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31 January 2009: IASB proposes amendments to IFRICs 9 and 16
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Based on decisions reached at the IASB's January 2009 meeting, the Board has issued Exposure Draft ED/2009/1 Post-implementation Revisions to IFRIC Interpretations (Proposed amendments to IFRIC 9 and IFRIC 16). The proposals would amend IFRIC 9 Reassessment of Embedded Derivatives and IFRIC 16 Hedges of a Net Investment in a Foreign Operation as follows:
- IFRIC 9: Exclude from the scope of IFRIC 9 embedded derivatives in contracts acquired in combinations of entities or businesses under common control or in the formation of a joint venture. The proposed effective date is annual periods beginning on or after 1 July 2009 – in time for the effective date of IFRS 3 (2008).
- IFRIC 16: Allow entities to designate as a hedging instrument in a hedge of a net investment in a foreign operation an instrument that is held by the foreign operation that is being hedged. The ED proposes to amend IFRIC 16 paragraph 14 by deleting a parenthetical comment: '(except the foreign operation that itself is being hedged)'. The proposed effective date is annual periods beginning on or after 1 October 2008.
The IASB requests comments on the ED by 2 March 2009. Click for:
Note that the IASB has redesigned the covers of its pronouncements and proposals and has instituted a new numbering system for EDs (this one is ED/2009/1).
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31 January 2009: PCAOB staff guidance on internal control for SMEs
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The US Public Company Accounting Oversight Board (PCAOB) has published a 62-page guidance publication Staff Views An Audit of Internal Control Over Financial Reporting That Is Integrated With An Audit of Financial Statements: Guidance For Auditors of Smaller Public Companies. The PCAOB's objective in issuing the Guidance is to help auditors apply the provisions of PCAOB Auditing Standard 5 An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements to audits of smaller, less complex public companies. Click for:
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30 January 2009: IASCF forms Monitoring Board, enlarges IASB
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The IASC Foundation Trustees have announced important amendments to the IASCF Constitution effective 1 February 2009, including formation of a Monitoring Board and expansion of the IASB from 14 to 16 members. The Trustees approved the changes at their meeting in New Delhi, India, on 15 and 16 January 2009. Among the changes:
| CHANGES TO IASC FOUNDATION CONSTITUTION
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Monitoring Board
- A Monitoring Board (MB) of public authorities has been formed. The goal is to enhance public accountability of the IASC Foundation while not impairing the independence of the standard-setting process. (During the Trustees' deliberations and due process leading to these Constitution changes, this body has been referred to as the 'Monitoring Group' rather than 'Monitoring Board'.)
- The MB will initially comprise the relevant leaders of the European Commission, the Japanese Financial Services Agency, the US Securities and Exchange Commission, the Emerging Markets Committee of IOSCO, and the Technical Committee of IOSCO. The chairman of the Basel Committee on Banking Supervision will be a non-voting observer.
- The MB will participate in the Trustee nomination process and approve appointments to the Trustees.
- The MB will have oversight responsibilities in relation to the Trustees and their oversight of the IASB's activities, in particular the agenda-setting process and the 'IASB's efforts to improve the accuracy and effectiveness of financial reporting and to protect investors'.
- The MB 'may refer accounting issues to, and will confer regarding these issues with, the Trustees and the IASB Chair'. The MB may request a meeting with 'the Chairpersons of the Trustees and the IASB'.
- 'If the IASB determines that consideration of the issue(s) identified by the IASCF Monitoring Board is not advisable or that the issue(s) cannot be resolved within the time frame suggested by the Monitoring Board, the Trustees should:
- Call on the IASB to undertake all reasonable efforts to consider issue(s) in a manner that is consistent with the public interest, taking into account the protection of investors.
- Call on the IASB to explain its position through the Trustees regarding the IASB's position on the issue(s); and
- Promptly notify the IASCF Monitoring Board of the IASB's position.
- The IASCF has released the Memorandum of Understanding related to the Monitoring Board. This is in process of being signed by all parties.
International Accounting Standards Board
- The IASB will increase from 14 to 16 members (with up to 3 part-time members) by 2012. To ensure a broad international diversity, by July 2012 there will normally 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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30 January 2009: 9 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 27 January 2009 (PDF 105k).
The report reflects the recent endorsement of the following for use in Europe:
- IAS 32 and IAS 1 Amendments for Puttable Instruments and Obligations Arising on Liquidation
- Improvements to IFRSs – 2007 (affects various standards)
- IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity, or Associate
Currently, there are 9 IASB pronouncements are awaiting European Commission endorsement for use in Europe, as follows:
Standards
- IFRS 1 First-time Adoption of IFRS – Restructured standard (2008)
- IFRS 3 Business Combinations (2008)
Interpretations
- IFRIC 12 Service Concession Arrangements
- IFRIC 15 Agreements for the Construction of Real Estate
- IFRIC 16 Hedges of a Net Investment in a Foreign Operation
- IFRIC 17 Distributions of Non-cash Assets to Owners
Amendments
- IAS 27 Consolidated and Separate Financial Statements (2008)
- IAS 39 Amendments for Eligible Hedged Items
- IAS 39 Amendments for Reclassification of Financial Assets
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30 January 2009: IASB Board appointments
Mr Cooper | | 
Mr Engstrom |
The Trustees of the IASC Foundation have approved a change in the status of Stephen Cooper from part-time to full-time member of the IASB. Mr Cooper has served on the Board since August 2007. His term expires 30 June 2012. The Trustees also confirmed the reappointment of Jan Engstrom to serve a second five-year term as a member of the IASB from May 2009. Mr Engstrom joined the Board in May 2004.
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30 January 2009: IFRSs will be available without charge
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The Trustees of the IASC Foundation have announced that, in response to many public requests, the IASB's standards, but not the accompanying documents such as the basis for conclusions or implementation guidance, will be made available free of charge on the IASB's website.
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29 January 2009: Newsletter on IASB's revenue discussion paper
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter Discussion Paper Proposes New Basis for Revenue Recognition (PDF 117k). On 19 December 2008, the IASB and FASB jointly published a discussion paper (DP) that proposes a single, contract-based revenue recognition model. The model would apply broadly to contracts with customers, although contracts in the areas of financial instruments, insurance, and leasing may be excluded. Under the proposed model, revenue would be recognised on the basis of increases in an entity's net position in a contract with a customer.
With regard to recognition of revenue, the DP states:
In the proposed model, revenue is recognised when a contract asset increases or a contract liability decreases (or some combination of the two). That occurs when an entity performs by satisfying an obligation in the contract.
With regard to measurement of revenue, the DP states:
The boards propose that performance obligations initially should be measured at the transaction price – the customer's promised consideration. If a contract comprises more than one performance obligation, an entity would allocate the transaction price to the performance obligations on the basis of the relative stand-alone selling prices of the goods and services underlying those performance obligations.
Subsequent measurement of the performance obligations should depict the decrease in the entity's obligation to transfer goods and services to the customer. When a performance obligation is satisfied, the amount of revenue recognised is the amount of the transaction price that was allocated to the satisfied performance obligation at contract inception. Consequently, the total amount of revenue that an entity recognises over the life of the contract is equal to the transaction price.
Comment deadline is 19 June 2009. Here are Links to All Past IAS Plus Newsletters.
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29 January 2009: IFRIC 18 on 'customer contributions'
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The International Financial Reporting Interpretations Committee has issued IFRIC Interpretation 18 Transfers of Assets from Customers. This Interpretation is particularly relevant for the utility sector. It clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant, and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). IFRIC 18 addresses:
- The circumstances in which the definition of an asset under the IASB Framework is met.
- Recognition of the asset and the measurement of its cost on initial recognition.
- Identification of the entity's obligation to provide one or more separately identifiable services in exchange for the transferred asset,
- Recognition of revenue when the service obligation(s) is/are performed.
- Accounting when the customer transfers cash to acquire an asset instead of transferring a physical asset.
IFRIC 18 must be applied prospectively to transfers of assets from customers received on or after 1 July 2009. Earlier application is permitted provided the valuations and other information needed to apply to the Interpretation to past transfers were obtained at the time those transfers were made. Click for:
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29 January 2009: IASB webcast on revenue recognition paper
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The IASB has announced that these webcasts are postponed to 10 February 2009 'due to unforeseeable circumstances'.
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Twice on 3 February 2009, the IASB will hold live web presentations explaining the joint IASB-FASB discussion paper on revenue recognition published in December 2008. The discussion paper is open for public comment until 19 June 2009. The webcasts will allow listeners to submit questions to the presenters. They are free of charge. Details:
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29 January 2009: Employee benefits working group meeting notes
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The IASB's Employee Benefits Working Group met in London on 26 January 2009. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.
Notes from the Employee Benefits Working Group Meeting
26 January 2009 |
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Update on Project and Next Steps
After a short introduction from the chairman the staff gave an update of the latest outcomes from the Discussion of Post-employment Benefits at the January IASB meeting. The staff informed participants that the Board decided to follow a two step-approach for the short-term improvements to pensions accounting, with each step representing a separate exposure draft (ED), with final standards to be published by 2011:
- Step 1: Recognition, presentation, disclosures and other minor issues
- Step 2: Contribution-based promises
The staff explained that the ED for step 1 was expected for Q3/2009. Some participants welcomed this split compared to the three step approach originally proposed to the IASB at its January 2009 meeting. Others would have preferred the treatment of actuarial gains and losses to be dealt with as part of the long-term project that would review the measurement of defined benefit schemes. One member noted that some of the minor issues should be addressed via the IASB's annual improvements process because this might lead to an earlier effective date. A number of working group members emphasised that as disclosures were important for investors, these should be dealt with in the short term.
Issues to Be Addressed in the Exposure Draft on Step 1
Staff sought opinions on the following items that would be addressed in an ED as 'other issues':
- Additional guidance on the discount rate
- Multi-employer exemption
- Identification of back end loaded plans
- Accounting for plans with risk-sharing or conditional indexation features
- Short-term and long-term benefits
- Tax relating to pension costs
Additional guidance on the discount rate
Participants identified several issues with the current guidance for determining the discount rate used to measure the defined benefit obligation. It was acknowledged that, whilst welcomed, providing more guidance could be difficult until the broader issue of measurement of defined benefit plans was addressed. Further, participants highlighted that the current guidance issued by various sources is varies and sometimes contradicted each other. One member of the working group noted that the discount rate is only one part within a large group of estimates required for measuring the defined benefit obligation.
Multi-employer exemption
The staff asked participants whether providing a blanket exemption that would enable participants to treat defined benefit multi-employer plans like defined contribution plans on a much wider scale than under present IAS 19 would reduce information in an unacceptable way. Many participants were concerned about providing such an exemption, as this had the potential of misuse by entities structuring plans as multi-employer plans. One member supported such an exemption with restrictions (for example, where the entity plays a dominant role in the plan) if accompanied by detailed disclosures. One of the Board members present noted the danger that if those plans were not accounted for by the entities, they would not be accounted for anywhere.
Identification of back end loaded plans
It was noted that under current IAS 19 future salary increases must be included in assessing whether the benefit formula leads to materially higher benefits in later stages of a plan. One member said that this was preferred view by accountants. Another member added that this was an additional smoothing mechanism. This issue was identified by many as a source of divergence in practice. Working Group members generally felt that this should be included in the first ED.
Accounting for plans with risk-sharing or conditional indexation features
While most participants agreed this was an issue and more guidance would help, one member remarked that this could delay the deadline for the ED, especially if risk-sharing plans were addressed.
Short-term and long-term benefits
It was acknowledged the distinction between short-term and long-term benefits was an issue that should be resolved as it affects measurement of the benefit.
Tax relating to pension costs
It was suggested that this would be an issue for annual improvements.
Proposed Amendment to IFRIC 14
The staff introduced the proposed amendment to IFRIC 14 that would clarify the accounting for voluntary contributions to a plan where a minimum funding requirement existed. Participants were informed that the Board decided at the January Board meeting that this was akin to a prepayment and, hence, the full amount of voluntary contributions should be capitalised. Many members supported this decision, but highlighted that IFRIC 14 was in need for further clarification and was difficult to apply in many jurisdictions.
Possible Simplifications of Pension Accounting for Non-publicly Accountable Entities
On behalf of the staff of the IFRS for Non-publicly Accountable Entities (formerly SME or Private Entities) project team, members of the working group were asked for possible simplifications to defined benefit pension accounting for private entities. It was noted that actuarial valuations were costly and unnecessary burdensome for some small entities. Moreover, in some economies there would not be a sufficient number of actuaries to value such plans.
While some members saw room for simplification by increasing the periods between valuations or by using a unified model that was suitable, yet not perfect, for a wide range of plans, others were concerned about providing such simplification, as pension promises are both complex and risky by nature, and opting for simplistic valuation solutions would obscure that fact. Other proxy measurements mentioned comprised either using a valuation for funding purposes (where funding requirements existed) or quotes for insuring the obligation. However, it was acknowledged that insurance companies would not provide this information without being paid on a recurring basis.
One representative of the actuarial profession noted that there were already efforts to provide actuarial valuations on a not-for-profit basis via an association called 'Actuaries without Frontiers'. Another participant highlighted that involvement of an actuary is not a requirement in IAS 19 and probably this was also true for the private entities IFRS. Some believed that actuaries are sometimes not in a position to provide appropriate valuations because the population of employees would be too small to apply the usual methodologies. It was noted that while for large pension plans, potential measurement errors could be kept within reasonable limits as the 'rule of large numbers' applied, the range of possible outcomes and hence the potential for errors would be far greater for plans with only a small number of participants.
Most participants agreed that any simplification in accounting must be accompanied by appropriate disclosures.
Financial Statement Presentation – Implications for Employee Benefits
Staff from the financial statement presentation project team provided a summary of the proposals in the recently issued Discussion Paper on financial statement presentation.
The group had a lengthy discussion about the implication on presenting assets, liabilities, income, and expenses from post-employment benefits. In particular, members were interested in how the changes in a pension obligation would be allocated to the 'operating', 'investing,' and 'financing' sections, and where remeasurement gains or losses would appear.
The staff informed members that the Board had decided that all components of changes in the pension obligation would have to be presented separately on the face of the statement of comprehensive income within profit or loss. Many working group members preferred an approach under which only service cost would be presented in the operating section, but would prefer to allocate remeasurements into other comprehensive income (OCI). Those members saw this component as not being management's responsibility. This was also identified as a possibility to take away political pressure from the proposals. One of the analysts present noted that OCI only existed for political reasons.
The staff turned the discussion to possible approaches to disaggregate changes in the pension obligation. One of the crucial items was the identification of the return on plan assets. The discussion paper on pensions proposed three alternatives:
- Expected return
- Return based on dividends received for equity returns and market rates for debt investments
- Implicit rate of return
Staff highlighted that there was not much support for the second alternative and some support for the implicit rate of return. However, the majority of the participants favoured an expected return approach, possibly accompanied by more guidance on how to determine it. Analysts present preferred an 'actual returns' approach, which they would support with footnote disclosure of the expected rate and explanation about the differences.
Closing
The chairman closed the session by asking participants whether there were any areas for improvement of working group meetings. Working group members were generally satisfied with the way such meetings were handled. However, they would appreciate earlier involvement in the comment letter analysis and more timely delivery of the minutes of the meeting.
The next meeting will take place end of March or early April 2009.
This summary is based on notes taken by observers at the Employee Benefits Working Group meeting and should not be regarded as an official or final summary.
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29 January 2009: IAESB proposes international education framework
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IFAC's International Accounting Education Standards Board (IAESB) has invited comments on proposed revisions to the Framework for International Education Standards, which sets out the concepts that underlie the IAESB's International Education Standards (IESs). The proposed framework consists of two parts:
- Part One explains the educational concepts of competence, initial professional development, continuing professional development, and measurement of the effectiveness of learning and development, which will be used by the IAESB when developing the IESs; and
- Part Two describes the nature of the IESs as well as the related IAESB pronouncements and IFAC member body obligations.
The framework is targeted primarily to IFAC member bodies that have direct or indirect responsibility for the learning and development of their members and students. It is, however, also relevant to a wide range of stakeholders, including accounting faculties at universities, employers of professional accountants, professional accountants, and prospective professional accountants. Comments are due 30 April 2009. During the comment period, you can download the proposal on IFAC's Exposure Draft Page.
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28 January 2009: New reporting guide and checklist from Deloitte Brazil
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Deloitte Brazil has published the 2008 edition of its Annual Guide for Financial Statements. The Portuguese language guide, titled Demonstrações financeiras – Orientações referentes ao exercício de 2008, addresses the principal issues in preparing 2008 financial statements of Brazilian companies. The guide highlights the key changes to Brazilian GAAP in the past year. There are also updates on on-going convergence efforts with IFRSs and new statutory accounting changes brought about by Law 11.638/07. The guide includes discussion about the latest pronouncements issued by the Brazilian Committee on Accounting Pronouncements (Comitê de Pronunciamento Contábil, or CPC) during 2008, making it one of the most up-to-date references in Brazil. Deloitte Brazil has also published a companion 2008 financial statement checklist. Click for:
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27 January 2009: EU proposes funding for IASCF, PIOB, and EFRAG
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The European Commission has issued proposals that would strengthen the financial supervisory structure in Europe and provide an allocation of the EU Budget to provide direct funding of the IASCF, IFAC's Public Interest Oversight Board (PIOB) and the European Financial Reporting Advisory Group (EFRAG) – all private-sector bodies involved in the setting of accounting and auditing standards. Under the new rules, the three committees that supervise, respectively, the securities, banking and insurance sectors – CESR, CEBS, and CEIOPS – will benefit from a 'clearer operational framework and more efficient decision-making processes', as well as enhanced funding. The proposal for financial support, which totals €36.2 million, now goes to the Council and the European Parliament for joint decision. Under the proposals:
- The IASCF would receive €5 million a year for three years 2011, 2012, 2013
- EFRAG would receive €3 million a year for four years 2010-2013
- The PIOB would receive €300 thousand a year for four years 2010-2013
- CESR, CEBS, and CEIOPS would receive €2 million a year for four years 2010-2013
Click for:
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26 January 2009: Project pages updated for January 2009 meeting
24 January 2009: Notes from day 5 of the IASB's January meeting
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The International Accounting Standards Board held its January 2009 meeting at its offices in London on Monday to Friday, 19-23 January 2009. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting. |
24 January 2009: Notes from day 4 of the IASB's January meeting
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The International Accounting Standards Board is holding its January 2009 meeting at its offices in London on Monday to Friday, 19-23 January 2009. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting. |
24 January 2009: We comment on proposed amendments to IFRS 1
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Deloitte has submitted a Letter of Comment (PDF 124k) on the IASB's exposure draft of Additional Exemptions for First Time Adopters – Proposed amendments to IFRS 1. We are generally supportive of the proposed amendments in the ED. We agree with the Board that there are potential challenges for jurisdictions adopting IFRS in the near future which might be alleviated by the proposed exemptions. In particular, we agree that the proposed exemptions should help to limit undue cost and difficulty for certain first time adopters.
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We do, however, believe that the amendments relating to oil and gas and rate-regulated entities could be improved. In particular, we would encourage the Board to consider providing more reasoning in the Basis for Conclusions to the Standard to explain what factors were considered to be important in deciding to issue an exemption that allows only certain entities to utilise previous cost amounts as deemed cost on the date of transition, but not others.
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All of our past letters of comment are Here.
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24 January 2009: Updated comparisons of IFRSs and Canadian GAAP
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The Accounting Standards Board (AcSB) of Canada has adopted a strategy to replace Canadian standards with International Financial Reporting Standards (IFRSs) for publicly accountable enterprises by 1 January 2011. Other enterprises may also elect to adopt IFRSs. To assist those affected by this strategy in becoming familiar with differences between Canadian standards and IFRSs, the AcSB staff has prepared an unofficial comparison between the more significant aspects of IFRSs and Canadian standards as of 31 July 2008. The comparison also identifies the currently active standard-setting projects of the IASB, FASB, and AcSB and comments on the extent to which the work in process is expected to eliminate existing differences:
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24 January 2009: IAASB staff alert on going concern
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The unexpected severity, speed, and consequences of the credit crisis present unique challenges for management and auditors in assessing an entity's ability to continue as a going concern. To help auditors, management, and those charged with governance in addressing those challenges, the staff of the International Auditing and Assurance Standards Board (IAASB) has released a new practice alert entitled Audit Considerations in Respect of Going Concern in the Current Economic Environment. The alert highlights areas in International Standard on Auditing (ISA) 570 Going Concern, as well as other ISAs, that are particularly relevant in the current economic environment and provides additional guidance for auditors in evaluating management's use of the going concern assumption. It also raises awareness of issues surrounding liquidity and credit risk that may create new uncertainties for entities or exacerbate those already existing. Click for:
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23 January 2009: Heads Up on IASB ED 10 on consolidation
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Deloitte (United States) has published a special edition of the Heads Up newsletter titled IASB Issues an Exposure Draft on Consolidation (PDF 149k). The newsletter discusses the IASB's Exposure Draft 10 Consolidated Financial Statements. ED 10, if finalised, would replace IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. |
23 January 2009: We comment on proposed IFRIC 9 amendment
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Deloitte has submitted a Letter of Comment (PDF 118k) on the IASB's exposure draft of Embedded Derivatives – Proposed amendments to IFRIC 9 and IAS 39. We are supportive of the proposed amendments.
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We believe however, that the interaction between the amended IAS 39.12 and the retained IAS 39.13 should be clarified. Specifically, it should be clearer whether an entity may reclassify a financial asset even though it cannot reliably measure the embedded derivative but can reliably measure the entire financial instrument and the financial host contract.
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All of our past letters of comment are Here.
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23 January 2009: We comment on discontinued operations proposals
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Deloitte has submitted a Letter of Comment (PDF 117k) on the IASB's exposure draft of Discontinued Operations – Proposed Amendments to IFRS 5. The proposals are to revise the definition of discontinued operations in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and require additional disclosure about components of an entity that have been disposed of or are classified as held for sale. Our letter expresses support the Board's joint project with the FASB to develop a common definition of and disclosure requirements for discontinued operations. However, we point out that even if this exposure draft is adopted, convergence will not be achieved:
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While we support the convergence objective of this proposed amendment, because of scope differences between IFRS 5 and FASB Statement 144 Accounting for Impairment of Disposal of Long Lived Assets, there will continue to be differences in reporting discontinued operations. For example, FASB Statement 144 excludes equity method investments from its scope whereas IFRS 5 does not. As such, a disposal of an equity method investment cannot
be presented as a discontinued operation under US GAAP but could qualify under IFRS. While these differences are not included in the scope of this project, we believe the Boards should consider the scope differences in further convergence projects.
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You'll find all of our past letters of comment Here.
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23 January 2009: Newsletter on IASB's consolidation proposals
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter Proposals for a New Standard on Consolidation (PDF 124k). The newsletter explains IASB Exposure Draft 10 Consolidated Financial Statements, which proposes a new Standard to replace the requirements of IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. Comments on ED 10 are requested by 20 March 2009. ED 10 proposes a new definition of control of an entity that would apply to a wide range of situations and be more difficult to evade by special structuring. The proposals also include enhanced disclosure requirements that would enable an investor to assess the extent to which a reporting entity has been involved in setting up special structures and the risks to which these special structures expose the entity. The proposed definition:
| A reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity to generate returns for the reporting entity.
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Under IAS 27, the definition is 'power to govern the financial and operating policies'. 'Power to direct the activities' is broader than 'power to govern the financial and operating policies' and, therefore, would broaden the scope of consolidation. For example, under the proposals, a reporting entity could have the power to direct the activities of another entity despite holding less than half of the voting rights.
Here are Links to All Past IAS Plus Newsletters.
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23 January 2009: EU formally adopts 'puttable instrument' amendments
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The European Union has published the Commission Regulation (EC) No 53/2009
endorsing the amendments, adopted by the IASB on 14 February 2008, To IAS 32 and IAS 1 titled Puttable Financial Instruments and Obligations Arising on Liquidation. Here is the Announcement in the Official Journal (PDF 100k). All of the IAS Plus news about IFRSs in Europe can be found Here. |
23 January 2009: HKFRS presentation/disclosure checklist 2008
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Deloitte's Asia-Pacific IFRS Centre of Excellence in Hong Kong published a presentation and disclosure checklist for HKFRSs at 31 December 2008. This checklist is intended to aid users in determining whether or not the presentation and disclosure requirements of HKFRSs and the Hong Kong Companies Ordinance have been met and to assist the users to ensure that information required by the The Stock Exchange of Hong Kong has been included in the annual report of a listed entity for the year ended 31 December 2008. The checklist complements HKFRS Illustrative Financial Statements 2008 (See our News Story of 15 January 2009). The checklist covers the presentation and disclosure requirements effective for the year ended 31 December 2008. It does not address the requirements of HKFRS as regards to recognition and measurement. Click to download the HKFRS Presentation and Disclosure Checklist 2008 (PDF 1,727k). |
22 January 2009: Notes from day 3 of the IASB's January meeting
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The International Accounting Standards Board is holding its January 2009 meeting at its offices in London on Monday to Friday, 19-23 January 2009. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting. |
22 January 2009: Notes from day 2 of the IASB's January meeting
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The International Accounting Standards Board is holding its January 2009 meeting at its offices in London on Monday to Friday, 19-23 January 2009. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting. |
21 January 2009: Financial Crisis Advisory Group meeting
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The Financial Crisis Advisory Group (FCAG) was established by the IASB and US FASB in response to the recent global financial crisis. Its purpose is to advise both boards about the role of accounting during the crisis and potential changes. The FCAG held its first meeting yesterday. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.
IASB-FASB Financial Crisis Advisory Group Meeting
20 January 2009 |
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The chairman reminded participants in his introductory remarks about the reasons why fair value gained so much attention recently, particularly where it was applied to instruments in 'frozen' markets. He continued to explain that the fair value concept was applied more broadly after the 'savings-and-loan crisis' in the US and that it was still a 'work in progress'. He said that the two main questions asked were:
- Where did financial reporting help to identify issues?
- Where did financial reporting not help?
The chairmen of the US FASB and IASB gave a brief update on the actions taken by both boards. They reported that there were pressures to do more fundamental changes to financial reporting and that regulatory reforms could potentially affect financial reporting. They identified five major issues that emerged during the crisis:
- Fair value
- Off-balance sheet activities (consolidation)
- Securitisations (derecognition)
- Impairment
- Risk reporting (users didn't see the risks in entities)
Both chairmen emphasised that the actions taken and planned focussed on those issues.
Staff from both boards gave a detailed update on the ongoing responses so far. It was highlighted that several proposed amendments to IFRS and US GAAP had been published and will be redeliberated as soon as possible. Further, the IASB expects to issue proposals on derecognition and fair value measurement in Q1/2009. Both boards will continue to accelerate work on a comprehensive review of financial instruments accounting.
The acting chief accountant of the SEC presented a summary of the recently published SEC report on the impact of fair value accounting on the financial crisis in the US. He noted that the majority of assets were not measured at fair value in the financial statements of financial institutions in the US and that only a fraction of those was measured with changes in fair value going through profit or loss. The report concluded that fair value did not play a meaningful role in the crisis. The SEC report noted that fair value was considered by investors as useful and that many alternatives presented lacked this degree of usefulness. Further, the report highlights that the FASB process was appropriate. The acting chief accountant noted that the report contained several recommendations, including the proposal not to suspend fair value accounting (see our news of 30 December 2008).
FCAG members then expressed their views. The main themes of participants' views are summarised below.
Did fair value accelerate or worsen the financial crisis?
Many participants expressed the view that fair value played 'some' role during the financial crisis, particularly with regard to the effect of procyclicality. This was seen as having been increased by the use of financial reporting numbers for regulatory purposes. However, the majority was of the view that it did not play a major role and none of the participants proposed to abandon it – it was the business risks financial institutions have taken on and did not appropriately manage.
It was highlighted that entities would need more guidance on how to determine fair value under specific circumstances, particularly in inactive market. The work of the IASB's Expert Advisory Panel and its final document was referred to as a step in the right direction. Other FCAG members were concerned that it was the valuation process itself was not transparent and this was also an issue to be tackled.
Many FCAG members highlighted that off-balance sheet activities and hence consolidation rules allowed the development of a shadow accounting system where risks were not presented in any financial statement. It was noted that management must explain in its financial reports why entities are consolidated or not.
One member noted that the incentives systems for executives aggravated the situation and that those systems were not reported appropriately in any company reports. Some commented that accounting would not avoid future crises.
Due process in standard-setting
Many emphasised the importance of adhering to due process, possibly accelerated in difficult times, even under pressure. One member noted that the period of September/October 2008 marked a low in international financial reporting standard-setting. Shortcuts to due process could undermine investors' confidence in financial reporting. In this regard it was noted that standards must be enforceable: if standards were not applied appropriately the best accounting framework would not help. Some members emphasised the need for a single global set of standards.
Investors' confidence
A further main theme was that investors' confidence in financial reporting is key to improving the market situation – investors were interested in financial reporting that depicts economic reality. Standard-setters were urged to bear that in mind when pursuing further steps. This was linked to reducing complexity in financial reporting and avoiding information overload. One of the IASB members present said that there was a lot of cynicism in the market about financial reporting and any next steps must not further this cynicism, but instead restore credibility of financial reporting. This member noted that many of the requests by politicians to changes in accounting would provide tools for earnings management and, hence, would undermine investors' confidence.
Impairment
Many FCAG members were concerned over the complex rules on impairment and the differences between IFRSs and US GAAP. Some of the participants expressed concerns over the missing possibility to establish provisions in good times that could be used in bad times, that is provide for expected losses, not only incurred losses as under current impairment models in IFRS and US GAAP. Others responded this is a regulatory issue and could be resolved by appropriate reserve allocation to restrict the profits that could be distributed.
Objectives of financial reporting
It was noted that before concluding on any issues, the purpose of financial reporting must be clear. It was highlighted that the current frameworks would not identify regulators as primary users of financial statements and hence, financial stability was not an objective of financial reporting.
This summary is based on notes taken by observers at the FCAG meeting and should not be regarded as an official or final summary.
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21 January 2009: SEC updates its oil and gas disclosure rules
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In our News Story of 5 January 2009, we reported that the US SEC has made major changes to its requirements for disclosures of oil and gas reserves. The old rules had been in place for more than 25 years. The revisions permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about volumes (quantities) of reserves. The new rules also will allow companies to disclose their probable and possible reserves to investors. The Commission's current rules limit disclosure to only proved reserves. Deloitte (United States) has published a special edition of the Heads Up newsletter titled SEC Modernizes Oil and Gas Company Reporting (PDF 130k) describing the SEC's new disclosure requirements. |
20 January 2009: G30 recommendations on fair value accounting
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On 15 January 2009, The Group of Thirty released a report Financial Reform: A Framework for Financial Stability. The report addresses flaws in the global financial system and provides 18 specific recommendations to: improve supervisory systems; enhance the role of the central banks; improve governance practices and risk management; address pro-cyclicality; enhance accounting practices; strengthen the financial infrastructure; and increase coordination internationally. The project was led by Paul Volcker, Chairman, and Tommaso Padoa-Schioppa and Arminio Fraga Neto, Vice Chairmen. Mr Volcker and Mr Padoa-Schioppa are both former Chairmen of the IASC Foundation, under which the IASB operates. The Group of Thirty is a private, nonprofit, international body that aims to 'deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers'. Click to download List of Recommendations (PDF 288k).
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Core recommendations in the Group of Thirty report: Financial Reform: A Framework for Financial Stability
Core Recommendation I
Gaps and weaknesses in the coverage of prudential regulation and supervision must be eliminated. All systemically significant financial institutions, regardless of type, must be subject to an appropriate degree of prudential oversight.
Core Recommendation II
The quality and effectiveness of prudential regulation and supervision must be improved. This will require better-resourced prudential regulators and central banks operating within structures that afford much higher levels of national and international policy coordination.
Core Recommendation III
Institutional policies and standards must be strengthened, with particular emphasis on standards for governance, risk management, capital, and liquidity. Regulatory policies and accounting standards must also guard against procyclical effects
and be consistent with maintaining prudent business practices.
Core Recommendation IV
Financial markets and products must be made more transparent, with better aligned risk and prudential incentives. The infrastructure supporting such markets must be made much more robust and resistant to potential failures of even large financial institutions.
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One of the specific recommendations under Core Recommendation III relates to 'Fair Value Accounting':
Fair Value Accounting – Recommendation 12:
- a. Fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.
- b. The tension between the business purpose served by regulated financial institutions that intermediate credit and liquidity risk and the interests of investors and creditors should be resolved by development of principles-based standards that better reflect the business model of these institutions, apply appropriate rigor to valuation and evaluation
of intent, and require improved disclosure and transparency. These standards should also be reviewed by, and coordinated with, prudential regulators to ensure application in a fashion consistent with safe and sound operation of such institutions.
- c. Accounting principles should also be made more flexible in regard to the prudential need for regulated institutions to maintain adequate credit loss reserves sufficient to cover expected losses across their portfolios over the life of assets in those portfolios. There should be full transparency of the manner in which reserves are determined and allocated.
- d. As emphasized in the third report of the CRMPG, under any and all standards of accounting and under any and all market conditions, individual financial institutions must ensure that wholly adequate resources, insulated by fail-safe independent decision-making authority, are at the center of the valuation and price verification process.
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20 January 2009: Notes from day 1 of the IASB's January meeting
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The International Accounting Standards Board is holding its January 2009 meeting at its offices in London on Monday to Friday, 19-23 January 2009. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting. |
20 January 2009: IFRS e-learning for directors
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Deloitte (Canada) has developed an IFRS e-learning program for directors. To effectively fulfill their oversight responsibilities throughout and after the transition from Canadian GAAP to IFRS, board and audit committee members must maintain their financial literacy. And with IFRS conversion activities already underway, now is the time to start the IFRS education process. Deloitte's IFRS e-learning program for directors focuses on awareness-building rather than technical details. The program, which is available on CD or on-line, can be used for individual self-study or as group sessions facilitated by a Deloitte IFRS professional. The interactive material:
- discusses the challenges that companies may face through the conversion
- highlights difficult issues that management and boards may encounter throughout the changeover process
- outlines differences between IFRS and Canadian GAAP for all key standards
- provides practical examples based on Deloitte's experiences implementing IFRS around the globe
- recommends questions that directors should consider asking management or internal and external auditors
Click for More Information about IFRS E-learning for Directors (PDF 155k). More information about Transition to IFRSs in Canada.
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20 January 2009: Two IFRS-related IVSC exposure drafts
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The International Valuation Standards Council has issued two exposure drafts for public comment. Comments are requested by 30 April 2009. Posted on IAS Plus with the kind permission of IVSC:
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19 January 2009: IFRSs required for some companies in Eritrea
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We have added a new country page for Eritrea and we have updated our page on Use of IFRSs by Jurisdiction. The accounting framework in Eritrea is as follows:
- Listed companies: There is no stock exchange in Eritrea.
- Unlisted companies: IFRSs are required for:
- Government-owned enterprises,
- newly privatised companies (large taxpayers, or 'LTOs'),
- banks, and
- insurance companies.
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19 January 2009: Addition to agenda for January 2009 IASB meeting
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A new item has been added to the IASB Agenda for Tuesday 20 January 2009 relating to IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation. The IFRIC staff is proposing a fast-track amendment to IFRIC 16 to remove the restriction, currently in IFRIC 16, that the hedging instrument for a net investment in a foreign operation cannot be held by the foreign operation whose net investment is being hedged. Because IFRIC 16 is effective for annual periods beginning on or after 1 October 2008 with prospective application, and because hedge accounting designations cannot be retrospective, the staff believes that the amendment should be done urgently. |
19 January 2009: SEC Chairman-designate is cautious about IFRSs
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On 15 January 2009 the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the nomination of Mary L Schapiro as Chairman of the Securities and Exchange Commission. Ms Schapiro indicated some concerns about the near-term adoption of IFRSs in the United States and said she would 'not necessarily feel bound by the existing roadmap that is out there for comment'. Click here for the Webcast of the Hearing. Below is an unofficial transcript of Senator Reed's question about IFRSs and Ms Schapiro's reply.
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Senator Jack Reed (D-RI): Much of what you are going to do will have complications and consequences overseas as well as here in the United States. One of the areas is the IFRS roadmap. We have repeatedly written to Chairman Cox to try to determine and develop a very deliberate roadmap, and I think there's a rush to judgment on this issue. In fact, I met with the CEO of the Honeywell Corporation who has similar concerns over disparate treatment under international rules that can be used to change income, that can be used to treat R&D expenses differently. There's a potential for arbitrage between the two systems that I think we have to avoid. Can you give us a notion of how you wish to proceed with this international accounting movement – with recognition that eventually we'll have that in a global economy and hopefully we will converge to a set of high level standards.
Mary Schapiro: Well, I would proceed with great caution so that we don't have a race to the bottom. I think we all can agree that a single set of accounting standards used around the world would be a very beneficial thing, would allow investors to compare companies around the world. With that said, I have some concerns with the roadmap that has been published by the SEC and is out for comment now. I have some concerns about the IFRS standards generally. They are not as detailed as the US standards. There's a lot left to interpretation. Even if adopted, there will still be a lack of consistency, I believe, around the world in how they are implemented and how they are enforced. The cost to switch from US GAAP to IFRS is going to be extraordinary, and I've seen some estimates that range as high as $30 million for each US company in order to do that. This is a time when I think we have to think carefully about whether imposing those sorts of costs on US industry really make sense. Perhaps my greatest concern is the independence of the International Accounting Standards Board and the ability to have oversight of their process for setting standards and the amount of rigor that exists in that process today. So, I will tell you that I will take a big deep breath and look at this entire area again carefully, and will not necessarily feel bound by the existing roadmap that is out there for comment.
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18 January 2009: EITF Snapshot for January 2009
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We have posted the January 2009 edition of EITF Snapshot (PDF 93k)
summarising the 15 January 2009 meeting of FASB's Emerging Issues Task Force. EITF Snapshot, published by Deloitte & Touche LLP (USA), enables readers to identify relevant topics and to understand quickly the meeting's outcome. Past issues can be downloaded Here. This EITF Snapshot covers the following issue discussed by the EITF at the meeting:
- Issue 08-10 Selected Statement 160 Implementation Questions – Tentative conclusion reached
Initial EITF consensuses (known as 'consensuses-for-exposure') are exposed for a comment period after ratification by the FASB. At its first scheduled meeting after the comment period, the EITF considers comments received and, as warranted, affirms its consensuses-for-exposure as final consensuses. Those consensuses are then provided to the Board for final ratification.
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17 January 2009: IASB Employee Benefits Working Group meeting
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The IASB's Employee Benefits Working Group will meet at the Crowne Plaza London City Hotel, 19 New Bridge Street,
London on Monday, 26 January 2009, 10:00am to 4:00pm. The meeting is open to public observation. The agenda is below.
Working Group Agenda
Employee Benefits Working Group Meeting 26 January 2009, London |
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- Update on the project and next steps
- Issues to be addressed in exposure draft
- Proposed amendments to IFRIC 14
- Possible simplification of pensions accounting for private entities
- Financial Statement Presentation – Overview and implications for post-employment benefits
- Feedback from working group members
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17 January 2009: Three upcoming comment deadlines next week
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We remind you that comments are due next week on three IASB exposure drafts, as follows:
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16 January 2009: We comment on debt investment disclosure proposals
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Deloitte has submitted a Letter of Comment (PDF 141k) on the IASB's exposure draft (ED) of Proposed Amendments to IFRS 7: Disclosures of Investments in Debt Instruments. We do not support issuance of the ED as currently drafted for a number of reasons:
- We do not consider the proposals have a clear objective and therefore cannot determine whether the objective is met. The proposals do not illustrate the profit or loss effect and carrying values of all financial assets had they been classified differently; nor do they show the effect on impairment losses of applying different impairment loss models. Without a clearly identified objective that responds to an identified demand from users for specific information we cannot support the proposals as drafted.
- The proposals show alternative measurement bases even though the entity may have been prevented from measuring on that basis. In addition, had the entity been able to measure financial assets differently it may have made different classifications decisions for financial liabilities, eg applying the fair value option. The disclosures may as a result be confusing or be misunderstood.
- The discussions at the roundtable on the credit crisis in November and December 2008 that led to the issue of the ED focused on determining the most appropriate impairment model for AFS debt instruments. We believe consideration of this remains a priority and that the proposed 'as if' disclosures do not fill this gap or provide information to users that is most meaningful.
- We believe there is insufficient time for many entities, particularly those with calendar year-ends, to provide the proposed disclosures as required by the effective date. The amount of work needed to provide the disclosures is significant, particularly when determining the amortised cost for AFS debt instruments that have previously been subject to impairment losses. This applies to all entities in all sectors.
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15 January 2009: Deloitte's model HKFRS financial statements for 2008
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Deloitte's Asia-Pacific IFRS Centre of Excellence in Hong Kong has published illustrative financial statements for the year ended 31 December 2008. These statements illustrate the application of Hong Kong Financial Reporting Standards (HKFRSs), as well as the requirements of the Hong Kong Companies Ordinance and the Listing Rules of the Stock Exchange of Hong Kong and the Growth Enterprise Market, issued and effective up to 31 December 2008. The statements do not reflect early application of new and revised standards, amendments, or interpretations that were issued but are not mandatory for 2008. Because HKFRS are virtually identical to IFRSs, these statements also illustrate compliance with IFRSs for 2008.
You will always find permanent links to these model financial statements and related presentation, disclosure, and compliance checklists on our Model Financial Statements Page. Although several new Standards and Interpretations were issued during 2008, none are effective for December 2008 year ends. For this reason, Deloitte has not produced revised IFRS model financial statements for December 2008. The majority of the Standards and Interpretations issued in 2008 are effective for annual periods beginning on or after 1 January 2009, and we expect to release our 2009 model IFRS financial statements illustrating the application of those Standards and Interpretations in the first half of 2009. |
14 January 2009: Global economic outlook – 1st quarter 2009
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Deloitte Research has put out its first quarter Global Economic Outlook, which notes that the world economy is experiencing a 'nearly synchronous' decline in growth, a rapid drop in commodity prices, and a serious downturn in trade due to continuing credit constraints. But the most surprising event of the worldwide financial crisis may be the change in mindset about what the proper role of government is in the economy. Governments are navigating a new landscape, contemplating the unmentionable, and taking actions once thought inconceivable. There is almost too much to absorb. In this issue of the quarterly Global Economic Outlook (PDF 4,210k), Deloitte Research global economists attempt to make sense of what is going on, in addition to providing their usual outlook for the near term future. Here is what to expect in this report:
- Analysis of some of the risks and opportunities stemming from the global crisis
- Views on how the emerging markets are faring in this crisis
- A look at how monetary policy is working, or not working, during the current crisis
- Outlooks on nine major countries/regions beginning with the US economic downturn and the efficacy of the policy responses, both past and future. We also look at the economics of the Eurozone, the United Kingdom, Russia, India, China, Japan, Latin America, and the Middle East
The IAS Plus page on international financial reporting issues relating to the global financial crisis is Here.
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13 January 2009: Comments invited on 2009 IFRS XBRL taxonomy
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The International Accounting Standards Committee Foundation has invited comments, by 12 March 2009, on the near final version of the IFRS XBRL Taxonomy 2009. The Taxonomy is a translation of International Financial Reporting Standards as issued at 31 December 2008 into XBRL (eXtensible Business Reporting Language). The XBRL computer language has been developed specifically for automating the reporting of business information. XBRL allows companies, regulators, investors, analysts, and others using the IFRS Taxonomy 2009 to file, access, and compare IFRS financial data more easily. The near final version of the IFRS Taxonomy 2009 may be downloaded without charge from http://go.iasb.org/IFRS-Taxonomy-2009-review. The IASCF expects to release the final version in early April 2009, when it will also be freely available. Click for Press Release (PDF 44k). |
13 January 2009: Reminder about upcoming comment deadline
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We remind you that comments are due on 15 January 2009 on an exposure draft on Investments in Debt Instruments, which was issued on 23 December 2008. The exposure draft proposes to amend IFRS 7 Financial Instruments: Disclosures to provide additional disclosures on all investments in debt instruments, other than those classified in the fair value through profit or loss category. The proposals would require an entity to state in tabular form the fair value, amortised cost, and amount at which the investments are actually carried in the financial statements. The amendments would also require an entity to also disclose the effect on profit or loss if all debt instruments had been accounted for at fair value or at amortised cost.
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13 January 2009: Agenda for 19-23 January 2009 IASB meeting
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The International Accounting Standards Board will hold its regular January 2009 meeting at the IASB's offices, 30 Cannon Street, London on Monday to Friday 19-23 January 2009. The meeting is open to public observation and is being webcast. Presented below is the agenda for the meeting.
IASB Board Meeting Agenda
19-23 January 2009, London |
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Monday 19 January 2009 (afternoon only)
Tuesday 20 January 2009
Wednesday 21 January 2009
Thursday 22 January 2009
Friday 23 January 2009 (morning only)
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10 January 2009: Two Heads Up newsletters from Deloitte USA
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The National Office Accounting Standards and Communications Group of Deloitte (United States) has published two Heads Up newsletters that may be of interest to IAS Plus visitors:
- FASB Expands Disclosures About Postretirement Benefit Plan Assets (PDF 124k). This newsletter discusses the recently issued FASB Staff Position No. FAS 132(R)-1, Employers' Disclosures About Postretirement Benefit Plan Assets, which amends FASB Statement No. 132(R), Employers' Disclosures About Pensions and Other Postretirement Benefits. The FSP requires more detailed disclosures about employers' plan assets, including employers' investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets.
- SEC Says Fair Value Is Fair: Study Finalized on Mark-to-Market Accounting (PDF 158k). This newsletter discusses the SEC's report and recommendations to Congress regarding mark-to-market (MtM) accounting. The report responds to the congressional mandate in Section 133 of the Emergency Economic Stabilization Act of 2008 that the SEC conduct a study on MtM accounting standards in consultation with the Federal Reserve Board and the secretary of the Treasury. See also the IAS Plus News Story of 5 Jan 2009.
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9 January 2009: AMF recommendations for 2008 financial statements
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The Autorité des Marchés Financiers (AMF), the French securities regulator, has posted the English text of its Recommendations Regarding Financial Statements for 2008 (PDF 236k). As an EU member state, France requires companies whose securities trade on a regulated market to use International Financial Reporting Standards in their consolidated financial statements. Click here for the Recommandations de l'AMF en vue de l'arrêté des comptes 2008 (French version, PDF 369k). The AMF recommendations for 2008 financial statements are presented in ten sections as follows:
- First-time application of IFRS 7 Financial Instruments: disclosures
- IAS 39 Financial instruments: recognition and measurement
- IAS 36 Impairment of assets
- IAS 19 Employee benefits
- IAS 1 Presentation of financial statements – classification of debts as current or non-current
- Business combinations and consolidation
- IFRS 5 Non-current assets held for sale and discontinued operations
- IFRS 8 Operating segments
- New standards and interpretations
- Application of standards and interpretations in the European Union
- Annual amendments
- IFRIC 11 IFRS 2 – Group and treasury share transactions
- IFRIC 12 Service concession arrangements
- IFRIC 13 Customer loyalty programmes
- IFRIC 14 The limit on a defined benefit asset, minimum funding requirements, and their interaction
- IFRIC 15 Agreements for the construction of real estate
- European proposal concerning exemption from consolidation
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9 January 2009: Newsletter on embedded derivatives assessment
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – Proposed Amendments Regarding the Assessment of Embedded Derivatives on Reclassification (PDF 115k). The newsletter explains the IASB's proposals, published 22 December 2008, to clarify the requirements of IAS 39 Financial Instruments: Recognition and Measurement and IFRIC 9 Reassessment of Embedded Derivatives. The proposals, if finalised, would make clear that reclassifications of financial assets under the October 2008 amendments to IAS 39 trigger a (re)assessment for embedded derivatives.
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The turnaround time for the exposure draft is very short. Comments are required by 21 January and, if finalised, the amendments would be effective for years ending on or after 15 December 2008. Therefore, you will need to monitor the progress of the project so that the final requirements are incorporated in financial statements for December 2008 and subsequent accounting periods.
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Here are Links to All Past IAS Plus Newsletters.
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8 January 2009: Most EU financial institutions have not reclassified assets
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A study by the Committee of European Securities Regulators (CESR) has found that many banks in the European Union have chosen, up to now, not to use the option that the IASB added to IAS 39 in October 2008 to permit reclassification of some financial instruments out of the fair-value-through-profit-or-loss and available-for-sale categories. CESR reviewed the application of the reclassification amendment by financial institutions within the EU in their third quarter interim financial statements and interim management statements. CESR's analysis covered all 22 financial institutions in the FTSE Eurotop 100 index and 78 other financial institutions. The 100 companies are based in 21 EU member states. CESR found:
- More than half of the financial companies concerned did not reclassify any financial instruments in their 3rd quarter 2008 financial statements.
- For the companies in the FTSE Eurotop 100 index almost two thirds of these companies did not reclassify any financial instruments in any of the categories.
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CESR's report also responds to a request from the European Commission for CESR's views on accounting issues in addition to reclassification:
- Fair value option. CESR believes that 'there is a need to examine the effects of the use of the fair value option in more detail within a short timeframe', including whether reclassification should be permitted for financial assets measured using the fair value option.
- Embedded derivatives. CESR welcomes the IASB's recent ED on amendments to IFRIC 9 and IAS 39 and encourages the IASB and the FASB to work together to assess whether further
clarification is needed relating to embedded derivatives. 'Furthermore, CESR would recommend that the IASB provides guidance on the main types of synthetic structures covered and on which factors are important for issuers in determining whether an embedded derivative exists and if so, whether it should be measured separately. This clarification should also state that embedded financial guarantee-types do not need to be separated out.'
- Impairment of available-for-sale items. CESR recommends the IASB examines the issues surrounding impairment for available for sale financial instruments.
CESR's report also recommends that 'the IASB should develop due process procedures – including public consultation – that, in rare circumstances, would enable it to 'amend its standards in response to emergency circumstances'. Click to Download the CESR Report (PDF 97k).
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8 January 2009: Newsletter on proposed debt investment disclosures
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Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – Additional Disclosures Proposed for Investments in Debt Instruments (PDF 104k). The newsletter explains the IASB's proposals to amend IFRS 7 Financial Instruments: Disclosures to provide additional disclosures on all investments in debt instruments, other than those classified in the fair value through profit or loss category. The proposals would require an entity to state in tabular form the fair value, amortised cost, and amount at which the investments are actually carried in the financial statements. The amendments would also require an entity to also disclose the effect on profit or loss if all debt instruments had been accounted for at fair value or at amortised cost.
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The turnaround time for the exposure draft is very short. Comments are required by 15 January and, if finalised, the amendments would be effective for years ending on or after 15 December 2008. Therefore, you will need to monitor the progress of the project so that the final requirements are incorporated in financial statements for December 2008 and subsequent accounting periods.
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Here are Links to All Past IAS Plus Newsletters.
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8 January 2009: IASCF trustees will meet next week in New Delhi
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The Trustees of the IASC Foundation, under which the IASB operates, will meet at the Oberoi Hotel in New Delhi, India, on 15-16 January 2009. The portion of the meeting open to public observation begins at 11:00am on 15 January and continues for the rest of that day. The agenda for the public session is as follows:
New Delhi, India, 15 January 2009 (Public Session)
- Constitution Review 2008 – next steps
- Funding Status and Resource Requirements
- IASCF's Publications Activities
- Report of the IASB Chairman
- Report of the Due Process Oversight Committee
- XBRL Review
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7 January 2009: Report on IFRS for investment funds
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Deloitte (United States) has published IFRS for Investment Funds: More Than Just Accounting and Reporting (PDF 339k). The report provides regulatory background and steps to consider moving forward, including the following sections:
- Industry Views on IFRS for Investment Funds
- Challenges and Opportunities for Investment Funds
- Your Roadmap
- Technical Accounting Issues for Investment Funds
- More Than Accounting and Financial Reporting
- Smoothing the Transition
- Time for Leadership
- Resources & Contacts
The report points out that an IFRS conversion is not primarily an exercise in reshuffling the chart of accounts, nor is it principally a technical accounting and financial reporting matter. Companies are likely to spend significant amounts of time addressing concerns around tax, valuation, legal and compliance, people, technology, and communications. And the impact of consolidation differences will likely have a significant impact on private equity funds and the companies that manage these funds.
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7 January 2009: Deloitte IFRS curriculum materials are now available
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Deloitte (United States) is making available a complete set of IFRS course materials through Deloitte's IFRS University Consortium. Featuring on-campus lectures and transcripts from Deloitte subject matter leaders, actual case studies and case solutions, and other materials, the course is available free to all colleges and universities. Course materials are divided into eight sessions, with each session containing a unique set of presentations, case studies, and lecture notes. The materials include a detailed introduction to IFRS and provide an overview of the differences between IFRS and US generally accepted accounting principles. Specific topics covered in the Deloitte IFRS curriculum materials include:
- financial statement presentation;
- revenue, inventory and income tax;
- business combinations, discontinued operations and foreign currency;
- intangibles and leases;
- property and asset impairment;
- provisions, pensions and share-based payments;
- financial instruments; and
- consolidation policy, joint ventures and associates.
For more information about Deloitte's IFRS University Consortium please go to the website: www.deloitte.com/us/ifrs/consortium. Links to the course materials are Here. |
7 January 2009: James Kroeker is Acting SEC Chief Accountant
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The US Securities and Exchange Commission has appointed James L Kroeker as the Acting Chief Accountant in the SEC's Office of Chief Accountant. Mr Kroeker replaces Conrad W Hewitt, who retired from government service earlier this week. Mr Kroeker came to the SEC from Deloitte and Touche LLP (United States), where he had been a partner in the firm's National Office Accounting Services Group. Click for SEC Press Release (PDF 29k). |
7 January 2009: Heads Up on revenue recognition discussion paper
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The National Office Accounting Standards and Communications Group of Deloitte (United States) has published a Heads Up FASB and IASB Issue Discussion Paper on Revenue Recognition (PDF 104k). The newsletter discusses the FASB's and IASB's recently released Discussion Paper Preliminary Views on Revenue Recognition in Contracts With Customers, which outlines the boards' preliminary views on a single, contract-based revenue recognition model. |
7 January 2009: Deloitte book on accounting for business combinations
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Deloitte (United States) has published Accounting for Business Combinations and Related Topics – A Roadmap to Applying FASB Statements 141(R), 142, and 160 (PDF 1,658k). This 286-page publication constitutes a single source for understanding the requirements of FASB Statements No. 141(R) Business Combinations, No. 142 Goodwill and Other Intangible Assets, and No. 160 Noncontrolling Interests in Consolidated Financial Statements, and available interpretive guidance. The release also includes Deloitte's interpretive views, as well as comparisons between certain US GAAP accounting requirements and related IFRS guidance. Here is an outline of the contents Accounting for Business Combinations and Related Topics
- Executive Summary
- Section 1 - Scope of Statement 141(R)
- Section 2 - Identifying the Acquirer
- Section 3 - Recognizing and Measuring Assets Acquired and Liabilities Assumed – General
- Section 4 - Recognizing and Measuring Assets Acquired and Liabilities Assumed (Other Than Intangible Assets and Goodwill)
- Section 5 - Recognizing and Measuring Acquired Intangible Assets and Goodwill
- Section 6 - Recognizing and Measuring the Consideration Transferred in a Business Combination
- Section 7 - Noncontrolling Interests
- Section 8 - Income Tax Considerations
- Section 9 - Push-Down Basis of Accounting
- Section 10 - Subsequent Accounting for Intangible Assets (Other Than Goodwill)
- Section 11 - Subsequent Accounting for Goodwill
- Section 12 - Financial Statement Presentation Requirements
- Section 13 - Financial Statement Disclosure Requirements
- Section 14 - Transition Requirements and Other Adoption Considerations
- Appendix A - Differences Between Statements 141 and 141(R)
- Appendix B - Differences Between Pre-Amended ARB 51 and Statement 160
- Appendix C - Differences Between U.S. GAAP and IFRSs
- Appendix D - Glossary of Standards and Regulations
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7 January 2009: Accounting considerations in 'turbulent times'
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Deloitte's IFRS Global Office has published Turbulent Times: Key Accounting Considerations in Today's Volatile Markets (PDF 172k). This accounting alert highlights the accounting issues and literature most likely to be relevant when assessing the accounting implications of today's financial environment. It focuses on the following:
- determining fair values in inactive markets,
- revised projections of economic outlook indicating impairment and lack of recoverability for many assets,
- reduced availability of credit and increasing cost of finance,
- increased levels of bankruptcy,
- the impacts on hedge accounting, and
- critical enhanced disclosure requirements.
The accounting considerations described apply to all entities – they are not unique to financial institutions. The alert does not introduce new accounting guidance. Rather, it highlights the provisions of current IFRSs that are most likely to be relevant when assessing the accounting in markets characterised by volatility, a credit crunch, and recession.
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7 January 2009: New UK Financial Reporting Faculty
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The Institute of Chartered Accountants in England and Wales has created a Financial Reporting Faculty 'in response to fundamental changes in the financial reporting environment and the increasing complexity of relevant laws and standards'. The goal of the Faculty is to help members keep up-to-date and understand the implications of new standards, regulations, and practice in financial reporting. Members of the Faculty get access to:
- The Faculty website – a peer-to-peer platform encouraging the sharing of news, uncertainties, concerns, and possible solutions
- Faculty factsheets – practical assistance on UK GAAP and IFRS written by experts in the field
- All of the most up-to-date material issued by the IASB – the full IASB 'eIFRS' subscription service
- The 'Standards tracker' – an online facility for checking current standards and recent amendments
- Discounts on ASB standards and other financial reporting publications and UK courses
- Specialised training and CPD services, including e-learning and online resources
Deloitte UK partner Andy Simmonds chairs the board of the Faculty. For more information on the benefits of membership or to join the Faculty visit www.icaew.com/frf.
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6 January 2009: Financial reporting issues facing the resources sector
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Deloitte (Australia) has published the December 2008 issue of Extracting Value – an occasional series addressing the issues facing the resources industry (mining and oil and gas companies). This issue focusses on the financial reporting implications for the resources sector of the global financial crisis. Click to download Extracting Value - December 2008 (PDF 2,051k). The publication includes the following table highlighting some financial reporting areas that resources companies should consider in responding to the global credit crisis in the upcoming reporting season. Many of these are equally applicable to companies in other industries:
| Area | Example considerations |
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| Impairment |
- likelihood of increased risk premiums being built in discount rates due to a lower risk appetite in current market
- rapid changes in short term interest rates and their effects on discount rates
- assumptions underlying reserve and resource amounts may need revision
- long-term commodity price and exchange rate assumptions need careful consideration
- on the cost side, inflation assumptions may be difficult to determine as growth slows and reverses simultaneously across many of the world's economies
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| Loans, borrowings and other financing |
- project financing plans may require reassessment
- classification of debt as current or non-current in light of potential covenant breaches and unusual embedded terms which may be triggered in the current economic climate
- fair value considerations where longer-term funding is not based on current margin spreads and the effects of a rapidly falling interest rate environment
- possibility of embedded derivatives in old or newly renegotiated contracts that may have value in the current climate, even if previously immaterial or not identified
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| Provisions and other long-term obligations |
- long-term discount rates may materially impact the carrying amount of decommissioning and similar provisions, triggering adjustments under Interpretation 1 [IFRIC 1]
- consideration of whether contractual obligations may have become onerous in light of current market conditions
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| Financial instruments |
- counterparty risk and fair values may require reassessment
- effectiveness testing of hedging arrangements may come under pressure in volatile markets
- consideration of terms in loan and other agreements which may contain embedded derivatives, particularly those that were previously of little value or not previously identified
- consider whether items classified as 'cash equivalents' still meet the definition
- whether contracts which previously met the 'own use' exemption under AASB 139 [IAS 39] are still able to meet the exemption requirements due to net settlement
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| Depreciation, amortisation and depletion |
- reserve and resources estimates may need revision
- the effect and timing of changes in estimates on current year amortisation needs to be considered
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| Share-based payments |
- accounting for cancellation or modification of share-based payment schemes can have a significant impact on reported profits
- valuation of share-based payment arrangements under AASB 2 [IFRS 2] can be more judgemental in a volatile environment
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| Deferred taxes |
- careful reassessment of the recognition criteria for deferred tax assets may be required, particularly in relation to capital losses recognised on the basis of anticipated capital gains and tax losses that may be subject to loss integrity measures under the tax law (same business test, continuity of ownership test, etc)
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| Investments |
- many resources companies have 'strategic' interests in other entities, these must generally be fair valued to current market prices
- 'available-for-sale' reserves that are in debit (losses) may need to be recycled to the income statement, directly impacting profits
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| Disclosures |
- market reaction to disclosures around impairment, particularly key assumptions and sensitivity analyses (whether impairment losses have been recognised or not)
- consideration should be given to enhancing disclosures around significant estimates and judgements under AASB 101 [IAS 1] – this is an area where Australian entities sometimes trail global best practice
- AASB 7 [IFRS 7] disclosures around risks, how they are managed, and sensitivity analyses may take on increased importance
- increased scrutiny of liquidity disclosures might be expected
- fair value disclosures will need to be carefully considered and measured
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6 January 2009: Two upcoming IFRS webcasts
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Two upcoming public webcasts may be of interest to IAS Plus visitors. Both webcasts allow listeners to submit questions to the presenters. Both are free of charge:
The IASB's Exposure Draft 10 Consolidated Financial Statements
- Webcast organiser: IASB
- Date: Thursday, 8 January 2009
- Times: 10:00am London time and repeated at 3:00pm London time
- Presenters: Alan Teixeira, Patrina Buchanan, and Michael Buschhueter, all IASB staff
- Link to IASB Website for more information
Discussion Paper Preliminary Views on Financial Statement Presentation issued jointly by FASB and IASB
- Webcast organiser: FASB
- Date: Tuesday, 27 January 2009
- Times: 11:00am to 12:00 noon (US EST, which is GMT-5)
- Presenters: Peter Bridgman (PepsiCo, Inc), Greg Jonas (Moody's Investors Service), Joe Joseph (Putnam Investments), and Kim Petrone (FASB staff)
- Link to FASB Website for more information
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6 January 2009: UK iGAAP Newsletter – December 2008
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Deloitte LLP (UK) has issued a new-look iGAAP Quarterly Newsletter for December 2008 (PDF 415k). Among other articles and features, this newsletter includes an interview with Stephen Cooper, IASB Board member, and a feature on the joint IASB-FASB discussion paper Preliminary Views on Financial Statement Presentation focussing specifically on what the IASB intends to do with the income statement. The newsletter also discusses the impact of the recent amendments to IAS 39, which have transformed the balance sheets of some financial institutions. |
5 January 2009: SEC updates its oil and gas disclosure rules
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The US SEC has made major changes to its requirements for disclosures of oil and gas reserves. The old rules had been in place for more than 25 years. The revisions permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about volumes (quantities) of reserves. The new rules also will allow companies to disclose their probable and possible reserves to investors. The Commission's current rules limit disclosure to only proved reserves. Companies will be required to:
- report the independence and qualifications of a reserves preparer or auditor;
- file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and
- report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximise the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date.
The reserve disclosures accompany the financial statements, which continue to use an historical cost-based accounting model. Click for SEC Press Release (PDF 30k). The full text of the new rules is not yet available.
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5 January 2009: Members of IASB-FASB financial crisis advisory group
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The IASB and the FASB have announced the membership of the Financial Crisis Advisory Group (FCAG). The FCAG is the high-level advisory group set up by the boards to consider financial reporting issues arising from the global financial crisis. The boards had previously announced that the FCAG will be jointly chaired by Harvey Goldschmid, former US SEC Commissioner, and Hans Hoogervorst, Chairman, AFM (the Netherlands Authority for the Financial Markets). Membership of the FCAG is as follows:
- John Bogle, Founder, Vanguard, United States
- Jerry Corrigan, Goldman Sachs and former President of the New York Federal Reserve Bank, United States
- Fermin del Valle, former President, IFAC, Argentina
- Jane Diplock, Chairman, IOSCO Executive Committee, New Zealand
- Raudline Etienne, Chief Investment Officer, New York State Common Retirement Fund
- Stephen Haddrill, Director General, Association of British Insurers, UK
- Toru Hashimoto, former Chairman, Deutsche Securities Limited, Japan
- Nobuo Inaba, former Executive Director, Bank of Japan, Japan
- Gene Ludwig, former Controller of the Currency, United States
- Yezdi Malegam, Board Member, National Reserve Bank of India, India
- Klaus-Peter Muller, Chairman of the Supervisory Board, Commerzbank, Germany
- Don Nicolaisen, former Chief Accountant, US Securities and Exchange Commission, United States
- Wiseman Nkuhlu, Chairman of the Audit Committee, AngloGold Ashanti; former Economic Advisor to the President of the Republic of South Africa
- Tommaso Padoa-Schioppa, former Finance Minister, Italy
- Lucas Papademos, Vice-President, European Central Bank
- Michel Prada, former Chairman, Autorite des marches financiers, France
There will also be observers from the Basel Committee, CESR, IAIS, Japan Financial Services Agency, US SEC, and the advisory councils of IASB and FASB. The FCAG will hold its first meeting in London on 20 January 2009 (there's more information about the meeting on IASB Website). Click for Press Release (PDF 286k). IAS Plus has comprehensive credit crisis information Here.
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5 January 2009: Another record year for IAS Plus
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In 2008 IAS Plus had 1,830,000 visitors. Thank you for making us, once again, the #1 source on the Internet for information about international financial reporting. We wish you a very happy new year. Here are a few more statistics about IAS Plus in 2008:
- Total page views: 6,160,000
- Total website file size: 925mb
- Total number of files: 5,580 files, including
- 700 HTML web pages,
- 3,856 downloadable PDF and ZIP files, and
- 1,024 graphics files.
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5 January 2009: SEC report on fair value accounting
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The US Securities and Exchange Commission has submitted to the US Congress a 211-page report on 'fair value accounting' by financial institutions. The report, mandated by the Emergency Economic Stabilization Act of 2008, recommends against suspending fair value accounting standards. Rather, the report recommends improvements to existing practice, including reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets. The report notes that investors generally believe fair value accounting increases financial reporting transparency and facilitates better investment decision-making. The report also observes that fair value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008. Rather, the report indicated that bank failures in the US appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence. As mandated by the Act, the report focusses principally on fair value accounting in the context of US companies reporting under US GAAP. However, it also includes numerous references to international considerations and IFRSs.
While the report does not recommend suspending existing fair value standards, it makes eight recommendations to improve their application, including:
- Development of additional guidance and other tools for determining fair value when relevant market information is not available in illiquid or inactive markets, including consideration of the need for guidance to assist companies and auditors in addressing:
- How to determine when markets become inactive and whether a transaction or group of transactions are forced or distressed
- How the impact of a change in credit risk on the value of an asset or liability should be estimated
- When should observable market information be supplemented with and/or reliance placed on unobservable information in the form of management estimates
- How to confirm that assumptions utilized are those that would be used by market participants and not just a specific entity
- Enhancement of existing disclosure and presentation requirements related to the effect of fair value in the financial statements
- Educational efforts, including those to reinforce the need for management judgment in the determination of fair value estimates
- Examination by the FASB of the impact of liquidity in the measurement of fair value, including whether additional application and/or disclosure guidance is warranted
- Assessment by the FASB of whether the incorporation of credit risk in the measurement of liabilities provides useful information to investors, including whether sufficient transparency is provided currently in practice
The report also recommends that FASB reassess current impairment accounting models for financial instruments, including consideration of narrowing the number of models under US GAAP.
Additionally, the report makes recommendations for improvements to the process used by the FASB in developing accounting standards, in particular, steps that could enhance the timeliness and transparency of the process.
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