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31 July 2009: Heads Up newsletter on rate regulation ED
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Deloitte United States has published an issue of the Heads Up newsletter discussing the IASB
Exposure Draft Rate-regulated Activities that was issued on 22 July 2009. The objective of the proposals is to establish whether and how assets and liabilities resulting from rate-regulated activities should be recognised and measured under IFRSs. Comments are due 20 November 2009. Click to download Heads Up: IASB Proposes Guidance on Rate-Regulated Activities (PDF 106k).
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31 July 2009: Audit firms from 86 countries are registered with PCAOB
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The 2008 Annual Report (PDF 794k) of the US Public Company Accounting Oversight Board reports that nearly 900 non-US auditing firms in 86 countries were registered with the PCAOB by year-end 2008. Also, during 2008, the PCAOB conducted 50 non-US inspections of firms located in 19 countries.
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31 July 2009: IFRS insurance accounting newsletter
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Deloitte (United Kingdom) has published the first edition of an Insurance Accounting Insight newsletter. This issue sets out the issues and challenges to be considered by insurers' tax and accounting managers in light of recent developments in the formulation of the new accounting standard for insurance liabilities (IFRS 4 Phase II) and the Exposure Draft that proposes to change income tax accounting (IAS 12 Income Taxes). Click to download Issue 1 of the Insurance Accounting Insight Newsletter (PDF 88k). There are permanent links all issues of the newsletter on IAS Plus Insurance Project Page.
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31 July 2009: Updated EU IFRS endorsement report
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The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status Report as of 29 July 2009 (PDF 130k). Currently, ten IASB pronouncements await endorsement for use in the European Union.
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31 July 2009: New Deloitte IFRS publication in Spanish
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Deloitte (Colombia) has published the Spanish translation of the following IFRS publication:
You will find our resources in Spanish Here.
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30 July 2009: We comment on proposed IFRIC 14 amendments
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Deloitte has submitted comments on the IASB Exposure Draft ED/2009/4 Prepayments of a Minimum Funding Requirement (Proposed Amendments to IFRIC 14). We recognise that the application of the requirements of IFRIC 14 to prepayments of a minimum funding requirement results in some cases in an accounting treatment that does not reflect the substance of the transaction. We agree that this unintended result needs to be addressed, and we believe that the solution proposed would address appropriately the issue that was brought to the attention of the Board (the so-called 'Swiss plans' issue). However, we are concerned that the IASB is adopting a piecemeal approach to addressing this problem and that the amendments proposed will result in additional ambiguities in the application of IFRIC 14 and inconsistent accounting treatments. As a result, we do not support the proposed modifications to IFRIC 14. We offer alternatives for the Board's consideration. Click to download Our Letter of Comment (PDF 50k). All past letters comment are Here.
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30 July 2009: We comment on IASB's derecognition exposure draft
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Deloitte has submitted comments on the IASB Exposure Draft Derecognition - Proposed Amendments to IAS 39 and IFRS 7. We support the objective of the ED to change the existing derecognition requirements in IAS 39 to a more robust model based on a single principle for derecognising financial assets. Overall, however, we do not support the model proposed in the ED; rather our preference is for a modified alternative approach that in some respects is a combination of the proposed
approach and the alternative approach described in the appendix to the ED. Below is an excerpt from our letter. Click to download Our Letter of Comment (PDF 198k). All past letters comment are Here.
Our preferred approach is closer to the alternative approach with the significant difference that if a transferor retains control over certain rights to cash flows under the transferred asset that those cash flows are not included in the derecognition assessment, i.e. they continue to be recognised. A detailed description of our preferred model is contained in our response to Question 7, however, in summary:
- We support a derecognition model based on control. However, our preference is that the assessment of whether the transferor has given up control of the asset should be performed from the perspective of the transferor, i.e. based on their ability to control the rights to cash flows under the asset, rather than as proposed in the ED that control by the transferor is assessed by determining what the transferee potentially may or may not do with the transferred asset.
- If the transferor retains control over certain rights to cash flows but surrenders control over other rights to the cash flows of the transferred financial asset, the rights surrendered should be derecognised and the rights retained should continue to be recognised by the transferor. This compares to the ED where in many instances the ED would result in the transferor failing derecognition, thereby continuing to recognise the transferred asset when its involvement in the asset may be different to its original involvement, and may not meet the definition of an asset in the Framework or the definition of a financial asset in IAS 39. We struggle to see why the transferor should continue to recognise an asset as if it controls all the same rights to cash flows in the original asset when its rights have changed and some of its original rights are controlled by the transferee.
- Where the entity transfers an asset and as part of the transfer arrangement retains an interest in the cash flows of the asset, the transferred asset that shall be assessed for derecognition should be the net interest in the cash flows that are transferred to the transferee. We believe this approach can apply to instances where the transferor retains a proportionate or disproportionate share in the interest in the cash flows of the transferred asset. We do not believe it is appropriate that the ED will have the effect of failed derecognition for all arrangements whereby the transferor retains a disproportionate share of cash flows in the asset.
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30 July 2009: US audit standard on quality review
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The US Public Company Accounting Oversight Board has published a new auditing standard on engagement quality review. Auditing Standard No 7 Engagement Quality Review provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement. Click for:
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29 July 2009: US may require audit partners to sign report personally
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The US Public Company Accounting Oversight Board has published a Concept Release (PDF 67k) inviting comment on whether to require the auditor with final responsibility for the audit personally to sign the audit report. A similar requirement already exists in the European Union.
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29 July 2009: New Deloitte IFRS publication in Spanish
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Deloitte (Colombia) has published the Spanish translation of the following IFRS publication:
You will find our resources in Spanish Here.
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28 July 2009: Chinese translation of newsletter on financial instruments
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Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Exposure Draft Proposes New Classification and Measurement Guidance for Financial Instruments:
You will find links to these and many other IFRS materials in Chinese on our China Page.
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27 July 2009: Chinese translation of newsletter on IFRS for SMEs
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Deloitte China has published the Chinese translation of the IAS Plus Update newsletter Simplified Financial Reporting – IASB Provides Relief for SMEs:
You will find links to these and many other IFRS materials in Chinese on our China Page.
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26 July 2009: Heads Up newsletter on financial instruments project
25 July 2009: Notes from July 2009 IASB-FASB meeting day 2
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The IASB held its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July was a joint meeting with the US Financial Accounting Standards Board. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the joint meeting.
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24 July 2009: Notes from July 2009 IASB-FASB meeting day 1
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The IASB is holding its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July is a joint meeting with the US Financial Accounting Standards Board. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the joint meeting.
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24 July 2009: IASB amends IFRS 1 on first-time adoption
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The IASB has amended IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendments address the retrospective application of IFRSs in two particular first-time adoption situations:
- Full-cost oil and gas assets. The amendments exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets. Entities electing this exemption will use the carrying amount under its old GAAP as the deemed cost of its oil and gas assets at the date of first-time adoption of IFRSs.
- Determining whether an arrangement contains a lease. If a first-time adopter with a leasing contract made the same type of determination of whether an arrangement contained a lease in accordance with previous GAAP as that required by IFRIC 4 Determining whether an Arrangement Contains a Lease, but at a date other than that required by IFRIC 4, the amendments exempt the entity from having to apply IFRIC 4 when it adopts IFRSs.
The amendments are effective for annual periods beginning 1 January 2010, with earlier application allowed. Click for IASB Press Release (PDF 104k).
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23 July 2009: New Deloitte IFRS publication in Spanish
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Deloitte (Colombia) has published the Spanish translation of the following IFRS publication:
You will find our resources in Spanish Here.
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23 July 2009: IASB amends IFRS 1
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On 23 July 2009, the IASB amended IFRS to:
- exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets.
- exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease when the application of their national accounting requirements produced the same result.
Click for IASB Press Release (PDF 104k).
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23 July 2009: Exposure Draft on rate-regulated activities
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The IASB has invited comment on proposals on the accounting for rate-regulated activities. The proposals are set out in an exposure draft Rate-regulated Activities. Comments are due 20 November 2009. The objective of the proposals is to establish whether and how assets and liabilities resulting from rate-regulated activities should be recognised and measured under International Financial Reporting Standards (IFRSs). If adopted, the proposed IFRS would:
- define regulatory assets and regulatory liabilities.
- set out criteria for their recognition.
- specify how they should be measured.
- require disclosures about their financial effects.
The IASB was asked for guidance on the issue from many jurisdictions. Clarifying the accounting for rate regulation is of particular importance for jurisdictions that are in the process of adopting IFRSs and where accounting for the effect of rate regulation is in place for some sectors. In those cases entities are currently recognising sometimes significant 'regulatory' assets and liabilities by reference to an existing US standard, in the absence of an IFRS. Click for IASB Press Release (PDF 107k). Here is the link to the IAS Plus Project Page.
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23 July 2009: Notes from the July 2009 IASB meeting day 2
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The IASB is holding its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July will be a joint meeting with the US Financial Accounting Standards Board. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the meeting.
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23 July 2009: IFRS insurance accounting newsletter
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Deloitte (United Kingdom) has published a special issue of its monthly newsletter focussing on the joint IASB and FASB project to develop a new, comprehensive, global financial reporting standard for insurance. This issue reports on the meeting of the IASB's Insurance Working Group on 29-30 June 2009. Click to download Special July 2009 Issue of the Insurance Accounting Newsletter (PDF 116k). There are permanent links all issues of the newsletter on IAS Plus Insurance Project Page.
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22 July 2009: Notes from the July 2009 IASB meeting day 1
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The IASB is holding its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July will be a joint meeting with the US Financial Accounting Standards Board. Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the meeting.
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22 July 2009: IAS Plus Update newsletter on financial instruments
22 July 2009: Notes from IASB meeting with EFRAG
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The IASB is holding its July 2009 monthly Board meeting at its offices in London on Tuesday to Friday, 21-24 July 2009. The portion of the meeting on 23-24 July will be a joint meeting with the US Financial Accounting Standards Board. Representatives of the Board also met with representatives of the European Financial Reporting Advisory Group (EFRAG) on Monday 20 July. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting with EFRAG representatives.
The Chairman of the Board started the meeting by welcoming three new Board members (Amaro Gomes, Patrick Finnegan and Patricia McConnell).
The first item on the agenda was the meeting of representatives of IASB and an EFRAG delegation to discuss convergence related issues. The Chairman of EFRAG kicked off the discussion by appreciating the work of the Board on the financial crisis-related issues. Nonetheless, he expressed the concerns of EFRAG about the IASB's technical plan. EFRAG is of the opinion that there are too many items on the agenda and that fact may eventually affect the quality of the due process, as many constituents struggle to provide feedback to the increasing number of new proposals. EFRAG recommended that the Board focus on financial crisis-related issues, Financial Instruments, Fair Value Measurement, Insurance and Conceptual Framework and defer 'housekeeping' (for example, annual improvements process and smaller projects) to the period when the constituents are able to process the proposed changes. EFRAG also challenged the timetable of the MoU with FASB, as it has concerns whether 2011 deadline was still achievable and whether convergence always led to 'improvements' to accounting standards. EFRAG acknowledged that all the issues on the agenda are important; but urged the Board to reconsider the priorities and align the pace of change with capabilities of the constituents.
The Chairman of the Board defended its strategy. He made his case referring to the recommendations of G20 (the aim of having global standards), adoption of IFRS in many jurisdictions in 2012, by the time the major changes in the standards should have been completed (in order for new jurisdictions not to change requirements two times, what was the same strategy as before Europe adopted IFRS in 2005) and by the need for convergence with the US. In the opinion of the IASB Chairman, any delay in convergence agenda could delay IFRS adoption in the US. Moreover, some issues (such as the rights issues question that was referred to the Board by the IFRIC in July 2009 or emissions trading schemes) seem to have huge repercussions and have the support of other constituents.
IASB members asked if delaying of some projects (e.g. extractive industries DP) or extended comment periods would help to alleviate the concerns. EFRAG seemed to be in favour.
The discussion turned to an analysis of responses from constituents to the consolidation and derecognition EDs. EFRAG expressed its concerns that the Board seemed to be in a hurry to replace the parts of IFRS that appeared to be working relatively well in the crisis, especially in comparison with US Standards. The Board felt confident that the consolidation standard could be issued until the year end (after re-deliberation) and that the positions of IASB and FASB are relatively close. Regarding derecognition project, the staff acknowledged that based on the feedback received, alternative views seem to be preferred by the constituents (with net balance shown on the statement of financial position and gross disclosed in the notes). The Board defended its approach as it thought that IAS 39 requirements are complex and rule based.
Another point of discussion focused on the IAS 39 replacement project. EFRAG seems to be broadly supportive of the proposed classification criteria. Several issues were floated that cause concern, notably the border between classification criteria (definition and interpretation of the contractual yield basis), stage approach selected by the board (many constituents do want to know how will hedging be fixed before they opt for classification), the treatment of embedded derivatives, lack of possibility of reclassification of financial instruments between categories and abolishing the cost exception for equity instruments. The discussion briefly touched also the proposed US approach (fair value) with EFRAG not supportive of such alternative.
As the contemplated impairment is concerned, EFRAG urged the Board not to be in a hurry as there is no immediate impact of this change. In general several IASB and EFRAG members were supportive of the idea to reconcile accounting provisioning and prudential regulation on the basis of a kind of expected losses model.
The Board presented EFRAG with the update on other programmes like Insurance, Conceptual framework and Joint ventures. Finally, EFRAG presented its proactive activities in the area of pensions accounting, asset definition, taxes, share based payments as well as contemplated disclosure framework. The Chairman welcomed these initiatives as possible input into the agenda for the period after 2011.
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20 July 2009: Updated summary of IFRIC agenda rejections
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We have updated our Summary of Issues Not Added to IFRIC's Agenda to reflect the IFRIC's final decisions at its July 2009 meeting not to add the following topics to its agenda. Our summary now includes over 160 issues:
- IFRS 3: Acquisition-related costs in a business combination
- IFRS 3: Earlier application of IFRS 3
- IAS 7: Determination of cash equivalents
- IAS 27: Transaction costs for non-controlling interest
- IAS 28: Potential effect of revised IFRS 3 and IAS 27 on equity method accounting
- IAS 28: Venture capital consolidations and partial use of fair value through profit or loss
- IAS 28: Impairment of Investments in Associates
- IAS 34: Interim disclosures about fair value
- IAS 38: Compliance costs for REACH
- IAS 39: Hedging using more than one derivative as the hedging instrument
- IAS 39: Meaning of 'significant or prolonged'
- IFRIC 12: Scope of IFRIC 12
- IFRIC 18: Applicability to the customer
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19 July 2009: Revised IFAC Code of Ethics
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The International Ethics Standards Board for Accountants (IESBA) has issued a revised Code of Ethics for Professional Accountants (Revised 2009), clarifying requirements for all professional accountants and significantly strengthening the independence requirements of auditors. The revised Code, which is effective on 1 January 2011, includes the following changes:
- Extending the independence requirements for audits of listed entities to all public interest entities.
- Requiring a cooling off period before certain members of the firm can join public interest audit clients in certain specified positions.
- Extending partner rotation requirements to all key audit partners.
- Strengthening some of the provisions related to the provision of non-assurance services to audit clients.
- Requiring a pre- or post-issuance review if total fees from a public interest audit client exceed 15% of the total fees of the firm for two consecutive years.
- Prohibiting key audit partners from being evaluated on or compensated for selling non-assurance services to their audit clients.
The revised Code may be downloaded from IFAC's Website.
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18 July 2009: FEE urges new approach to setting global standards
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FEE (Federation des Experts Comptables Europeens – Federation of European Accountants) has issued a policy statement on financial reporting confirming its views that a single set of global accounting standards is needed, but concluding that convergence should no longer be a key driver in the financial reporting debate. FEE believes that:
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We are now in a period of diminished returns from further convergence due to the rapid increase in complexity, without hardly any additional benefit to investors that arises when seeking to eliminate increasingly smaller differences between IFRSs and other standards. The IASB should now change its strategy and concentrate exclusively on major improvements and simplifications in IFRS over the medium term. To this end, it should work together with standard setting bodies from around the world, so that all stakeholders can be fully engaged and ensure that the quality of IFRS is not compromised.
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Click for:
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18 July 2009: We comment on leases discussion paper
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Deloitte has submitted comments on the IASB discussion paper Leases: Preliminary Views. While we acknowledge the need for an improved leases standard issued identically by the IASB and the FASB, the views of individuals within the DTT network differ on what is the best way forward. Some individuals believe strongly that, should the boards decide that the recognition of all leases 'on balance sheet' is critical in the short term, the boards should focus on lessee accounting only (as well as the limited lessor accounting issues that must be addressed as part of lessee accounting, such as subleases). Other individuals within the DTT network have significant concerns about the boards issuing a leasing standard in the short-term that is neither high-quality nor comprehensive. Because of those concerns, those individuals are not in favour of the boards focusing on lessee-only issues and believe strongly that the boards should take the necessary time to develop a comprehensive leasing standard that addresses all issues for both lessee and lessor accounting. Below is an excerpt from our letter. Click to download Our Letter of Comment (PDF 102k). All past letters comment are Here.
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We have spent a considerable amount of time discussing this issue and reached out to many professionals within the DTT network to gather thoughts about how the boards should best move forward with this project. In so doing we have, through our network, also received comment from various external organisations having experience in this area which have helped us form our views. Many have expressed concern about the significant cost and effort that will be required to apply the proposed model, particularly system changes and procedures that will need to be put in place....
We continue to be very supportive of the convergence efforts between IFRS and U.S. GAAP around high quality standards and believe the boards should be working together on an improved high-quality lease standard. However, we are concerned that many of the preliminary views of both boards differ. We believe it is very important to have one set of high-quality global standards. Besides creating a truly level playing field for companies around the globe, having a single set of standards will eliminate the potential for accounting arbitrage between U.S. GAAP and IFRSs. Therefore, we believe that the IASB and FASB should issue identical standards on leasing and all other future convergence standards.
We do not consider lease accounting to be a high priority project at this very important time, when the boards' attention should be focussed on resolving other, urgent issues arising from the financial crisis, for example the financial instruments project. We therefore urge the boards to consider their priorities carefully.
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17 July 2009: Updated EU IFRS endorsement report
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The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status Report as of 17 July 2009 (PDF 132k). The update reflects the decisions of the ARC at its meeting yesterday (see our News Story) and EFRAG's draft advice on the amendments to IFRS 2.
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17 July 2009: We comment on proposed XBRL Due Process Handbook
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Deloitte has submitted comments on the IASCF exposure draft Due Process Handbook for XBRL Activities. We support the efforts of the IASCF to formalise a high-quality due process for its XBRL activities. Rather than responding to specific questions in the exposure draft or to each element of the due process, we have identified considerations that we believe are critical both to developing an effective due process and to promoting successful deployment, adoption, and sustained use of the IFRS taxonomy. Click to download a Our Letter of Comment (PDF 26k). All past letters comment are Here.
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17 July 2009: Do not change the fundamental purpose of accounting
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Paul Boyle, Chief Executive of the UK Financial Reporting Council (FRC), argued in a speech to the FRC Annual Open Meeting against proposals to use accounting as a public policy tool to reduce pro-cyclicality and challenged the proposition that accounting measures that show volatility should be adjusted to create an impression of stability. Mr Boyle also warned that the risks to confidence in corporate reporting and governance remained higher than normal and that there was no room for complacency. Click to Download Mr Boyle's Remarks (PDF 98k). Here is an excerpt:
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It is not clear that accounting has the potential to be a public policy tool to reduce pro-cyclicality, or that it would be appropriate to use it in this way.
An equally, or perhaps even more, dangerous argument now gaining currency is that accounting should be given an explicit role in promoting financial stability, rather than its traditional role of providing information useful to investors in their decision-making. The implication of this view is that accounting measures that show volatility should be adjusted to create an impression of stability.
Accounting is a measurement system that presents the financial performance and position of a company in as neutral a way as possible. It is not surprising that banks report substantial profits when the economy is doing well and reduced profits, or even losses, when the economy is doing badly. This is accounting reflecting the economic cycle, which is a good characteristic of a financial measurement system.
It is worth considering the dangers of altering measurement systems to make them less pro-cyclical. It could be argued, for example, that unemployment statistics and house prices have damaging pro-cyclical effects. Yet no-one seriously argues that it would be in the public interest for these statistics to be adjusted because the public cannot be trusted to react in a way consistent with financial stability.
This is not to say that current accounting standards need no improvement. But the merits of proposed 'improvements' need to be assessed against a clear understanding of the purposes of accounting. It may well be appropriate to attempt to reduce the volatility of economic cycles, but there are more appropriate tools than accounting to achieve this.
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17 July 2009: Global Preparers Forum to meet 28 July
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The IASB's Global Preparers Forum will meet on Tuesday 28 July 2009 from 10;00am to 16:00pm at the Board's offices in London. The purpose of the Global Preparers Forum is to provide input into concepts and proposals that the IASB is developing and offer advice to the IASB on the practical implications of its intended proposals for preparers of financial statements. Meetings are open to public observation. The agenda for the meeting is below. Agenda papers are Here.
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Agenda for the Global Preparers Forum, 28 July 2009 |
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Morning (10:00-12:30):
- IASB work plan and activities
- IASB work plan
- Feedback on comment letters received for recent projects
- Specific jurisdiction developments (European Union/US/Asia)
- Leasing
- Post-employment benefit obligations (including pensions)
- Financial Statement Presentation – discussion of performance reporting and other comprehensive income
Afternoon (13:15-16:00):
- Financial instruments (IAS 39 replacement)
- Current thinking
- Classification other than fair value
- Impairment model
- Expected loss
- Hedge accounting
- Income taxes
- Conceptual Framework – Measurement
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17 July 2009: New chairman of EFRAG Supervisory Board
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Pedro Solbes Mira, the former Member of the European Commission responsible for Economic and Financial Affairs (1999-2004) and Minister of Economy and Finance (2004-2009) of Spain has been appointed Chairman of the EFRAG Supervisory Board, effective immediately. Click for Press Release (PDF 89k).
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17 July 2009: ARC supports endorsing five IFRSs
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At the meeting of the European Commission's Accounting Regulatory Committee (ARC) yesterday, all EU Member States voted in favour of Commission Regulations endorsing the following standards for use in Europe:
- IFRIC 9/IAS 39 Embedded Derivatives
- IFRS 1 First-time Adoption of IFRS (revised)
- IFRS 7 Financial Instruments: Disclosures (amended)
- IFRIC 17 Distributions of Non-cash assets to owners
- IFRIC 18 Transfers of Assets from Customers
The next step for endorsement is for the Commission to adopt the necessary regulations.
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16 July 2009: CESR's review of IFRS enforcement in Europe
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The Committee of European Securities Regulators (CESR) has published reports of a self-assessment and a peer review of the enforcement of IFRSs and other financial disclosure requirements (such as in prospectuses) by 29 'national enforcers' across Europe. Enforcement in Europe is governed by two related standards: CESR Standard No 1 Enforcement of Standards on Financial Information in Europe (March 2003, PDF 151k) and CESR Standard No. 2 Coordination of Enforcement Activities (PDF 92k, April 2004). Many of the principles in Standard 1 relate directly to IFRSs, including, for example, principle 20:
Principle 20
In order to promote harmonization of enforcement practices and to ensure a consistent approach of the enforcers to the application of the IFRSs, coordination on ex-ante and ex-post decisions taken by the authorities and/or delegated entities will take place. Material controversial accounting issues will be conveyed to the bodies responsible for standard setting or interpretation. No general application guidance on IFRSs will be issued by the enforcers.
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CESR's 2009 review was conducted in two stages:
- First, CESR members self-assessed their application of each of the four principles of CESR's Standard No. 2 by answering questions that have been established for each principle against a set of benchmarks.
- Second, CESR's peer pressure group, the Review Panel, conducted a peer review of how National Enforcers applied the Standard.
Among the findings:
- The self-assessment showed that less than half (45%) of CESR's members fully apply the Standard in their day-to-day enforcement.
- The peer review by the Review Panel revealed that slightly less than one-third of CESR members were fully applying the Standard, and that significantly more than half of the CESR members did not apply the principles overall
Click to download:
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16 July 2009: CESR's report on reclassification of financial instruments
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The Committee of European Securities Regulators (CESR) has completed a study of the application of the amendments to IAS 39 and IFRS 7 regarding Reclassification of Financial Instruments in 100 large EU financial companies' annual financial statements for 2008. The objectives of the study were (a) to consider how financial companies in Europe applied the reclassification amendments and (b) to analyse whether companies have complied with the related disclosure requirements in IFRS 7. The 100 companies consisted of the 22 financial companies included in the FTSE Eurotop 100 index and 78 other financial companies across Europe. CESR found:
- 61% of all the companies analysed used the option to reclassify in the annual financial statements for 2008.
- 68% of the FTSE Eurotop companies used the option to reclassify in the annual financial statements for 2008 compared to only 36% in the interim financial statements for the 3rd quarter of 2008.
- The impact of the reclassifications was positive on the profit and loss account and on other comprehensive income. If no reclassifications had been made, the total amount reported in the profit and loss account and in other comprehensive income would have been 28 billion Euros lower than the figures actually reported.
- Inadequate compliance with the disclosure requirements in IFRS 7 when a reclassification took place:
- 40% of all companies analysed (and around one third of the FTSE Eurotop companies) did not disclose the fair value gain or loss on the reclassified financial asset (whether recognised in profit or loss or in other comprehensive income) prior to the reclassification (IFRS 7.12A (d)).
- Around half of all companies analysed (and around one quarter of the FTSE Eurotop companies) did not disclose the effective interest rate and the estimated amounts of cash flows that they expected to recover (IFRS 7.12A (f)).
CESR's report expresses concern about the lack of disclosures.
CESR plans to review other aspects of the application of IFRS 7 in 2008 in light of the financial crisis and expects to publish the results of that analysis later in 2009. Click to download CESR Statement on Application of and Disclosures Related to the Reclassification of Financial Instruments (PDF 191k).
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16 July 2009: IFRS para PYMEs (IFRS for SMEs)
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Deloitte (Colombia) has published the first in a series of Spanish language bulletins about the new IFRS for SMEs. This bulletin includes background information about the Standard, an overview of its contents, and examples of the recognition and measurement simplifications reflected in the Standard. Click to Download the Bulletin (PDF 182k). Nuestros Recursos en Español.
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15 July 2009: Deloitte IFRS resources in Japanese
15 July 2009: Proposed changes to European banking regulations
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Some aspects of the European Commission's revisions to the Directive on capital requirements for financial institutions may have financial reporting implications. Among other things the proposal calls for enhanced public disclosures about the level of risks to which banks are exposed in securitisations in both their trading and non-trading portfolios. It would also make clear that the provisions on prudent valuation in the existing Directives should apply to all instruments measured at fair value, whether in the trading book or non-trading book of institutions. The proposal acknowledges that there may be differences in fair value measurements for accounting and regulatory purposes: "Where the application of prudent valuation would lead to a lower carrying value than actually recognised in the accounting, the absolute value of the difference should be deducted from own funds." EU member states would be expected to adopt the new requirements by the end of 2010. Click to download:
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15 July 2009: ED on financial instruments classification and measurement
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The IASB has published an exposure draft (ED) on Financial Instruments: Classification and Measurement as the first part of its three-phase project to replace IAS 39 Financial Instruments: Recognition and Measurement. The Board decided to address classification and measurement of financial assets and financial liabilities first because they form the foundation of a standard on reporting financial instruments. Moreover, many of the concerns about IAS 39 that have been expressed during the financial crisis relate to its classification and measurement requirements. The IASB plans to finalise the classification and measurement proposals in time for non-mandatory application in 2009 year-end financial statements. The other two phases of the IAS 39 project are addressing Impairment and Provisioning and Hedge Accounting. Additionally, the Board's project on Derecognition of Financial Instrument will also result in amendments to IAS 39. The IASB plans to complete the replacement of IAS 39 during 2010, although mandatory application will not be before January 2012. Comments on the ED on Classification and Measurement are due by 14 September 2009. Click for IASB Press Release (PDF 102k). Here is an overview of the ED:
| Overview of Exposure Draft on Classification and Measurement of Financial Instruments |
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- Primary classification and measurement categories for financial instruments
A financial asset or financial liability would be measured at amortised cost if two conditions are met:
- The instrument has basic loan features. A debt instrument has basic loan features if the return to the holder is a fixed amount, fixed over the life, variable over the life due to changes in a single referenced quoted or observable interest rate, or a combination of a fixed and variable return (such as LIBOR plus a fixed spread).
- The instrument is managed on a contractual yield basis. While this condition is similar to the 'held to maturity' condition in the existing IAS 39, there are no 'tainting provisions' comparable to those in IAS 39 that would prohibit an entity from measuring a financial asset at amortised cost if it has recently sold other financial assets measured at amortised cost before maturity. However, special disclosures would be required for derecognition of a financial asset or financial liability measured at amortised cost.
A financial asset or financial liability that does not meet both conditions would be measured at fair value. This would include all investments in equity instruments (and derivatives on those equity instruments) – including those that do not have a quoted market price in an active market. That is, there would be no 'measurement reliability' exception for equity instruments such as now exists in IAS 39.
- Existing IAS 39 classifications of 'held to maturity' and 'available for sale'
These classifications would be eliminated. Note, however, that the ED proposes an accounting policy choice to measure some investments in equity instruments at fair value through other comprehensive income (see below).
- Some investments in equity instruments could be measured at fair value through other comprehensive income
The ED proposes to permit an entity, on initial recognition of investments in equity instruments that are not held for trading but are held for purposes other than realising direct investment gains, to make an irrevocable election to present changes in the fair value of those investments in other comprehensive income. Dividends on such investments would also be presented in other comprehensive income. There would be no transfers from other comprehensive income to profit or loss ('recycling') and hence no impairment requirements.
- Embedded derivatives
The ED proposes that a hybrid contract with a host that is within the scope of the proposed IFRS (that is, it is a financial host) must be classified in its entirety in accordance with the proposed classification approach. This would eliminate the existing IAS 39 requirements to account separately for an embedded derivative and the host contract.
- Investments in contractually subordinated interests (tranches)
The ED proposes to apply the classification criteria to such investments by requiring that any tranche that provides credit protection to other tranches on the basis of any possible outcome (rather than a probability-weighted outcome) must be measured at fair value because provision of such credit protection is a form of leverage and not a basic loan feature.
- Fair value option retained
The ED would retain IAS 39's 'fair value option' by which an entity may elect at initial recognition to measure any financial asset or financial liability at fair value through profit or loss if such designation eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch').
- Classification is determined at initial recognition
The ED would prohibit subsequent reclassification of financial assets and financial liabilities between the amortised cost and fair value categories.
- Effective date
The current plan (subject to review) is that the new requirements would not be mandatorily effective before January 2012, but early application would be permitted.
- Transition
Generally retrospective, with some exceptions.
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The IASB will host two live Web presentations to introduce the ED on Wednesday 15 July 2009, one at 9:30am London time and the second at 3:00pm London time. Click for Details.
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15 July 2009: Guía Rápida NIC/NIIF 2009
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Deloitte (Spain) has published Guía Rápida NIC/NIIF 2009 (PDF 1.864k, 144 pages, July 2009) – a Spanish version of IFRSs in your Pocket 2009, updated up through 31 May 2009. It includes:
- a foreword from Cleber Beretta Custodio, Deloitte Spain IFRS Leader
- a description of the IASB structure
- an IASC/IASB chronology
- use of IFRSs around the world
- summaries of all IFRSs including Interpretations
- brief summaries of IASB agenda projects up through 31 May 2009
Nuestros Recursos en Español.
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15 July 2009: Guía de la NIIF 3 y la NIC 27 revisadas
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Deloitte (Spain) has published Combinaciones de Negocios y Cambios en las Participaciones: Guía de la NIIF 3 y la NIC 27 Revisadas (PDF 537k, June 2009) – a Spanish version of Business Combinations and Changes in Ownership Interests: A Guide to the Revised IFRS 3 and IAS 27. This 244-page guide deals mainly with accounting for business combinations under IFRS 3 (revised 2008). Where appropriate, it deals with related requirements of IAS 27 (revised 2008) – particularly as regards the definition of control, accounting for non-controlling interests, and changes in ownership interests. Other aspects of IAS 27 (such as the requirements to prepare consolidated financial statements and detailed procedures for consolidation) are not addressed. There are 16 chapters plus appendices that (a) compare the 2008 versions of IFRS 3 and IAS 27 with their predecessors and (b) identify the continuing differences between IFRSs and US GAAP. Nuestros Recursos en Español.
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15 July 2009: IFRS – Consideraciones para la industria automotriz
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Deloitte (Colombia) has published the Spanish translation of a Deloitte (United States) IFRS conversion report:
This booklet provides practical industry insights on IFRSs and includes useful sections on:
- Understanding the implications of IFRS – including the impact in accounting and finance, tax, systems and human resources – for the automotive industry
- Key technical accounting differences between IFRS and US GAAP for the automotive industry
- Evaluating approaches to IFRS conversion
- Developing an IFRS road map
- IFRS lessons from the European experience
Nuestros Recursos en Español.
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14 July 2009: IFRS e-Learning modules updated
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We have recently updated the following modules of Deloitte's IFRS e-Learning programme to reflect recent amendments to the standards: IAS 1, IAS 12, IAS 16, IAS 18, IAS 19, IAS 23, IAS 29, IAS 32/39 (three modules), IAS 36, IAS 38, IAS 40, IAS 41, IFRS 2, and IFRS 5. Updates of many of the remaining modules are scheduled by the end of August 2009. Deloitte's IFRS e-learning was launched at the end of January 2004. Over 3,000,000 modules have been downloaded via IAS Plus. Many of the downloaded modules have multiple users because organisations are permitted to install them on their own servers for the internal use of their employees or students. These figures do not include modules completed by Deloitte staff, who access the e-Learning on internal networks. You can always access IFRS e-Learning without charge by clicking on the light bulb icon on the IAS Plus home page. Thirty-seven modules are now available and regularly updated. We are making the Deloitte IFRS e-Learning available in the public interest without charge.
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14 July 2009: Support for the new IFRS for SMEs
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Presented below are excerpts from announcements made by a number of important organisations shortly after the IFRS for SMEs was issued.
The World Bank
The World Bank welcomes the publication of the International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) by the International Accounting Standards Board. The Bank has consistently recommended simplified financial reporting requirements for SMEs in the 95 Reports on the Observance of Standards and Codes (ROSC) on Accounting and Auditing covering 86 countries that have been issued to date. The IFRS for SMEs provides a valuable financial reporting reference framework for smaller entities that is more responsive to the size and ownership of their operations, and should help improve their access to finance, said Fayezul Choudhury, Vice President, Corporate Finance & Risk Management, World Bank. In countries that have already adopted IFRS as the national accounting standard, the simplifications introduced by the SME standard will provide much needed relief.
International Federation of Accountants (IFAC)
The International Federation of Accountants (IFAC) and its Small and Medium Practices (SMP) Committee welcome the release of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) by the International Accounting Standards Board (IASB). IFAC encourages its 157 member organizations to carefully consider how to use the standard in their respective jurisdictions. "This global accounting standard represents a very significant step on the path to global convergence of financial reporting practices by SMEs. It will contribute to enhancing the quality and comparability of SME financial statements around the world and assist SMEs in gaining access to finance," remarks IFAC Chief Executive Ian Ball, adding, "The beneficiaries will be not only SMEs, but also their customers, clients, and all other users of SME financial statements."
Association of Chartered Certified Accountants (ACCA)
ACCA welcomes completion of IASB's 'most important project' – The IASB's new standard for small and medium sized enterprises (SMEs) will have a significant impact on millions of companies around the world, says ACCA in welcoming the announcement. Despite concerns by many that the new simplified standard, which still runs to more than 200 pages would be too complex for small businesses to use, ACCA's own research shows little concern in this area.... ACCA President Brendan Murtagh, who is a partner in an accounting practice, said: "In my practice we imagine this will be warmly accepted as best practice by our clients very quickly. A set of standards which is more easily understood by smaller businesses, their potential investors, customers and suppliers can only help organisations to survive in these tough trading conditions and to potentially thrive when the current situation eases."
Federation of European Accountants (FEE)
FEE supports high quality, global principles-based financial reporting standards for companies since these promote consistency and transparency and help companies and their advisors to respond appropriately to new developments in business practice. In that respect FEE welcomes the IFRS for SMEs. Companies including SMEs with cross-border activities, branches and subsidiaries will experience simplification in their financial reporting by being able to use one standard and accounting framework and speak thereby one accounting language in all countries concerned.
The use of IFRS for SMEs would give National Standard Setters the possibility of no longer having to produce their own standards and keeping them up to date. This may constitute a real and tangible cost reduction at national level. FEE believes that the EC Accounting Directives should not form an impediment for Member States to allow for the use of IFRS for SMEs. To the extent they might at present be considered doing so, the current revision of these Directives provides a proper opportunity to remove any of such perceived discrepancies. The market should decide on the uptake of this standard for use in Europe.
Confederation of Asian and Pacific Accountants (CAPA)
CAPA believes that the IFRS for SMEs will greatly benefit all the small and medium-sized entities across the globe. CAPA aims to promote the IFRS for SMEs to all its member bodies by encouraging its adoption in their jurisdiction. It has always been CAPA's priority to serve the needs and issues impacting small and medium-sized entities. In one of its strategic thrusts of capacity building of the profession, CAPA has planned to conduct 'Training of Trainers' courses on IFRS for SMEs. CAPA looks forward to play an important role by coordinating efforts with IASB to assist in implementation of the IFRS for SMEs.
American Institute of Certified Public Accountants (AICPA)
"The AICPA welcomes the introduction of IFRS for small and medium entities as an alternative accounting and reporting option for private companies," said AICPA President and CEO Barry Melancon. "It is indicative of a growing trend toward alternatives for private companies in both the U.S. and worldwide, reflecting the fact that users of private company financial statements have different needs than users of public company statements."
South African Institute of Chartered Accountants (SAICA)
While many countries are expected to adopt the final IFRS for SMEs, South Africa became the first country in 2007 to adopt the Exposure Draft of the IFRS for SMEs as a Statement of Generally Accepted Accounting Practice (GAAP). The intention of the early adoption of the standard at the time was to provide immediate relief for limited interest entities under the then pending Corporate Laws Amendment Act.... The IFRS for SMEs standard will be available for immediate use when approved for issue in South Africa by the Accounting Practices Board (APB). The APB will consider this at its meeting in August.
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13 July 2009: FASB begins project to develop disclosure framework
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The US Financial Accounting Standards Board (FASB) has launched an agenda project to establish an overarching framework intended to make financial statement disclosures more effective in communicating, better coordinated, and less redundant. The framework would 'enable all entities to focus on making more coherent disclosures in their annual reporting package, move away from what some assert has become a compliance exercise, and perhaps facilitate XBRL electronic tagging of information'. Some specific financial reporting areas the project will evaluate and address include whether the disclosure framework should:
- Apply to all entities or perhaps exclude private or nonprofit entities
- Apply to interim reporting
- Focus only on high-level principles
- Focus only on notes to financial statements or extend to ways to better integrate information provided in financial statements, MD&A, and other parts of a company's public reporting package.
The FASB expects to begin deliberations this quarter and plans to issue a preliminary views document in the first half of 2010. Click for FASB Press Release (PDF 20k).
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11 July 2009: Comment deadline reminder – leases DP
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We remind you that comments are due on 17 July 2009 on the Discussion Paper (DP): Leases – Preliminary Views. The DP was issued jointly by the IASB and the US FASB on 19 March 2009. Comments are requested by 17 July 2009. In the DP the IASB and the FASB propose a possible new model for lease accounting. The model is based on the principle that all leases give rise to liabilities for future rental payments and assets (the right to use the leased asset) that should be recognised in an entity's statement of financial position.
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11 July 2009: Notes from the July 2009 IFRIC meeting
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The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday 9 July 2009. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.
Notes from the IFRIC Meeting
9 July 2009 |
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 Introduction
The Chairman started the meeting by introducing the new IFRIC member Laurence Rivat (Deloitte France), who has replaced Ken Wild (Deloitte UK).
Review of Tentative Agenda Decisions published in May IFRIC Update
IFRS 3 Business Combinations – Acquisition-related costs in a business combination
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IFRS 3 Business Combinations – Earlier application of revised IFRS 3
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 7 Statement of Cash Flows – Determination of cash equivalents
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 27 Consolidated and Separate Financial Statements – Transaction costs for non-controlling interests
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 28 Investments in Associates – Potential effect of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) on equity method accounting
Staff introduced the paper based on the tentative agenda decision and comment letters received and indicated that information on step acquisitions included in the draft tentative agenda decision was not included in the original submission received from constituents. One member expressed concern with including a response in the agenda decision that was not part of the original request for clarification and proposed that the final agenda decision should be based on the original submission and the IFRIC's draft response as agreed at its May meeting.
The IFRIC then discussed whether analogy to IFRS 3 with regards to accounting for contingent consideration is appropriate in as far as associate accounting is concerned. Some members pointed out the IFRIC has previously agreed that analogy is not appropriate and don't believe the IFRIC should change its position now. One member is of the opinion that there is no real problem as other IFRSs dealing with assets accounted for at cost, require any contingencies to be included in the cost of the asset. Another member requested having a separate debate on this issue at the September meeting. The Chairman mentioned that it is the Board's intention to rethink accounting for associates as a whole and that some consequential amendments will be made to IAS 28 following the finalisation of the revised IAS 31, which is anticipated in September.
The IFRIC agreed to remove the additional paragraphs added to the wording agreed in May and confirm the tentative agenda decision not to add the item to its agenda.
IAS 28 Investments in Associates – Venture capital consolidations and partial use of fair value through profit or loss
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 28 Investments in Associates – Impairment of investments in associates
One member noted that, as the Board had already decided in its June 2009 meeting that it would include this issue within the exposure draft of Improvements to IFRS, no further discussion was needed. The Board had decided that impairment of associates measured at cost in the separate financial statements of the investor should follow IAS 39 requirements.
One member of the IFRIC noted that similar clarification would be needed for treatment of subsidiaries in the separate financial statements. The Chairman noted that this issue can be addressed through either the consolidation or financial instruments project.
The IFRIC decided to include some reference to these developments in its agenda decision. Final wording will be circulated to the IFRIC members for approval.
IAS 39 Financial Instruments: Recognition and Measurement – Hedging using more than one derivative as the hedging instrument
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 39 Financial Instruments: Recognition and Measurement – Meaning of 'significant or prolonged'
The IFRIC received 10 comment letters regarding its May tentative decision. Two of these comment letters were from the regulators who were particularly concerned with the proposed wording that emphasised uniqueness of each equity investment and the use of judgement. Many IFRIC members expressed their concerns that this could lead to reduction of the amount of information available to users.
The IFRIC had an extended discussion of the issue as well as proposed changes in the agenda decision wording. The IFRIC members noted that the issue relates to the creation of criteria for individual financial instruments that the company has to apply the consistently. Nonetheless, the majority of the members noted that the changes in the wording proposed by staff go beyond the scope of an agenda decision.
Ultimately, the majority of the IFRIC members agreed that the May wording more clearly articulated the position of the IFRIC in most of the areas than the changes proposed by the staff. Nonetheless, the IFRIC agreed to modify the wording of the agenda decision and to include a reference to the existing disclosure requirements of IAS 1 and IFRS 7. After discussion, the IFRIC also decided to include a reference to consistency of the criteria applied. The IFRIC members proposed also minor changes to the structure of the agenda decision. Final wording to be circulated to the IFRIC members for approval.
IFRIC 12 Service Concession Arrangements – Scope of IFRIC 12
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
Review of Tentative Agenda Decisions published in March IFRIC Update
IFRIC 18 Transfers of Assets from Customers – Applicability to the customer
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 34 Interim Financial Reporting – Interim disclosures of fair value
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
IAS 38 Intangible Assets – Compliance costs for REACH
The IFRIC confirmed its tentative agenda decision not to add the item to its agenda.
Staff Recommendations for Tentative Agenda Decisions
IFRS 2 Share based payment – Non-vesting condition or non-market based vesting condition when condition is not within the control of the entity or employee
The IFRIC considered a request to add to its agenda a project to clarify non-vesting conditions or non-market conditions when the conditions are not within the control of the entity or employee, based on IG24 of IFRS 2.
The issues on which clarification were sought on were:
- Issue 1: Is a condition a non-vesting condition because there is no service condition or because there is a service condition that is dependent on another condition that does not related to the performance of the entity?
- Issue 2: When a condition affects the timing of the vesting but not whether the share-based payment vests, should it be treated as a vesting or non-vesting condition?
On issue 1, the staff noted that par IG24 is not part of the mandatory guidance of IFRS 2 and should therefore be read in the context of IFRS 2. Staff considered that the examples in IG24 are not a de facto definition of non-vesting conditions and that non-vesting conditions are those that do not meet the definition of vesting conditions. The staff concluded that in the example given in the submission the conditions interact in such a way that combined they meet the definition of vesting conditions in IFRS 2 as the employee is likely to be motivated to stay with the entity during the estimated length of time to reach the set target.
With regards to issue 2, the request noted that there are two views on the accounting treatment for such conditions;
- View 2(a) – some constituents support a true up for changes in the expected service period and expected rate of forfeiture. This approach is consistent with IG Example 2 of IFRS 2.
- View 2(b) – Other constituents would account for the effect of a non-vesting condition that affects the timing of the vesting in the same way as a market-based besting condition with the vesting period estimated on day 1 and not trued up.
The staff concluded that the condition that affects the timing of the vesting does not meet the definition of vesting conditions and as such do not determine the vesting period and considers both views inconsistent with IFRS 2.
The staff recommend to the IFRIC not to add the item to its agenda as IFRS 2 provides sufficient guidance on the definition of vesting conditions and therefore non-vesting conditions and the treatment of non-vesting conditions. As these issues were considered to be uncommon in practice and diversity in practice is not anticipated, the staff considered the issues too narrow to develop an interpretation.
One IFRIC member felt that the scope of the question is much broader than just the facts mentioned in the staff paper and that the real question to consider is how the interaction between conditions should be treated and what the accounting implications thereof were. Most of the IFRIC members disagreed with the staff's conclusion and indicated that they can't see how the staff could conclude that it was just a vesting condition. Members also disagreed that the issues were uncommon in practice.
It was agreed that the staff should research the question further before an agenda decision could be reached. The Chairman asked all members to assist staff with the research through their experience and providing real-life examples. The outcome of the research will determine whether the IFRIC adds the item to its agenda or refer it to the Board as an amendment to IFRS 2. No tentative agenda decisions were reached.
IFRS 3 Business Combinations – Measurement of Non-controlling Interest
The IFRIC considered a request to clarify whether an entity should apply the measurement choice in IFRS 3 to all components of non-controlling interest (NCI).
The question related to whether the change from 'minority interest' to 'non-controlling interest' had broadened the scope of instruments to be included in NCI. Some are of the view that when the Board issued IFRS 3 (Revised) it intended the measurement choice in IFRS 3 (2008).19 to apply only those components of NCI that are equivalent to minority interest (MI) as defined in IAS 27 (2003). In addition, NCI components other than MI should be measured at fair value or the measurement basis required by IFRS. For example a share option under share-based payment awards should be measured in accordance with IFRS 2.
An alternative view is that IFRS 3 (2008) defined NCI as a collective term and sets out the measurement requirements for the aggregate. Nothing in IFRS 3 prevents an entity from measuring components of NCI at other amounts. Practice in applying IFRS 3(2004) demonstrated that some MI components are measured at fair value or other measurement basis.
The IFRIC noted that the measurement basis of NCI is a pervasive and important issue for business combination accounting, and that it was apparent from the staff analysis that divergent views were emerging. The IFRIC considered the staff recommendation that the issue should be referred to the Board for potential inclusion as an annual improvement.
One IFRIC member suggested that the first question to be answered is whether 'the equity in a subsidiary...' in the definition of NCI refers to the net assets of another entity or to its equity instruments, as some equity instruments do not have net assets assigned to them, for example, share options. Other members wanted to know what the Board's intention was with changing the definition of MI to NCI.
After a long discussion of the various equity instruments and their claim on the net assets of an entity, the IFRIC tentatively agreed not to add the item to its agenda, noting that measurement of NCI should be based on the option allowed in IFRS 3 and that components of NCI other than MI should first be measured in accordance with other IFRSs and that the remaining net asset value should then be attributed to NCI. The IFRIC also agreed to refer the matter to the Board.
IFRS 3 Business Combinations – Un-replaced and voluntary replaced share-based payment awards
The IFRIC received a request to clarify how to account for unreplaced and voluntarily replaced share-based payment awards.
With regards to unreplaced awards, constituents asked:
- whether unreplaced awards are part of the consideration transferred or part of the NCI
- whether unreplaced awards should be remeasured at the acquisition date and on what measurement basis; and
- whether an entity should allocate some of all of the value of the unreplaced awards to post-combination expense.
Classification as non-controlling interest
IFRIC agreed that the unreplaced awards of the acquiree meet the definition of non-controlling interest.
Measurement date and basis
IFRIC agreed that unreplaced awards should be measured at their market-based measure at the acquisition date.
Apportionment of consideration transferred and post-combination expense
IFRIC agreed that the acquirer is bound by the terms of the unreplaced awards and that a portion of market-based measure should be allocated to NCI. Only that portion of market-based measure that relates to undelivered employee services should be included in post-combination expense.
Share-based payment awards that the acquirer chooses to replace
IFRIC agreed that when an acquirer voluntarily issues replacement awards to unexpired share-based payments, the replacement awards represent consideration transferred as it is an issue of equity instruments of the acquirer in exchange for unexpired awards of the acquiree. This situation is no different from honouring a change of control provision in the existing terms of the award.
One IFRIC member was confused as to how the staff reached its conclusion as IFRS 3 states that there is difference between the accounting for those awards that the acquirer voluntarily replace and those that it is obliged to replace. The staff considered this distinction to apply only to those share-based payment wards that would have expired and are voluntarily replaced by the acquirer.
The IFRIC reached a tentative decision to refer to matter to the Board as a complete rewriting of B56 of IFRS 3 is required. Concerns were raised that IFRS 3 is a converged standard and that consultations need to happen with the FASB in order for the wording to be changed. The Chairman remarked that just as the IFRIC had to convince itself of the significance of the matter, the FASB will have to convince itself.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Writedown of a disposal group
The IFRIC received a request to add to its agenda an issue with respect to the write-down of a disposal group to the lower of its fair value less costs to sell and its carrying amount when the write-down exceeds the carrying amount of non-current assets. The submission points out four alternative views:
- limit the recognised loss to non-current assets only
- limit the recognised loss to net assets of the disposal group
- limit the recognised loss to total assets of the disposal group
- limit the recognised loss to the non-current assets and recognised a liability for the excess to ensure that the disposal group is measured at fair value less costs to sell
The staff set out a three-step approach to applying the requirements of IFRS 5 and noted that IFRS 5 is not clear on how to account for an impairment loss of a disposal group if triggered by a fair value change in a financial liability. Members questioned whether the allocation of the impairment loss in such a case to scoped-in assets is meaningful for users. Some IFRIC members also felt that the allocation of impairment loss to each asset within a disposal group would not provide additional information to the users. One member made the remark that IFRS 5 was originally written to deal only with non-current assets and that the inclusion of disposal groups may have happened without the necessary thought-process on how all the requirements would apply to disposal groups.
The majority of the IFRIC members agreed with the staff's analysis and thought that the question should be expanded to ask what will happen if the value of the disposal group is negative – should an entity then recognise a 'provision for disposal'?
The IFRIC reached a tentative decision to refer the matter to the Board with the recommendation that paragraph 23 of IFRS 5 should be amended to additionally refer to paragraph 105 of IAS 36 (which limits the reduction of the carrying amount of an asset), so that no assets will be reduced to zero and only a liability recognised.
IAS 23 Borrowing Costs – Meaning of 'general borrowings'
The staff introduced the first issues relating to amended IAS 23 (2007) by noting that the IFRIC has received requests to clarify the meaning of general borrowings. The issue relate to the question whether a borrowing made to acquire a specific asset other than a qualifying asset could/should be excluded from general borrowings when assessing the amount of general borrowing costs that are to be capitalised.
The staff noted that two views have developed in practice. These were outlined in the staff paper as follows:
- View A: The definition of general borrowings in paragraph 14 of IAS 23 means that all borrowings other than borrowing made specifically for the purpose of obtaining a qualifying asset have to be taken into account when calculating the capitalisation rate.
- View B: The general principle in IAS 23 that the entity shall capitalise borrowing costs that would have been avoided if the expenditure on the asset had not been made allows allocation between general borrowings and other borrowings made specifically for the acquisition of other assets.
The staff believe that there is a conflict between specific and general principles of IAS 23 and support the view that the borrowings made specifically for the acquisition of other assets are excluded from the calculation of the capitalisation rate for general borrowings. The staff believe that the IFRIC should refer this issue to the Board to amend IAS 23 as a part of Annual Improvement process in this respect. They therefore recommended that the IFRIC should not add the issue to its agenda.
One IFRIC member disagreed with the staff analysis and noted that in the practice another method has developed based on opportunity costs allocation. Another IFRIC member noted that any guidance in this area would be of nature of implementation guidance only and that the standard has many issues to be addressed in this way as paragraph 14 is difficult to be applied in practice. Another IFRIC member noted that even though significant judgement of is required in determination of general borrowing the amounts concerned would generally not be material.
One IFRIC member responded that in her opinion the standard is sufficiently clear in what are the requirements for capitalisation but that the results it produces can be counterintuitive. The Chairman noted that the revised standard is relatively new and that it would require more time to assess how the constituents apply it. Another member disagreed as in her opinion there is already divergence in practice, nonetheless any guidance in this respect would be implementation guidance only.
The IFRIC members discussed the issue of potential divergence in practice. They concluded that even when the practitioners applied the requirements of IAS 23, they would end up with different capitalisation rate. Nonetheless, the majority of the members did not believe that this diversity would hamper comparability of financial statements. Finally, the IFRIC tentatively decided not to add the issue to its agenda as the members were unable to reach conclusion on the issue and did not expect significant diversity in the practice. The staff were asked to rewrite the agenda decision accordingly.
IAS 32 Financial Instruments: Presentation – Debt to equity swap
The staff began the discussion by noting the increase in submissions related to current economic environment. The issue relates to a case when an entity issues its own equity instruments in settlement of debt in a restructuring. The issues raised by the staff paper were analysed as the following four issues:
- whether the issuing equity instruments is one form of consideration;
- whether the initial measurement of equity in the connect of the debt to equity swap is fair value;
- whether this fair value is determined as fair value of the extinguished liability or issued equity, and;
- whether any gain on extinguishing of liability is shall be reported in profit or loss.
The staff analysed the issues and noted that in their opinion issuing of the equity instruments is indeed one form of consideration and the new shares issued should be measured at the fair value of the liability extinguished with any difference between the carrying amount of the financial liability extinguished and its fair value recognised in profit or loss. Their analysis was based on the general principles of IFRS that equity is a residual and should be measured by the changes in assets and liabilities as stated in the Framework and IFRS 2 and on consistency with IFRIC 17.
The alternative opinion from the submission referred to IAS 32.33 according to which no gain or loss shall be recognised in profit or loss on purchase, sale, issue or cancellation of an entity's own equity instruments.
A significant majority of IFRIC members agreed with the results of the staff analysis, some, however, for different reasons. One IFRIC member thought of the swap as two transactions; modification of liability with its subsequent change to equity for the fair value; another based her analysis on the fact that debt and equity were substantially different instruments. Nonetheless, some IFRIC members noted that according to some literature the overall transaction can be also thought as equity transaction. Another speaker noted that this transaction cannot be thought as the transaction with shareholders in the capacity of owners as it is primarily a transaction with creditors, thus supporting the proposed accounting treatment.
Majority of the IFRIC members, nonetheless, noted, that the fair value of liability in the time of restructuring may be difficult to obtain. Therefore, they proposed an approach similar to US GAAP where fair value of either extinguished liability or fair value issued equity is used as measurement basis depending on the fact which is more reliable and more easily determinable.
After significant discussion the IFRIC members noted that even though they believe that the proposed view is the only acceptable interpretation given the current IFRS requirements, there is need for clarification of the requirements. After assessing the issue against the agenda criteria the IFRIC decided to take the issue on the agenda and develop and interpretation of the standard to make it clear that the proposed accounting treatment is the only solution. The IFRIC noted that it would aim to issue such an interpretation in early 2010. As such it asked its chairman to consider the possibility to have a video conference to facilitate drafting of the interpretation in August.
Further Discussion: Classification of Rights and Options
The staff presented two additional issues occurring lately to the IFRIC.
Rights issues denominated in a foreign currency
One related to a current issue around the world related to classification of rights issues. The staff noted that based on the current IFRS requirements and based on the previous conclusion of IFRIC if the exercise price of the right was fixed in a foreign currency, the entity would have not received a fixed amount for the issue of the shares. Thus the instrument does not fulfil the criteria of equity instrument and must be classified as liability in its entirety according to IAS 32.
In the current economic environment, contrary to the previous periods, the issue has become much more widespread. As more and more companies issue rights in more than one currency (e.g. when listed in more than one jurisdiction or based on regulatory requirements) application of this requirement leads to counterintuitive results, creating a huge practical issue. While the rights are outstanding the changes in entity's own share price are reflected in profit or loss.
The IFRIC noted that in 2005 it proposed an amendment of IAS 32 to the Board on a broader fixed to fixed issue. The Board decided not to amend the standard at that time as piecemeal changes to an already complex standard would create additional complexity just as the standard was issued. Moreover, at the time neither the Board nor IFRIC believed that the issue can lead to significant diversity in practice. However, the effects of the financial crisis and increased volatility in share prices as well as FX rates have led to exacerbation of the issue in practice.
A Board observer noted that this result was not intended by the Board and in his opinion the current treatment contradicts the rationale behind the current standard. He agreed that as the practice developed this issue it has to be urgently addressed.
After a short discussion the IFRIC decided to refer the issue to the Board to take immediate action as the results from current requirements are clearly not in accordance with the economics of the underlying transactions. As the IFRIC members believe it is a very narrow issue that can be addressed speedily, the issue could be discussed on the upcoming July Board meeting.
Conversion options
The second issue related to a collar on conversion options. The submission related to a financial instrument that will or may be converted into a number of the entity's own equity instruments subject of a collar. After a brief discussion the IFRIC noted that there are not sufficient principles in the current IFRSs to develop an interpretation on this issue as in the practice there is wide diversity in the issued instruments with similar features. Therefore, it decided to direct the query to the liabilities and equity technical team as part of the project in this area.
Administrative Session – IFRIC work in progress
The IFRIC coordinator gave a brief update on the progress of IFRIC activities. No additional outstanding projects apart from those discussed were identified.
This closed the public session.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.
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10 July 2009: Agenda for July 2009 IASB meeting
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The IASB will hold its July 2009 regular monthly meeting at its offices in London on Tuesday to Friday 21-24 July 2009. The two days 23 and 24 July will be a joint meeting with the US Financial Accounting Standards Board. The meeting will be open to public observation and will be webcast. Presented below is the agenda for the meeting.
IASB Board Meeting Agenda
21-24 July 2009, London |
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Tuesday 21 July 2009 (starting 11:15am)
Wednesday 22 July 2009
Thursday 23 July 2009 – Joint Meeting with the FASB
Friday 24 July 2009 – Joint Meeting with the FASB
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10 July 2009: IAS Plus Newsletter on IFRS for SMEs
9 July 2009: Notes from the IASC Foundation Trustees meeting
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The Trustees of the IASC Foundation, under which the IASB operates, met in public session in Amsterdam on 7 July 2009. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the public portion of the meeting. Key decisions include:
- Renaming the IASC Foundation as the IFRS Foundation
- Renaming the IASB as the International Financial Reporting Standards Board (IFRSB)
- Creating two Vice-chairman positions for the IFRSB
- Modifying the length of renewal terms for IASB members from 5 years to 3 years (with some exceptions)
- Creating an SME Implementation Group to address implementation questions relating to the IFRS for SMEs, to be chaired by Paul Pacter
- Adding Africa and Latin America to the required geographical mix of IASCF trustees
The Trustees also held a joint meeting with the IASCF Monitoring Board on 6 July. Our notes of that meeting are Posted Separately Below.
Notes from the Meeting of the IASC Foundation Trustees
7 July 2009 |
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IASB's response to the financial crisis
The IASB Chairman made a short presentation similar to that given at the meeting of the Monitoring Board on 6 July 2009. He reiterated that the proposed timing of the financial instruments project would allow all the revised standards to be in place by 2012, even allowing for any 'true-up' necessary between the IASB and the FASB.
In response to a question from a Trustee, Sir David acknowledged that there had been a breakdown in communication between the IASB and senior policymakers, as was evidenced in the encounter with the ECOFIN in June 2209. In that meeting, it became apparent that the finance ministers were not aware of the considerable efforts being made by the IASB (and the FASB) to respond to the G20, Financial Stability Board and others. The IASB now realised the importance of regular dialogue with ECOFIN and others at the governmental level and were establishing such open lines of communication.
A Trustee noted that the IASB's financial instruments project would not address some sensitive political issues, especially with respect to certain equity investments, such as 'strategic' investments for which an OCI-only solution is proposed. Although the categories proposed solved some impairment issues, the larger issues of debt impairment (loss provisioning) would not be solved in time for 2009 year-ends, but expectations were high. Several Trustees noted that such issues and expectations would need to be managed carefully if the IASB was to succeed.
In addition, several Trustees were concerned that the IASB and FASB, in spite of their best efforts, seemed to be in different places. The current climate really required sequential rather than consecutive decision-making.
Trustees were also concerned that the expected loss model currently being investigated by both Boards might not be the ideal solution either, citing several of the reasons outlined in the recent staff paper on credit risk. The IASB was encouraged to take a thoughtful approach to providing for losses.
IASB Work Programme
The Trustees noted the IASB's current work programme. In particular, they welcomed the forthcoming publication of the IFRS for SMEs, scheduled for 9 July 2009. Some Trustees were concerned that, notwithstanding that many of the items on the IASB's agenda were either responding to the financial crisis or else items on the FASB/IASB Memorandum of Understanding, the agenda was too full, and asked whether there was any way to trim it.
The Trustees approved the appointment of Dr Paul Pacter as chair of the SME Implementation Group. This group would be responsible for:
- Encouraging jurisdictions to adopt the IFRS for SMEs;
- Ensuring consistent and high quality implementation across jurisdictions and within jurisdictions;
- Addressing the pervasive implementation questions that inevitably will arise on initial adoption of the standard globally; and
- Identifying and fixing lack of clarity, key omissions, and possible errors in the standard.
In connection with the IFRS for SMEs, Jeff van Rooyen noted that the IOSCO Emerging Markets conference would be held in November 2009. Dr Pacter should attend this conference, and the Trustees were willing to work with him in advance. Mr van Rooyen noted that the IFRS for SMEs was very important on the African continent. The IASCF Chairman noted that support for the IFRS for SMEs was not universal, and that some EU Member States, Germany in particular, might not support it. There was a need for 'active propaganda' to encourage the standard's adoption.
The IFRIC Chairman reported on the activities of the IFRIC, noting that the vast majority of issues raised to the IFRIC are addressed by means other than an Interpretation.
IASCF Constitution review
The IASCF Trustees reviewed the staff proposals for changes to the IASCF Constitution. These had been previewed during the meeting with the Monitoring Board on 6 July. The Trustees agreed that the Invitation to Comment would propose the following changes to the Constitution:
- Section 1 (Name): that the name of the organisation be changed from the IASC Foundation to the IFRS Foundation; and that the IASB be renamed the International Financial Reporting Standards Board.
- Section 2 (Objectives): that the Objectives include in (a) 'to develop, in the public interest, a single set of high quality, understandable, and enforceable and globally-accepted global accounting standards...'. No reference to principles-based is needed in the Constitution, that reference in the IASB's Due Process Handbook was thought sufficient.
- Section 2 (Sectors and Consultation): the Trustees concluded that, for the period under review, the scope of the IASB's responsibility should not be expanded to other sectors (such as public sector accounting standards or not-for-profit entities). However, they did agree that the Constitution should be explicit that the IASB may and should consult with those bodies with a legitimate interest in financial reporting standards (not national standard-setters alone).
- Section 3 (Governance): the position of the Monitoring Board in the governance structure of the organisation will be acknowledged in paragraph 3 of the Constitution and elaborated in sections 18-23. Section 3 would be amended to state that the governance of the organisation rests 'primarily' with the IASCF Trustees and other governing bodies as the IASCF shall appoint.
- Sections 6 and 10 (Trustees): there will be specific mention of Africa and South America in the geographical distribution requirements for Trustees (leaving two 'at large' seats); and the Constitution should provide for at least two vice-chairmen.
- Section 15 (Trustees' oversight of the IASB's agenda): the Trustees are to be consulted in the 'exceptional circumstances' in which the IASB is considering having an exposure period of less than 30 days (the shortest period permitted by the Constitution).
- Section 30 (IASB): there should be two vice-chairmen of the IASB; the Trustees will consider whether the roles of the IASB Chairman and the CEO of the IASCF should be separated.
- Section 32 (terms of IASB members): terms should be set at an initial term of 5 years renewable once for a further 3 years, unless the member is a potential chairman or vice-chairman, in which case the renewal would be for a further 5 years. (Flexibility on this matter was urged by many around the table; there was also considerable discussion of transitional arrangements for existing renewable appointments.)
- Section 37 (IASB agenda setting): the required consultation with the IASCF Trustees and the SAC remain, decisions remaining with the IASB absolutely (no changes to the Constitution would e necessary). However, the IASB's Due Process Handbook would be amended to note that comments from constituents would be invited during this period (the agenda candidates and relative priorities are in publicly-available documents). It is likely that the onus would be on constituents to respond to these documents and they would not be the subject of a formal request for views.
Some Trustees noted that the Trustees' needed to be responsive to constituents' concerns about their oversight activities. This need was not something to be addressed in the Constitution itself, but elsewhere (Deloitte's comment letter recommended that the Trustees develop their own Handbook, describing their responsibilities and how they discharge them). The Constitution Committee is aware of the stress in this area and is likely to address it once the Constitution review is concluded.
The IASCF staff noted that they hoped to have the proposals issued by early August 2009 allowing for a three month comment period. It might be possible to analyse comments and propose final amendments to the Constitution at the January 2010 Trustees' meeting, or the April 2010 meeting at the latest. Round-table discussions during the exposure period are being arranged and will take place in London, New York and Tokyo. At each round-table, at least three members of the Trustees (the Chairman and some members of the Constitution Committee) will attend. 'Local' Trustees, if available, were also encouraged to attend. In addition, individual Trustees will interact with constituents in their own jurisdictions.
Due Process Oversight Committee
Trustee Antonio Vegezzi presented several matters related to the Trustees' oversight of the IASB.
Balloting IASB documents by retiring IASB members
The Trustees agreed that, for operational reasons, retiring IASB members would be permitted to ballot a due process document or final IFRS after their term expired provided that all technical decisions had been made by the expiry of the member's term. The Trustees were prepared to allow for some flexibility provided that the distinction between the 'mere administrative elements of balloting versus the decision-making process' was respected absolutely.
Statement of support for the IASB's approach to the financial instruments project
The Trustees agreed to incorporate their formal support for the IASB's revised approach to the financial instruments project:
The Trustees support the IASB's agreed timetable for the comprehensive revision of IAS 39. The Trustees believe that the IASB's decision to give priority to the comprehensive project, rather than to piecemeal changes, remains appropriate. At the same time, the Trustees emphasise the importance of the IASB's concluding the accelerated portion of the project by year end as part of IASB's response to accounting issues arising from the financial crisis.
The Trustees recognise that this is a challenging task due to the time constraints and the complexity of the issues involved, and may required reallocation of resources and reprioritization of priorities to be achieved. The Trustees will monitor the IASB's progress against the agreed and urgent time lines.
Complaint received on due process related to the Leases project
The Trustees considered (at considerable length) a due process concern raised to them by Leaseurope, a leasing industry association. Leaseurope had raised three major concerns:
- The IASB's decision to defer lessor accounting from the project and then its decision to include a chapter on lessor accounting in the discussion could lead to decisions regarding an important area of lease accounting without sufficient consultation.
- At the same time, Leaseurope thought that any new standard on lease accounting should address lessor accounting.
- In general, Leaseurope was disappointed that the IASB has not used its leasing working group effectively.
The Due Process Oversight Committee had satisfied itself that the issues raised were factually correct. As part of its own review of the IASB's Working Groups, the IASB had noted that the Leasing Working Group had not been engaged by the project staff in an appropriate manner. In particular, a staff member's maternity leave had not been handled well and had resulted in a breakdown in communications that was acknowledged. The Leases Working Group has subsequently been re-engaged and will be involved as comments on the Leases Discussion Paper are analysed and an exposure draft developed. Trustees were unhappy with this state of affairs and hoped that lessons had been learned.
In a discussion that strayed closely on the technical aspects of the leasing project, Trustees questioned whether the scope of the project, criticised by Leaseurope in its letter, could be defended. Several IASB members and IASB senior staff expressed the view that (i) lessee accounting was the major problem, and was the real focus of the criticism of the US Securities and Exchange Commission when the Memorandum of Understanding was being developed; (ii) the issues from the lessor side of the equation were really matters of revenue recognition and derecognition of the leased asset – items being addressed in other IASB projects. However, IASB members and Trustees accepted that the IASB's proposals represented a threat to the leasing industry and that they would use any and all reasons to object and delay any changes to the status quo. For that reason alone, Trustees urged the IASB to adhere rigorously to its due process and, if it does address lessee accounting alone at first, it must be confident that other IFRSs will address the lessor side of the equation.
XBRL matters
The work on providing quality assurance to the IASCF's activities developing an IFRS XBRL taxonomy was noted. The IFRS taxonomy continues to be developed and this raised issues of balancing the need for improvements and the need for stability in the product. A further report on this matter will be made in October.
Report of the Standards Advisory Council Chairman
Paul Cherry, the SAC Chairman, reviewed the activities of the reconstituted SAC since it began operating in January 2009. Although it was a large group, he noted a strong sense of commitment. However, the fact that SAC members now represented constituencies meant that more time was required before meetings; that led to longer lead times for draft agendas and more staff time. The SAC had spent a substantial part of its first meeting agreeing and understanding its role, one with which it was now content and allowed it to frame its discussions properly. Mr Cherry thanked the Trustees that the SAC now had dedicated staff support, which should help it meet its mandate and be effective.
The SAC expected 'engagement' on major changes to the IASB's agenda and was willing to use technology to provide it. The SAC had participated in the IASB's request for views on the FASB's FSPs in April and had also responded to the FCAG on its activities, assembling those responses quickly. In addition, there was a sense that emphasis on 2011 was creating an artificial deadline, one that was often seen as more of a stumbling block than a useful target. Finally, the SAC was beginning to turn its attention to the post-2011 agenda and to consider what should be in the next wave of standard-setting activities.
Mr Cherry noted that the US equivalent body (the FASAC) had expressed concerns about the size of the IASB's technical agenda: this was not a weakening of support for convergence, but rather a concern about the volume of work and the potential consequences for the quality of the standards produced. His own view was that the US, and in particular the US SEC, had to clarify their position on convergence: many in the US are confused on the time-line for adopting IFRS and the strategy for getting there.
In response to Trustees' questions, Mr Cherry thought that the SAC had been chosen well: there was a good mix of technical and business backgrounds, one that kept the SAC focussed on strategic issues rather than technical matters. The size of the group really prevented spirited debate, but the work done at the outset on agreeing its role has helped to focus the SAC's discussions. What was needed was a proper feedback mechanism-most likely in the Basis for Conclusions accompanying an ED or IFRS-that specifically identified SAC concerns and how they were addressed or why the IASB disagreed with them.
Mr Cherry noted that the SAC had been given two vice-chairs: he intended to use these to assist in regional communications, especially between SAC meetings, to engage with regional standard-setters, users, preparers and other stakeholders and to help them feel engaged in the IASB process.
Closing
Immediately prior to closing the public session, the IASCF Chairman noted the presence of Tom Jones, recently retired as IASB vice-chair. He thanked Mr Jones for his eight years' service to the IASB and noted that he would remain as an advisor to the Trustees and the IASB.
This summary is based on notes taken by observers at the IASCF Trustees meeting and should not be regarded as an official or final summary.
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9 July 2009: IASB issues IFRS for SMEs
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The IASB has issued the IFRS for SMEs. This is the first set of international accounting requirements developed specifically for small and medium-sized entities (SMEs). It has been prepared on IFRS foundations but is a stand-alone product that is separate from the full set of International Financial Reporting Standards (IFRSs). The IFRS for SMEs has simplifications that reflect the needs of users of SMEs' financial statements and cost-benefit considerations. Compared with full IFRSs, it is less complex in a number of ways:
- Topics not relevant to SMEs are omitted.
- Where full IFRSs allow accounting policy choices, the IFRS for SMEs allows only the easier option.
- Many of the principles for recognising and measuring assets, liabilities, income and expenses in full IFRSs are simplified.
- Significantly fewer disclosures are required.
- And the standard has been written in clear, easily translatable language.
To further reduce the reporting burden for SMEs, revisions to the IFRS will be limited to once every three years. It is suitable for all entities except those whose securities are publicly traded and financial institutions such as banks and insurance companies. The 230-page standard is a result of a five-year development process with extensive consultation of SMEs worldwide. Accompanying the standard is implementation guidance consisting of illustrative financial statements and a presentation and disclosure checklist. The IFRS for SMEs is available for any jurisdiction to adopt whether or not it has adopted the full IFRSs. It is up to each jurisdiction to determine which entities should use the standard. It is effective immediately on issue. The standard and accompanying guidance and basis for conclusions may be downloaded immediately without charge from the IASB's website. To support the implementation of the IFRS for SMEs the IASC Foundation is developing comprehensive training material. The Foundation is also working with international development agencies to provide instructors for regional workshops to 'train the trainers' in the use of the training material, particularly within developing and emerging economies. The training material will be published in a number of languages. The English language material will be downloadable free of charge from the IASB's website in late 2009. Click for:
- IASB Press Release (PDF 39k)
- IFRS for SMEs Fact Sheet (PDF 182k). The Fact Sheet includes details of:
- Project history
- Outreach and consultation
- Five types of simplifications
- Omitted topics
- Examples of options in full IFRSs not included in the IFRS for SMEs
- Recognition and measurement simplifications
- Main changes from the exposure draft
The IASB also announced that Paul Pacter, Director of Standards for SMEs for the IASB, has agreed to lead a group to support international adoption of the standard. Details of this group will be announced shortly.
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9 July 2009: IAS Plus Newsletter on management commentary
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On 23 June 2009, the IASB published an exposure draft (ED) of proposed non-mandatory guidance for preparing and presenting a 'management commentary' – sometimes called 'management's discussion and analysis' or 'operating and financial review'. In a management commentary, which normally accompanies but is not part of the financial statements, management explains how the entity's financial position, financial performance and cash flows relate to management's objectives and its strategies for achieving those objectives. Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – IASB Issues Proposals Regarding Management Commentary (PDF 62k) explaining the proposals. Click to go to the Project Page on the IAS Plus Website. Past issues of all IAS Plus newsletters are Here.
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8 July 2009: Accounting Roundup – second quarter 2009 review
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We have posted Accounting Roundup: Second Quarter in Review–2009 (PDF 327k, 39 pages), prepared by the Accounting Standards and Communications Group of Deloitte LLP (USA). This newsletter provides brief descriptions of pronouncements affecting accounting, financial reporting, and corporate governance issued during 2Q-2009 by standard setters and regulators including FASB, EITF, AICPA, SEC, FASAB, PCAOB, GASB, IASB, IFRIC, and IAASB. This quarterly review consists of articles, adapted as necessary, from issues of Accounting Roundup published in April and May 2009, as well as new articles for the month of June. There's also information about upcoming Dbriefs Webcasts. You will find past issues Here. International and IFRS-related developments covered in this edition of Accounting Roundup are:
- IASB Seeks Feedback on Impairment Model
- IASB Proposes Guidance on Fair Value Measurement
- IASB Publishes Discussion Paper on Accounting for Credit Risk in the Measurement of Liabilities
- IASB Proposes Amendments to Clarify Accounting for Pension Plan Prepayments
- IASB Amends Accounting for Share-Based Payments
- IASB Issues Annual Improvements Standard
- IASC Foundation Issues IFRS Taxonomy 2009 and Publishes XBRL Handbook for Public Comment
- IASB Proposes Guidance on Management Commentary
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8 July 2009: IAESB proposes education work plan
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IFAC's International Accounting Education Standards Board (IAESB) has invited organisations and individuals with an interest in accounting education to comment on its proposed 2010-2012 Strategy and Work Plan. The IAESB's proposed strategy focuses on projects and activities aimed at developing International Education Standards (IESs), while providing adoption and implementation guidance to interested stakeholders in accounting education. The IAESB proposes to undertake three high-priority activities, beginning in 2010. These are:
- Conducting a revision of the IESs, considering results of the IAESB's drafting conventions project and recent developments in the accountancy profession.
- Developing implementation guidance in areas of measurable implementation of the IESs, competency frameworks, and quality control measures for education providers.
- Promoting greater awareness among academics, regulators, and others of the IAESB's pronouncements and its role in advancing international debate on emerging issues relating to development and assessment of professional accountants.
The direction of further activities during the period of 2010-2012 will depend on the outputs from these three projects, although the IAESB's proposed work program for 2010-2012 contains a number of potential projects for consideration. Comments are requested by 5 October 2009. Click for Press Release (PDF 38k), which has hyperlinks for downloading the IAESB exposure draft.
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7 July 2009: IFRS insurance accounting newsletter
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Deloitte (United Kingdom) has published the July 2009 edition of its monthly newsletter focussing on the joint IASB and FASB project to develop a new, comprehensive, global financial reporting standard for insurance. Among other things, this issue reports on decisions made by the IASB in June, particularly the important conclusion, in line with FASB, to abandon the Current Exit Price model. The IASB rejected the revised timetable proposed by its staff, which included a publication date of April 2010. The Board asked the staff to reformulate its plans to ensure that an exposure draft is published in December 2009 as originally intended, with a final standard in 2011. Click to download July 2009 Issue of the Insurance Accounting Newsletter (PDF 198k). There are permanent links all issues of the newsletter on IAS Plus Insurance Project Page.
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7 July 2009: IAS Plus Newsletter on IFRS 2 amendments
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On 18 June 2009, the IASB issued amendments to IFRS 2 Share-based Payment that clarify the accounting for group cash-settled share-based payment transactions. The amendments clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements. In these arrangements, the subsidiary receives goods or services from employees or suppliers but its parent or another entity in the group must pay those suppliers. Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – Clarification of Accounting for Group Cash-settled Share-based Payment Transactions (PDF 114k) explaining the amendments. Click to go to the Related Information on IAS Plus Website. Past issues of all IAS Plus newsletters are Here.
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7 July 2009: Notes from the IASCF Monitoring Board meeting
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The Trustees of the IASC Foundation held a joint meeting with the IASCF Monitoring Board on 6 July 2009 in Amsterdam. It was the second meeting of the Monitoring Board. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.
Notes from the Joint Meeting of the IASCF Monitoring Board and IASCF Trustees
6 July 2009, Amsterdam |
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Hans Hoogervorst, the chairman of the Monitoring Board, welcomed participants to the meeting and introduced briefly the topics for public discussion. It was noted that the Board had met in private session prior to the public meeting.
IASB's response to the financial crisis
Sir David Tweedie outlined the IASB's activities in response to the financial crisis, in particular the current status of the financial instruments project and the IASB's efforts to find an acceptable and robust replacement for IAS 39. In particular, he outlined the IASB's conclusions in the forthcoming exposure draft on the classification of financial instruments. He noted that the IASB had been asked by some constituents to adopt certain requirements in US GAAP with respect to impairment. The IASB had concluded that, were they to do so, greater complexity would have been introduced to an already complex standard. The IASB had therefore decided that it should simplify the classification of financial instruments to two categories (fair value and amortised cost) and the impairment approach to one (impairment would be triggered by a deterioration in credit standing). The IASB was working closely with the FASB, but the two were currently in different places. As a result, it was likely that the IASB and the FASB would expose each other's potential solutions and invite comments from constituents. Alternatives to the IASB approach likely to be included in the IASB's exposure draft as alternatives are that debt instruments traded in an active market would be measured at fair value in all cases; and a fair value option for all financial assets.
The EU Commissioner for Internal Markets noted that he was increasingly of the view that for financial institutions, accounting and financial reporting should be more biased towards the needs of prudential regulators than the investor. Responding immediately to this comment, the IASCF Chairman, Gerrit Zalm, noted that the banking industry representatives on the IASB's Standards Advisory Council meeting in June 2009 had expressed exactly the opposite view.
Other participants urged the IASB and the FASB to work as hard as possible to achieve a common position on this critical project.
Hans Hoogervorst, who is also a Co-Chairman of the FASB/IASB Financial Crisis Advisory Group, gave an overview of the FCAG's final report, which is due to be completed in July 2009. He noted that the report was likely to stress four fundamental principles and make recommendations in support of those principles. These principles were likely to be:
- Financial reporting plays an integral role in the financial system by providing unbiased, transparent information about the economic performance and condition of businesses. It assists in resource allocation decisions by investors and provides important information to prudential regulators and others. However, reporting to investors should have primacy and when regulatory requirements differ from financial reporting requirements the effects should be displayed in a manner that does not compromise the transparency and integrity of financial reporting.
- Financial reporting is but one of the information inputs available to financial markets. All users should recognize the limitations of financial reporting. There should be better and more rigorous processes for price verification and asset valuation.
- The global nature of the financial markets makes it critical to achieve a single set of high quality, globally converged financial reporting standards that provide consistent, unbiased and transparent information, regardless of the geographical location of the reporting entity.
- To develop standards that are high quality and unbiased, accounting standard-setters must enjoy a high degree of independence from undue commercial and political pressures, but must also have a high degree of accountability through appropriate due process and oversight ('no independence without accountability; no accountability without independence').
There was no substantive discussion of this matter.
IASCF Constitution review
The IASCF Chairman noted the following developments:
The Standards Advisory Council now has dedicated staff to assist it in discharging its role in the organisation.
As a result of the consultation with constituents about issues to be included in the IASCF Constitution Review, the Trustees are likely to propose the following:
- Re-branding: that the name of the organisation be changed from the IASC Foundation to the IFRS Foundation; and that the IASB be renamed the International Financial Reporting Standards Board.
- Consultation: that the Constitution be explicit that the IASB may and should consult with those bodies with a legitimate interest in financial reporting standards (not national standard-setters alone).
- Monitoring Board: the position of the Monitoring Board in the governance structure of the organisation will be acknowledged in paragraph 3 of the Constitution.
- Trustees: there will be specific mention of Africa and South America in the geographical distribution requirements for Trustees; the Constitution should provide for at least two vice-chairmen.
- 'Fast track' agenda items: the Trustees are to be consulted in the 'rare circumstances' in which the IASB is considering having an exposure period of less than 30 days (the shortest period permitted by the Constitution).
- IASB: there should be two vice-chairmen of the IASB; terms should be set at an initial term of 5 years renewable once for a further 3 years, unless the member is a potential chairman or vice-chairman, in which case the renewal would be for a further 5 years.
- IASB agenda setting: the required consultation with the IASCF Trustees and the SAC remain, decisions remaining with the IASB absolutely. However, comments from constituents would be invited during this period (the agenda candidates and relative priorities are in publicly-available documents). However, it is likely that the onus would be on constituents to respond to these documents and they would not be the subject of a formal request for views. In this way, the Trustees were trying to balance the openness of the agenda-setting process without making it too bureaucratic.
In response to a question from a member of the Monitoring Board, it was agreed that, in the event that the IASB was considering using a comment period of less than 30 days, that the Monitoring Board be informed. It was unlikely that they would be involved in the decision process (that was for the Trustees), but they did want to be aware of the situation.
Funding the IASCF
The IASCF staff noted that in April 2009 they had presented to the Monitoring Board a draft five-year plan that outlined resource requirements for the IASCF. As a result of further work on this budget, it is apparent that the IASCF could be in an operating deficit from FY 2010 based on current funding commitments (this assumes that the national schemes in EU Member States ceases once the central budget commitment comes on stream in FY 2011 and that the voluntary contributions from the major accounting networks and central banks is also discontinued).
An IASCF Trustee noted that the funding shortfall had the potential to put in jeopardy the extensive discretionary due process activities that the IASB was following: were these to be curtailed, the organisation would attract criticism, probably from those jurisdictions that had contributed to the funding shortfall!
The European Commissioner for Internal Markets noted that the presence of a central EU budget allocation for the IASCF did not preclude Member States from continuing national contribution schemes. The EU funding started in 2011 and the number in the presentation ($4.4m) was only indicative but about right. However, it was subject to review on an annual basis as part of the EU's budget-setting process. In response to a question, the Commissioner noted that governance issues were at the heart of the concerns at the ECOFIN and the European Parliament.
The Chairman of the US Securities and Exchange Commission acknowledged that the voluntary contribution system was not working in the US. The SEC was working to achieve a solution that was fair and stable and avoided a Congressional budget line item. It was likely that this would be a levy system on listed companies, but this was still being worked out. The introduction of a stable, independent funding regime for the US was a priority for her.
There was a brief discussion of the IASCF's budget and programme spending requirements, but little new came to light.
IOSCO and regulatory developments
The representative of the Japanese Financial Services Agency noted that the FSA recently had adopted a roadmap for the adoption of IFRS in Japan. Issuers would be permitted to use IFRS for fiscal years ending on or after 31 March 2010. A decision on mandatory adoption would be made in 2012. In the meantime, there was also a convergence programme in place between the IASB and the ASBJ, which should be completed by 2011. It was hoped that this two-pronged approach would mean that the transition to IFRS would be relatively easy in Japan.
The SEC Chairman noted that the SEC had received about 220 comment letters on its IFRS Roadmap - a large proportion of these were from issuers; with users, the accounting profession and academics also well represented. A large proportion agreed that a single set of global financial reporting standards was desirable; there was less agreement that they should be IFRS. However, issuers with international operations were overwhelmingly in favour of IFRS. Areas of concern with respect to IFRS were regional/ national carve-ins and carve-outs. Many commentators had concerns that the proposed timeline for implementation was too short. The SEC Chairman noted that analysis of the comments was continuing and that the Commission would resume consideration of the Roadmap in 4Q 2009.
A Trustee asked whether the European Commission had signed the Monitoring Board's Memorandum of Understanding. The Commissioner replied that he had not yet been able to do so, but that the topic would be discussed when the Economic and Monetary Affairs Committee (ECON) was reconstituted later in July 2009 (after the new European Parliament convenes), and he hoped that as a result of these consultations and consultations with Parliament, that the MoU could be signed on behalf of the Commission.
In response to a question from the Trustees, the Monitoring Board Chairman noted that the MB had yet to agree any formal modus operandi with respect to the IASB. An IOSCO representative noted that he expected that IOSCO would operate as before: operational matters would be raised with the IASB in the normal manner. The MB was put in place to add strength and assurance at a governance level and that IOSCO would raise only policy and governance matters at the MB level.
The Chairman closed the public session.
This summary is based on notes taken by observers at the Joint Monitoring Board and IASCF Trustees meeting and should not be regarded as an official or final summary.
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6 July 2009: IASCF publishes guide to IAS 32, IAS 39, IFRS 7
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The IASC Foundation has published Financial Instruments – A Guide Through the Official Text of IAS 32, IAS 39 and IFRS 7 (July 2009). This 688-page book presents the full text of the standards (along with all related IFRIC Interpretations) with extensive hyperlinked cross-references and annotations. The guide also includes footnotes that describe financial instruments issues on which the IFRIC decided not to develop an interpretation. In addition, to provide guidance on measuring and disclosing the fair value of financial instruments in markets that are no longer active (illiquid markets), the volume contains the report of the IASB Expert Advisory Panel and the accompanying IASB staff summary. The publication (ISBN: 978-1-905590-69-8, IASB Product Code: 10135) sells for £38. You can order it from the IASCF/IASB Shop. IASB comprehensive subscribers will automatically receive a copy.
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5 July 2009: Updated EFRAG endorsement report
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The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status Report as of 25 June 2009 (PDF 130k). This update reflects minor modifications in the expected timing of future steps in the process of endorsing the nine IASB pronouncements awaiting endorsement (see our News Story of 15 June 2009).
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3 July 2009: Another step toward IFRSs in Japan
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Four key Japanese accounting and business groups have jointly proposed to create an IFRS Council that would work to implement a plan for adopting IFRSs for listed companies in Japan. The plan was published in an Interim Report of the BAC. The four groups are the Accounting Standards Board of Japan and its oversight foundation; Japanese Institute of CPAs; Tokyo Stock Exchange; and Japan Business Federation (Nippon Keidanren). The IFRS Council would be responsible for identifying the various issues involved in implementation of IFRSs in Japan and for establishing overall policies and strategies. It would have the following committees:
- Strategic Committee for IASB Assuming that Japan moves towards IFRS adoption in the near future, this committee would deliberate upon a 'strategy and specific actions as to how best to influence developments of major accounting standards'.
- Education and Training Committee Establish and implement an education and training system for IFRSs mainly for accounting practitioners.
- Translation Committee Establish a system to promote an accurate Japanese translation of IFRSs.
- Committee for Separate Financial Statements Deliberate on how separate financial statements can be simplified, given the current focus on consolidated financial statements.
- Public Relations Committee Oversee communications to a wide range of stakeholders, including investors, company executives, analysts, and the media.
Click for:
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3 July 2009: Heads Up newsletter of FASB credit disclosures
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The 2 July 2009 Issue of the Heads Up Newsletter (PDF 89k) discusses FASB's 24 June 2009 exposure draft of a proposed Statement Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The ED is in response to concerns from financial statement users that the current disclosure framework for financing receivables and the allowance for credit losses is inadequate and lacks sufficient transparency. Comments on the ED are due by 24 August 2009. Heads Up, published by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (United States), provides in-depth summaries of recent accounting and financial reporting developments. This newsletter is published periodically as developments warrant, and is intended for a general audience of financial professionals, including CFOs, controllers, and internal audit and accounting professionals.
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3 July 2009: Chinese translation of newsletter on IFRIC 14 amendments
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Deloitte China has published the Chinese translation of the IAS Plus Update newsletter IASB Proposes Amendments to IFRIC 14:
You will find links to these and many other IFRS materials in Chinese on our China Page.
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3 July 2009: EC consults on International Standards on Auditing
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The European Commission (EC) has launched a public consultation to determine whether International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) should be adopted in the European Union for the statutory audits of EU private entities. In the EU, the conduct of statutory audits is governed by Directive 2006/43/EC (the 'Audit Directive'). The objective of the Audit Directive is to enhance the quality of statutory audits in the European Union. The Directive empowers the Commission to adopt implementing rules at European level by regulation. Introduction of a common set of auditing standards could, therefore, be done by regulation. As part of its consideration of adopting ISAs in the EU, the EC commissioned the University of Duisburg-Essen to conduct an independent study of the costs and benefits that would result from an adoption of ISAs in the EU. The study, Evaluation of the Possible Adoption of ISAs in the EU, analyses the impact such an adoption may have on audit firms, their clients, investors and audit regulators. The study concludes that, on balance, adoption of the ISAs in the EU would result in quantitative and qualitative benefits for companies, investors and regulators and that the benefits would outweigh increases in audit costs. Click to download:
The Commission invites responses to the consultation by 15 September 2009.
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2 July 2009: IAS Plus Newsletter on credit risk
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On 18 June 2009, the IASB published a discussion paper on the role of an entity's own credit risk in liability measurement. The discussion paper (DP/2009/2 Credit Risk in Liability Measurement) is accompanied by a staff paper that describes the most common arguments for and against including credit risk in measuring liabilities. Comments are due by 1 September 2009. Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – IASB Seeks Views on the Role of Credit Risk in Liability Measurement (PDF 72k) explaining the issues in the discussion paper. Click to go to the IAS Plus Project Page. Past issues of all IAS Plus newsletters are Here.
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2 July 2009: Two new Deloitte IFRS publications in Spanish
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Deloitte (Colombia) has published the Spanish translation of the following IFRS publication:
You will find our resources in Spanish Here.
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2 July 2009: Heads Up newsletter on IASB fair value proposals
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The 30 June 2009 Issue of the Heads Up Newsletter (PDF 92k) discusses the IASB's recently issued exposure draft (ED) Fair Value Measurement. The ED, whose guidance is intended to be equivalent to that in FASB Statement No 157 Fair Value Measurements under US GAAP, defines fair value and explains how to determine it, but does not introduce any new or revised requirements regarding which items should be measured or disclosed at fair value. Heads Up, published by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (United States), provides in-depth summaries of recent accounting and financial reporting developments. This newsletter is published periodically as developments warrant, and is intended for a general audience of financial professionals, including CFOs, controllers, and internal audit and accounting professionals.
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2 July 2009: Deloitte Canada Countdown IFRS transition newsletters
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Deloitte Canada has published the June 2009 issue of their Countdown IFRS transition newsletter, to discuss practical issues Canadian companies are facing in IFRS transition as well as to provide an update on recent IFRS events. Articles in this issue include:
- Using Technology to Manage Accounting and Control Changes Driven by IFRS Changeover
- 'The Real Deal' – real issues and solutions on IFRS transition relating to dual year reporting and reconciliation requirements in 2011
- Private Enterprise Strategy – IFRS or Private Company GAAP
- Deloitte Publications and Events and How to Access Them
- An Update on Current IFRS events – including various important EDs and Discussion Papers
Click below for:
You will find more information about financial reporting in Canada on our Canada Page.
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2 July 2009: IFRS Insights newsletter
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We have posted the IFRS Insights Newsletter for June 2009 (PDF 201k) from Deloitte & Touche LLP (United States). IFRS Insights provides news on the latest developments on IFRSs, practical suggestions for companies addressing IFRSs, updates on the regulatory environment, and references to relevant tools and resources. This issue includes:
- IASB announces IFRS for Small and Medium-sized Entities
- Survey results: IFRS Survey 2009 for private companies
- Industry view: IFRS for insurance companies
- Technical Corner: IAS 19 – Accounting for employee benefits
We have Permanent Links to all IFRS Insights on our USA country page.
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2 July 2009: Improvements proposed to public sector standards
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The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants has launched an improvements project with the release of Exposure Draft (ED) 42 Improvements to IPSASs. This ED is the first of a proposed series of annual improvements to the IPSASs and is modeled on the successful annual improvements program developed by the International Accounting Standards Board (IASB). The proposed amendments in the ED are related primarily to the recognition, measurement, or disclosure requirements but do not represent substantive revisions to the content of existing standards. They reflect changes made by the IASB to related International Financial Reporting Standards. Comments on ED 42 are requested by 30 September 2009. The ED may be downloaded Here.
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