangements
- IFRS 8 Operating Segments
This brings to 37 the number of modules that are available for download, without charge, by clicking on the light bulb icon on the IAS Plus home page. 34 of the 35 existing modules were updated in April to make them technically accurate for the IFRSs in force at 31 December 2007. The one remaining module, IAS 32/39 (Part 1), is under final review, and we expect to release it shortly.
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13 May 2008: Deloitte letter to SEC on 'foreign issuer enhancements'
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Deloitte Touche Tohmatsu (DTT) and its member firms have submitted a Letter of Comment to the US SEC (PDF 29k) on the SEC's proposed rule Foreign Issuer Reporting Enhancements. The SEC Release (PDF 225k) proposes several amendments relating to the current filing and disclosure requirements of foreign private issuers (FPIs), including the acceleration of filing dates.
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The movement toward IFRSs as a basis for financial reporting in jurisdictions outside the United States will affect many of these proposals. Accordingly, we suggest that to achieve a more consistent transition, the Commission give particular attention to transitioning certain of the proposals in the release to correspond with when FPIs are required to use IFRSs.
Although the Commission is not proposing a broader current reporting disclosure regime for FPIs, we believe that current reporting requirements should be given further consideration, preferably in a separate release. Currently, FPIs are not subject to the disclosure requirements of Form 8-K. Instead they are subject to the requirements of Form 6-K, whose disclosure derive from information made public in the issuer's home country. This disclosure regime differs substantively from the 'current' disclosure regime of domestic registrants. We believe that the current reporting requirements for multinational companies that have reporting obligations in many jurisdictions should be consistent. Therefore, we encourage the SEC to work through the International Organization of Securities Commissions to address the broader issue of current reporting requirements by companies listed across borders.
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Past Deloitte letters of comment are Here.
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13 May 2008: IASCF Trustees will hold round-table on constitution proposals
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The IASC Foundation Trustees have Announced (PDF 55k) that they are going to hold a public round-table discussion in advance of issuing their proposals on Phase 1 of the IASCF 2008 Constitution Review. Phase 1 is addressing whether to:
- Create a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities
- Expand the IASB to 16 members from the present 14, and provide for geographical balance
Details of the public round-table have not yet been announced. In announcing the round-table, the Trustees released an updated timeline for the Constitution Review (the previous timeline is Here):
| Updated Timeline for the 2008 Constitution Review |
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| March-April 2008 | Trustees developed proposals and document for the Constitutional Review. |
| May-June 2008 | Trustees to meet interested parties to discuss proposals before publication of document on the first part. |
| June 2008 | Publication of proposals on public accountability and IASB size/geographical diversity – the first part of the Constitution Review. Comment period to end in August or September 2008. |
| June 2008-August 2008 | Trustees to continue to meet interested parties to discuss proposals on the first part. |
| September 2008 | Constitution Committee to develop proposals to present to full Trustees, based upon analysis of comment letters and other input on the proposals in the first part. |
| October 2008 | Trustees to conclude the first part of the Constitution Review at Beijing meeting. Changes to take effect for 1 January 2009. |
| October or November 2008 | Trustees to publish a discussion document seeking views on other issues to be incorporated as part of the Constitution Review – the second part of the Constitution Review. |
| October 2008-January 2009 | Trustees to meet interested parties to discuss the second part of the Constitution Review. |
| February 2009 | Trustees to develop list of issues and the Constitution Committee to develop proposals. |
| April 2009 | Trustees to publish other constitutional proposals on issues identified. |
| April 2009-October 2009 | Trustees to hold a series of meetings, possibly including public round tables, on proposals. |
| October-November 2009 | Conclusion of the Constitution Review. |
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13 May 2008: Comparison of IFRSs and Thailand GAAP
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Deloitte Touche Tohmatsu Jaiyos (Thailand) has published IFRS and GAAP in the Kingdom of Thailand (PDF 9,283k). This 59-page booklet:
- Explains the various sources of GAAP in the Kingdom of Thailand
- Reviews the process for issuing Thai Accounting Standards (TAS)
- Distinguishes between existing TAS that have been approved by the Federation of Accounting Professions and those that have become effective by approval by the Board of Supervision and publication in the Royal Gazette
- Identifies those TAS from which non-public limited companies may elect to be exempted
- Sets out some of the key differences between TAS and IFRSs at 31 March 2008
- Summarises the plans for convergence of TAS and IFRSs
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12 May 2008: FASB adopts a US GAAP hierarchy
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The US Financial Accounting Standards Board has issued FASB Statement No. 162 The Hierarchy of Generally Accepted Accounting Principles. FAS 162 sets out the framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP. Up to now, the US GAAP hierarchy has been defined in the US auditing literature. Because of the interrelationship with the auditing literature, FAS 162 will be effective 60 days following the SEC's approval of the PCAOB's amendments to their auditing standards. Statement 162 may be downloaded without charge from www.fasb.org. Click for FASB News Release (PDF 14k).
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11 May 2008: IFRSs – What Should US Companies Do?
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The latest edition of the Audit Committee Brief (PDF 706k) from Deloitte & Touche LLP (USA) includes an overview of what companies should do with respect to International Financial Reporting Standards. This graphic from the newsletter illustrates some potential impacts to think about:
This issue of Audit Committee Brief also includes:
- A summary of the Public Company Accounting Oversight Board's (PCAOB's) Proposed Auditing Standard No. 7, Engagement Quality Review
- A summary of the Securities and Exchange Commission (SEC) Advisory Committee's progress report
- Highlights from the Center for Audit Quality's Audit Committee Survey Results
- An outline of what an eXtensible Business Reporting Language (XBRL) mandate means to you
- An overview of pension plan assets
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11 May 2008: Disclosure of expected changes in accounting policies
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The Canadian Securities Administrators (CSA) have just released a staff notice addressing IFRS pre-adoption disclosure requirements for Canadian reporting issuers. CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to IFRSs marks another significant step in Canada's transition to IFRSs. This will help companies assess the expected impact on their next interim and annual Management's Discussion and Analysis. Deloitte (Canada) will provide a more comprehensive analysis of these disclosure requirements in the next edition of the Countdown newsletter. Full details of the proposed timing, nature and extent of the disclosures can be found in the press release issued by the CSA:
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10 May 2008: Reports from SEC advisory committee on improvements to financial reporting
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In June 2007, the US SEC formed an advisory committee to study the causes of complexity of the US financial reporting system and to recommend "how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting". In February 2008, the advisory committee published a Preliminary Report with 12 Proposals including reducing accounting policy options, changes to FASB's governance and due process, and guidance on materiality and error corrections. The advisory committee held its sixth meeting on Friday, 2 May 2008, at which time four subcommittees presented their interim reports:
The standards-setting subcommittee said, in its report, that it is deliberating whether to recommend that the full advisory committee consider:
- expressing high-level support for moving to a single set of high quality accounting standards in the US,
- supporting the SEC's efforts to develop an international convergence roadmap, and
- encouraging all participants in the financial reporting community to increase coordination to foster consistency in global interpretations and avoid jurisdictional variants of IFRSs.
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Click for Information on the Advisory Committee on the SEC Website.
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9 May 2008: AICPA proposes to add IFRS testing to US CPA exam
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The American Institute of Certified Public Accountants has invited comment on a proposed update of the content of the CPA examination used throughout the United States. Among other things, the AICPA is proposing to include IFRSs on the exam for the first time. Initially, the IFRS conceptual framework would be tested. IFRS testing would expand if IFRSs become generally accepted in the US. "The CPA Examination tests the knowledge and skills that are relevant for entry-level CPAs. In doing so, the public is protected," said Craig Mills, executive director of examinations for the AICPA. "That's why the AICPA Board of Examiners, which oversees the exam, is already assessing strategies to incorporate IFRSs into the exam." Comments on the proposal are due by 31 July 2008. Click for:
An excerpt from the proposal:
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Currently the Financial Accounting and Reporting (FAR) section tests knowledge and understanding of accounting principles generally accepted in the United States of America (US GAAP) for business enterprises, not-for-profit organizations, and governmental entities. Growing acceptance of IFRS in the financial reporting community, as well as recent actions of the Securities and Exchange Commission (SEC) are indicators that IFRS could become a body of accounting principles generally accepted in the United States of America.
The proposed Content Specification Outlines for FAR include within Area I topics related to the conceptual framework, standard-setting processes and regulatory filing requirements for financial statements. Included within these topics will be questions related to International Financial Reporting Standards (IFRS). If IFRS becomes generally accepted in the United States of America, it would become eligible for expanded testing within Area I of the FAR section, as well as testing in Area II (Financial Statement Accounts) and Area III (Unique Transactions, Events & Disclosures) within the FAR section.
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9 May 2008: Agenda for May 2008 IASB meeting
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The International Accounting Standards Board will hold its May 2008 meeting at the IASB's offices, 30 Cannon Street, London on Tuesday to Friday 20-23 May 2008. The meeting is open to public observation and will be webcast. The tentative agenda is shown below.
20-23 May 2008, London
Tuesday 20 May 2008 (Afternoon only)
Wednesday 21 May 2008
Thursday 22 May 2008 (Afternoon only)
Friday 23 May 2008 (Morning only)
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9 May 2008: Notes from the May 2008 IFRIC meeting
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The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 8 May 2008. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting. At the meeting, the IFRIC approved two final Interpretations, subject to drafting and IASB written ballot:
- Agreements for the Construction of Real Estate (effective for annual financial statements for periods beginning on or after 1 January 2009)
- Hedges of a Net Investment in a Foreign Operation (effective for annual financial statements for periods beginning on or after 1 October 2008)
Notes from the IFRIC Meeting
8 May 2008 |
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 D21 Real Estate Sales
The session was devoted to final re-deliberations and approval of a final Interpretation.
Consideration of outstanding issues
(a) Clarification of scope
As part of the clarification of the scope of the Interpretation, the IFRIC agreed that the title of the Interpretation should be changed to something like 'Agreements for the Construction of Real Estate'. This reflects the change in emphasis away from real estate sales and the determination of whether an agreement involving real estate construction activities is within the scope of IAS 11 or IAS 18.
The IFRIC concurred with staff suggestions that the Interpretation be clarified to identify only two parties: 'the entity' and 'the buyer'. It is the entity that contracts with the buyer. The entity may also be the person performing the construction services but may only perform services directly related to a construction contract. The IFRIC agreed that the Interpretation should address the following agreements involving the construction of real estate:
- Construction contracts (IAS 11 contracts)
- Contracts for the rendering of services directly related to construction contracts (IAS 18)
- Contracts for the sale of goods (that is, contracts failing the definition of construction contracts in IAS 11 but still involving the construction of real estate (IAS 18)).
The IFRIC asked for clarification whether IAS 18 IE 9 would be deleted as was intended originally. The Chairman suggested that this be referred to the Board for resolution when it considers the Interpretation prior to issue. It seemed that the IFRIC favoured the deletion of the IE 9, but this was not stated explicitly.
(b) Application of IAS 18
The IFRIC discussed the notion of a 'continuous transfer' by the seller to the buyer of 'control and the significant risks and rewards of ownership of the work in progress in its current state as construction progresses'.
The IFRIC discussed various aspects of this principle, but eventually agreed that it was an appropriate interpretation of IAS 18.14. However, the Interpretation, Basis for Conclusions and Illustrative Examples needed to be explicit that all the conditions in that paragraph must be satisfied before the seller would be able to recognise revenue. In particular, IFRIC members noted that the condition in IAS 18.14(b), 'the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold', would rarely be met in a typical real estate construction agreement.
The IFRIC noted that there was a tension between the percentage of completion method in IAS 11 and the method required in IAS 18. In particular, the two methods produce different revenue recognition patterns. The IFRIC agreed that it was trying to say that contracts involving the construction of real estate may not be IAS 11 contracts, but facts and circumstances might result in the conditions in IAS 18.14 being met at several points during the life of the contract, which would result in a revenue recognition pattern similar to IAS 11. Thus, in a single agreement for the delivery of multiple goods (for instance, residential units in a development), it would be likely that the entity would recognise revenue on each unit as the conditions in IAS 18.14 were met with respect to that unit.
IFRIC members expressed concern that some of the material accompanying the Interpretation (especially the Illustrative Examples) muddied the principle in the Interpretation. In particular, meeting the conditions in IAS 18.14 required proper consideration of the substance of the agreement as well as legal or jurisdictional factors. The staff undertook to review the material in the Basis for Conclusions and the Illustrative Examples related to this principle and circulate it to IFRIC members out of session.
The IFRIC agreed that, since the Interpretation (and in particular the notion of 'continuous transfer') was based explicitly on principles in IAS 18, there was no reason to restrict application of the Interpretation by analogy. IFRIC members suggested that, given the rigorous conditions in IAS 18.14, it was unlikely that 'continuous transfer' could occur outside real estate contracts.
(c) Identification of a component for the sale of land
The IFRIC agreed that the identification of a separate component for the sale of land must be undertaken when analysing any potential separate components. In some cases, a sale of land would be identified clearly at an early stage of analysing a transaction. In other cases, it would be clear that no separate component for the sale of land can be identified, in other words, the right to the constructed elements and the underlying land are not separate assets.
(d) Disclosure
The IFRIC agreed that the disclosures required by IAS 11.39-45 contained the information most likely to be of use to users of the financial statements. However, they were reluctant to require such disclosure explicitly in the Interpretation.
However, the IFRIC agreed to draw attention to the requirements in IAS 1.117, .122, and .125 regarding the application of accounting policies; the significant judgements involved in applying those policies; and any sources of estimation uncertainty involved. In addition, the Interpretation will observe that the disclosures in IAS 11 provide users the most appropriate information in the circumstances addressed in the Interpretation.
Flowchart and Illustrative Examples
The IFRIC agreed that a flowchart developed by the staff analysing a single agreement including the construction of real estate should be included in the material accompanying the Interpretation. In addition, subject to amendments to address IFRIC members' comments, the Illustrative Examples should also be issued as non-authoritative guidance accompanying the Interpretation.
Scope: should the scope be extended explicitly beyond contracts involving real estate?
The IFRIC agreed that the scope should not be extended explicitly beyond contracts involving the construction of real estate. The IFRIC had already agreed that the Interpretation could be applied by analogy. Any explicit extension of scope would trigger re-exposure.
Re-exposure
The IFRIC reviewed the triggers in the Due Process Handbook for the IFRIC that would require re-exposure and agreed that the changes made to the Interpretation since exposure did not trigger re-exposure.
Effective date
The IFRIC agreed to recommend to the IASB that the Interpretation be effective for annual financial statements for periods beginning on or after 1 January 2009. Transition would be in accordance with IAS 8.
Approval of the Interpretation
The Chairman asked whether any IFRIC member would dissent from issuing the Interpretation. No members indicated that they would dissent. The Interpretation was approved unanimously.
Next steps
The IFRIC will complete its review of the final text in time for the Interpretation to be sent to the Board for approval by written ballot at the June IASB meeting. If approved, the Interpretation would be issued before the end of June 2008.
D22 Hedges of a Net Investment in a Foreign Operation
The IFRIC discussed a revised draft of the Interpretation reflecting the decisions made at previous meetings.
Consideration of outstanding issues
The main changes made to D22 since it was exposed for comment are as follows:
- Clarification that the carrying amount of the net assets of a foreign operation that may be hedged in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has hedged all or part of the net assets of that foreign operation.
- Clarification that the assessment of hedge effectiveness is not affected by the method of consolidation (direct or step-by-step).
- Additional guidance on what amounts should be reclassified from equity to profit or loss as reclassification adjustments on disposal of the foreign operation. The revised draft clarifies that the consolidation method (direct or step-by-step) may affect the amount included in the foreign currency translation reserve (FCTR) in respect of the individual foreign operations, in particular, "(w)hen the hedging instrument is not held by the parent entity hedging its net investment, the use of the step-by-step method of consolidation may result in the reclassification to profit or loss of an amount different from that used to determine hedge effectiveness". In this case an entity may (but is not required to) eliminate this difference "by retrospectively determining the amount relating to that foreign operation using the direct method of consolidation".
- Inclusion of Application Guidance that replaces all Illustrative Examples in D22.
- Additional transitional provisions stating that any existing hedge relationships that do not meet the conditions for hedge accounting in the Interpretation should be discontinued prospectively in accordance with the requirements of IAS 39.
One IFRIC member questioned whether some language in the draft Interpretation may undermine the IFRIC consensus that the method of consolidation has no impact on hedge effectiveness and where the hedge instrument can be held. The IFRIC decided to remove this language; in particular to delete the last sentence of paragraph 12 of the draft Interpretation stating "(h)owever, different methods of consolidation may affect the foreign currency risk that can be hedged merely due to the mechanics of the consolidation methods (see Appendix AG4)".
The IFRIC also decided to clarify the application guidance relating to paragraphs 11 and 13 of the draft Interpretation. Among other things paragraphs 11 and 13 state that "the carrying amounts of the net assets of a foreign operation that may be designed as the hedged item in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has applied hedge accounting for all or part of the net assets of that foreign operation" and that "(a)n exposure to foreign currency risk arising from a net investment in a foreign operation may qualify for hedge accounting only once in the consolidated financial statements". Some IFRIC members noted that the application guidance in AG7 (third bullet) and AG9 relating to is difficult to understand and may be misleading. The staff was asked to clarify the application guidance to better reflect the consensus.
Some IFRIC members thought the question which amount is to be reclassified from equity to profit or loss as a reclassification adjustment on disposal of the foreign operation is an important practical issue and suggested that an example be included. One IFRIC member offered to provide such an example to the staff. The IFRIC decided that this example should be examined by the staff and included as an illustrative example if it is considered helpful.
Re-exposure
The IFRIC reviewed the triggers in the Due Process Handbook for the IFRIC that would require re-exposure and agreed that the changes made to the Interpretation since exposure did not trigger re-exposure.
Effective date
The IFRIC agreed to recommend to the IASB that the Interpretation be effective for annual financial statements for periods beginning on or after 1 October 2008. The Interpretation should be applied prospectively with retrospective application in accordance with IAS 8 being permitted.
Approval of the Interpretation
The Chairman asked whether any IFRIC member would dissent from issuing the Interpretation. No members indicated that they would dissent. The Interpretation was approved unanimously.
Next steps
The IFRIC will complete its review of the final text in time for the Interpretation to be sent to the Board for approval by written ballot at the June IASB meeting. If approved, the Interpretation would be issued before the end of June 2008.
Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11 IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis
The IFRIC discussed comments received on the IASB's exposure draft of proposed amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2–Group and Treasury Share Transactions – Group Cash-settled Share-based Payment Transactions (the ED).
The staff noted that this ED was being discussed with the IFRIC because the IASB's ED was triggered by a reference from the IFRIC to the IASB.
The staff noted that respondents expressed general agreement with the proposals regarding scope and measurement for group arrangements between parent and subsidiary but that severe concerns were raised regarding the application of the proposals to arrangements other than those between parent and subsidiary.
Scope and classification
The main concerns raised by constituents were:
- A contribution in equity from parent should not be recorded for arrangements other than those between parent and subsidiary.
- There are inconsistencies between the scope of IFRS 2 and IFRIC 11 as proposed and, therefore, the scope and terminology should be aligned among these IFRSs.
- The ED extends the scope of IFRS 2 on a case-by-case basis. Instead the definitions of 'equity-settled share-based payments' and 'cash-settled share-based payments' in Appendix A of IFRS 2 should be amended.
Alternatively, a more comprehensive project could be undertaken to amend IFRS 2 and in this context the main principles of IFRIC 11 and IFRIC 8 could be incorporated in IFRS 2.
Classification and measurement
The main concerns raised by constituents were:
- A classification as cash-settled share-based payments in the financial statements of the subsidiary would be inappropriate since the subsidiary has no liability in either of the arrangements described in the ED.
- The ED has not articulated the IFRS principle for the 'push-down accounting' of the parent's liability in the financial statements of the subsidiary.
- Remeasurement: The changes in the fair value of the parent's liability should not be recorded in the subsidiary's profit or loss since these changes would be changes in the parent's liability.
The IFRIC had a very preliminary discussion of some of these issues and made suggestions to the staff, but no decisions were requested or made.
Project plan/ way forward
The IFRIC agreed to participate in assisting the IASB to redeliberate issues in the ED in light of respondents' comments. Specifically, it will address issues related to scope and classification in July 2008 and issues related to measurement at its September 2008 meeting. The IASB will discuss the IFRIC's conclusions at the October 2008 IASB meeting. If no further Board discussion is required, the amendments to IFRS 2 and IFRIC 11 should be issued in December 2008.
Review of Tentative Agenda Decisions published in March 2008 IFRIC Update
The IFRIC confirmed its decisions not to take the following items to the Agenda:
- IAS 19 Employee Benefits – Settlements
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets-Deposits on returnable containers
The Agenda Decision on IAS 19 was agreed as issued in the March 2008 issue of IFRIC Update, without amendment.
The IFRIC agreed to amend the third paragraph of the Agenda Decision on IAS 37 included in the March 2008 issue of IFRIC Update as follows:
In circumstances in which the containers are derecognised as part of the sale transaction, either completely at the time of the first sale or partially by depreciation over a number of sales, the obligation is an exchange of cash (the deposit) for the containers (non-financial assets). Whether that exchange transaction occurs is at the option of the customer. Because the transaction involves the exchange of a non-financial item, it does not meet the definition of a financial instrument in accordance with IAS 32 and is therefore is not within the scope of IAS 39.
The Agenda Decisions will be published in the May 2008 IFRIC Update.
Staff Recommendations for Tentative Agenda Decision
IAS 39 Financial Instruments: Recognition and Measurement – Applying the effective interest rate method
The IFRIC considered a request for guidance on the application of the effective interest rate method (EIRM) to a debt instrument with future cash flows (principal and interest) linked to changes in an inflation index.
The request was limited to 'inflation-linked instruments' that are not classified at fair value through profit or loss and in which the embedded derivative (the inflation linked mechanism) is determined to be closely related to the host contract.
The following views were discussed:
View A: Apply AG 7 of IAS 39
AG7 of IAS 39 applies to floating rate financial instruments and states that re-estimations of cash flows alter the effective interest. AG7 of IAS 39 assumes that "(i)f a floating rate financial asset or floating rate financial liability is recognised initially at an amount equal to the principal receivable or payable on maturity, re-estimating the future interest payments normally has no significant effect on the carrying amount of the asset or liability".
Supporters of View A argue that an inflation-linked instrument is analogous to a floating rate instrument because varying interest amounts are a contractual term of the instrument. Consequently, changes in the inflation index result in changes to the instrument's effective yield and it would be inappropriate to determine a single effective interest rate for the life of the instrument.
View B: Apply AG 8 of IAS 39
According to AG8 of IAS 39 re-estimations of cash flows alter the carrying amount of the financial instrument since the carrying amount is to be recalculated using the original effective interest rate.
Supporters of View B argue that an inflation-linked instrument is not within the scope of paragraph AG7 because the changes in estimated future cash flows do not reflect movements in market interest rates. In their view paragraph AG8 applies to changes in estimated future cash flows other than those that are explicitly addressed in paragraph AG7.
View C: Analogise to the requirements of IAS 29 Financial Reporting in Hyperinflationary Economies
The IFRIC agreed with a staff analysis that it would be inappropriate for entities in non-hyperinflationary economies to analogise to IAS 29.
An IASB Observer noted that this issue might be resolved by applying paragraph AG6 of IAS 39; that is, if the link to an inflation index represents a repricing to market rates, no adjustments may need to be made.
The IFRIC unanimously decided not to add this item to its agenda as any guidance would be more in the nature of application guidance.
The staff was asked to redraft the proposed agenda decision by referring to AG6 rather than AG7 and AG8 and to submit the redrafted version to the IFRIC as soon as possible. The IFRIC will then examine whether the inclusion of AG6 requires further research. If yes, the issue will be discussed again at the July meeting. Otherwise a tentative agenda decision will be published in the IFRIC Update for this meeting.
Staff Recommendations for New Agenda Item
The staff presented a project plan for an agenda request on rate regulated liabilities.
In January 2008 the IFRIC received a request on whether regulated entities should be permitted or required to recognise a liability (or an asset) as a result of price regulation by regulator bodies or governments, that is, to defer excess profits (costs) that will be returned through future price decreases (or increases).
The IFRIC agreed with a staff analysis that the issue is widespread and has practical relevance. In addition, some IFRIC members noted that divergent interpretations exist in practice mainly because national GAAPs allow a variety of accounting treatments.
The IFRIC agreed with the staff that the question whether a consensus can be reached on a timely basis mainly depends on the definition of the scope.
The IFRIC asked the staff to prepare a paper on the scope of the potential agenda item for discussion at the July meeting.
Administrative Session – IFRIC Work in Progress
The IFRIC Co-ordinator updated the IFRIC on the current working plan of the IFRIC. The IFRIC Co-ordinator noted that the staff plans to prepare a paper on 'accounting for trailing commissions' for consideration as an agenda item and that several other requests were received recently.
Main topics of the July IFRIC meeting will be the comment letter analyses of D23 Distributions of Non-cash Assets to Owners and D24 Customer Contributions, the redeliberation of amendments to IFRS 2 and IFRIC 11 and the discussion of several tentative agenda decisions.
The IFRIC Co-ordinator also noted that a separate session on preliminary discussion of potential new agenda items may be required.
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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8 May 2008: International Banking Federation report on accounting for financial instruments
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The International Banking Federation (IBFed) has published Accounting for Financial Instruments: A Conceptual Paper (PDF 327k). IBFed is a consortium of banking associations in Australia, Canada, Europe, Japan, and the United States. The paper sets out the position of the IBFed on "the extent to which the fair value measurement meets the needs of the user community and the objectives of financial reporting". The overall conclusions:
- Fair value measurement provides an appropriate accounting base for financial instruments held for trading purposes or otherwise managed on a fair value basis. However, full fair value measurement of financial instruments would overstate the extent to which instruments are held for trading or managed on a fair value basis within the business and the extent to which deep and liquid markets exist. These are highly significant factors in determining the relevance of fair value in financial reporting.
- A mixed measurement model provides investors with better information for evaluating financial institutions. It requires fair value measurement for assets and liabilities managed on a fair value basis and recognizes that not all financial instruments – let alone non-financial assets and liabilities – are managed on a fair value basis or are even capable of reliable fair value measurement. Where an entity does not manage instruments on a fair value basis, amortised cost is the more appropriate way to estimate future cash flows. Fair value information is already disclosed in footnotes, which are an integral part of financial statements and is a more suitable format for providing the information to investors.
- Reality is more complex than can be communicated in a fair value model. Relevant performance reporting will never be achieved if the framework for financial reporting sticks rigidly to either an amortised cost model or a fair value model. A mixed measurement model represents a principles-based approach to measurement by acknowledging the fact that different entities may follow different business models. Instead of the IASB determining that one approach offers a superior model to that of others, the aim should be for the accounting standards to accommodate the various business models and circumstances in which financial instruments are used. As widely recognized at the IASB Roundtables on measurement, a mixed model is more likely to result in useful reporting.
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8 May 2008: EC report on IFRSs to European Council and Parliament
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The European Commission has submitted to the European Council and European Parliament a Report on the Operation of Europe's IAS Regulation (PDF 181k). That regulation, adopted in 2002, (a) required IFRSs in the consolidated financial statements of all companies listed on regulated European securities markets starting in 2005 and (b) gave member states the option to require or permit IFRSs in separate company (legal entity) statements and in the consolidated or separate statements of unlisted companies. The report contains an updated table of member states' uses of these options. The Commission analysed the consistency of application of the endorsed standards/interpretations in the EU for 2005 and reached a number of conclusions, summarised here:
- Overall, application of IFRSs has been a challenge for all stakeholders, but it has been achieved without disrupting markets or reporting cycles.
- There is a general perception among preparers, auditors, investors and enforcers that application of IFRSs has improved the comparability and quality of financial reporting and has led to greater transparency.
- Most stakeholders believe that the understandability of financial statements has generally improved, except for certain areas, where there seems to be room for improvement, notably on financial instruments, business combinations and share-based
payments.
- IFRS accounts are still influenced by national accounting traditions.
- The IFRS recognition and measurement provisions appear to have been applied more consistently and clearly than certain disclosure requirements.
- Options allowed by IFRSs, including those related to employee benefits, borrowing costs, and joint ventures, have been used in diverse ways by companies. Options in IFRSs for early application have also been widely used. However, options to widen application of fair value measurement have not been extensively used and use of the carve-out in IAS 39 is limited to very few banks. Enforcers have expressed concern and wish the number of options available in IFRSs to be reduced in the future.
The report also includes an analysis of the functioning of the endorsement process and related administrative requirements. The report concludes with this observation:
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In order to maintain the current high acceptance of IFRSs in the EU, it is important that stakeholders feel that the work programme of the IASB is addressing the right issues and that future standards/interpretations will provide suitable accounting solutions. Some stakeholders have expressed doubts about some of the accounting projects currently being prepared by the IASB. It is therefore crucial that EU institutions, Member States and stakeholders become involved in the standard-setting process as early as possible, as this enhances the quality of the work and increases the legitimacy and acceptance of future standards/interpretations. The way the IASB undertakes impact assessment in future will also be monitored carefully.
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7 May 2008: Deloitte partners co-author 2nd edition of Wiley IFRS guide
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Deloitte partners Abbas Ali Mirza and Magnus Orrell are co-authors, along with Prof Graham Holt, of the newly published second edition of Wiley IFRS: Practical Implementation Guide and Workbook. The 474-page book includes outlines of all IASs/IFRSs, practical insights, cases studies with solutions, illustrations, and multiple-choice questions with solutions. For more information, go to The Book's Web Page. |
6 May 2008: Joint Forum paper on customer suitability in sale of financial products
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The Joint Forum – a consortium of the Basel Committee, IOSCO, and IAIS – has released a paper entitled Customer Suitability in the Retail Sale of Financial Products and Services. Click to download:
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The customer suitability report considers how supervisors and regulated firms across the banking, securities, and insurance sectors deal with risks posed by the sale of unsuitable retail financial products. The Joint Forum reviewed both the disclosure of information to retail investors and requirements on firms to determine whether recommended investment products are suitable for such investors. The report focuses exclusively on requirements related to retail customers and products with a significant investment component. The Joint Forum evaluated investment-based or investment-linked insurance products, but not those insurance contracts that insure only against risk.
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Click here to go to our permanent page for resources relating to the Credit Crunch. By 'credit crunch' we mean the recent turmoil in the world's financial markets and responses to it from various international, regional, and national agencies.
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6 May 2008: Accounting Roundup – April 2008
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We have posted the April 2008 Edition of Accounting Roundup (PDF 299k) published by Deloitte & Touche LLP (USA). Topics covered in this issue include:
FASB Developments
- FASB Issues FSP Affecting Companies Emerging From Bankruptcy
- FASB Issues Guidance on Intangible Assets Subject to Renewal or Extension
- FASB Codification Updated for SEC Content
- FASB Updates Statement 133 Implementation Guidance
- FAF and FASB to Host Global Accounting Standards Forum
- FASB and China Accounting Standards Committee Sign Memorandum of Understanding
- Considerations of Credit Risk in Fair Value Hedge Effectiveness Assessments
SEC Developments
- SEC Adopts Amendments to Form S-11
- SEC Launches Web Page to Facilitate Mutual Fund Comparisons
- Why You Need to Know About XBRL
PCAOB Developments
- PCAOB Adopts New Independence and Ethics Rules
- PCAOB Announces 2008 Forums on Auditing in the Small Business Environment
GASB Developments
- GASB Proposes Changes to Concepts Statement 2
- GASB Adds Three New Projects to Agenda
International Development
- IASC Foundation Constitution Review
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You will find past issues of Accounting Roundup Here.
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5 May 2008: IFRSs are 'a highly positive achievement'
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In his Remarks at a Conference on US– EU Regulatory Cooperation (PDF 42k) sponsored by the US Chamber of Commerce on 30 April 2008, US Deputy Assistant Secretary of the Treasury Mark Sobel spoke of IFRSs as 'a highly positive achievement' for globalised financial markets. An excerpt:
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Accounting Convergence: Following up on the accounting 'roadmap' work, in late 2007, the SEC decided to abolish the requirement for reconciliation to US GAAP for foreign companies using IFRS as issued by the International Accounting Standards Board and solicited comment on the possibility of allowing domestic companies to file using IFRS. Noting the report published by the EC Services earlier this month that US GAAP meets the criteria established for recognition as 'equivalent' to IFRS, we look forward to a formal decision confirming this finding. We fully expect this to happen this year. It bears underscoring that this work, along with efforts to converge global accounting standards and strengthen international accounting governance, offers the prospect for firms to use one set of financial statements for their global activities, with all of the attendant benefits in terms of reduced costs and greater efficiencies. This is a hugely positive achievement, and the SEC and EU deserve tremendous praise for their hard work in past in bringing these efforts toward fruition.
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3 May 2008: Canadian financial institutions may not early-adopt IFRSs
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Although the Canadian Securities Administrators have invited comment on whether to permit publicly accountable Canadian entities to adopt IFRSs starting in 2009 – two years earlier than would be required by the Canadian Accounting Standards Board – the Canadian Office of the Superintendent of Financial Institutions (OSFI) has issued a Notice to All Federally Regulated Financial Institutions (FRFIs) (PDF 33k) instructing them not to adopt IFRSs early, mainly for regulatory comparability reasons. There are nearly 500 FRFI's in Canada. The OSFI notice states:
- All FRFIs are considered publicly accountable enterprises and must adopt IFRSs as required in AcSB's plan for fiscal years beginning on or after 1 January 2011.
- No early adoption will be allowed for FRFIs.
- All FRFIs must submit a semi-annual progress review on their plan to adopt IFRSs to OSFI within 30 days of the end of the period.
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1 May 2008: Near-final draft of 'annual improvements to IFRSs'
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The IASB has made available to its subscribers the near-final draft of this year's Annual Improvements to International Financial Reporting Standards. Annual improvements are relatively minor amendments to IFRSs. To access the near-final draft Click Here and then log in to eIFRSs on the IASB's website. We have Project Information on IAS Plus.
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1 May 2008: Heads Up on 'The Latest From the PCAOB'
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Deloitte & Touche LLP (United States) has published the 30 April 2008 Edition of the Heads Up Newsletter (PDF 119k) summarising some of the more significant recent activities of the US Public Company Accounting Oversight Board (PCAOB), including:
- the proposal of a new auditing standard on engagement quality review;
- amendment of the existing tax services rule for auditing firms (PCAOB Rule No. 3523, Tax Services for Persons in Financial Reporting Oversight Roles); and
- adoption of a new ethics and independence rule (PCAOB Rule No. 3526, Communication With Audit Committees Concerning Independence).
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